CLEARANCE CERTIFICATES – BULK SALES OR FINAL CLEARANCE / DEPT. OF REVENUE (REV) & DEPT. OF LABOR & INDUSTRY (L&I)
The basic premise of clearance certificates is to give the State the ability to collect taxes due to it by an entity before that entity either dissolves or withdraws, merges into a non-qualified company (See Title 15, Sec. 139) or, in the case of Bulk Sales, is about to divest itself of 51% or more of its assets. See other Practice Tips for Dissolving a Corporation or LLC, Bulk Sales Transfers or Withdrawing a Foreign entity.
The clearance process is a long one for Rev but a short one for L&I. The reason for that is because Rev has more taxes to clear. L&I must only clear the Unemployment Compensation Tax where as Rev must clear three different Corporate Taxes, Sales & Use Tax, Withholding Tax, etc…
The process is begun by submitting a “Clearance Application” (our charge for delivering the application to both offices is just $35.00). The app is usually completed by the company CFO or accountant or lawyer. One practice tip with regard to the completion of the application: Line #3 should be a representative that will know what to do with the Clearance Certificate when the various departments mail them to that individual. A lot of our clients put our company name and address there so that we receive the certificates and notify them immediately upon receipt. Another benefit of doing this is if there is a problem with clearing a certain tax, the department involved will contact us, and we will then contact you so that you can resolve the problem with your client. If you put the client’s name on Line 3, they very often do not respond properly to Revenue and that causes an even greater delay in obtaining the clearance certificates.
With regard to BULK SALES clearances, remember that a 10 day notice must be submitted to the Departments prior to closing the transaction. Some Revenue supervisors take the position that the best practice regarding the 10 day notice is to file the clearance application as the notice. Obviously, a letter with details regarding the closing should probably accompany the application. The good thing about having us deliver the applications is that we will obtain a “received” stamped copy and return that to you for your file. We are currently in the process of attempting to determine the purpose and legal effect of the 10 day notice. The conundrum, of course, is that the buyer in a transaction wants the certificates but they will probably take months to obtain, so what to do at closing is often the big question.