Bulk Sale Requirements in Illinois
Posted on Aug. 24, 2012

This is a classic gotchya requirement.  Normally, we think of bulk sales requirements as applying to the sale of a business.  You won’t find the regulations thumbing through the property chapters of the Illinois statutes (they are found in the Illinois Income Tax Act, 35 ILCS 5/902 and the Retailer’s Occupation Tax Act, 35 ILCS 120/5j). 

But in Illinois, the bulk sales requirements apply when a “taxpayer, outside the usual course of his business, sells or transfers the major part of . . . the real property, of any business . . .”  Although there is some guidance to phrases like “major part” (more than 50%), the local practice is to address the bulk sales requirements in the contract for sale where there is any real possibility that the act would apply (for example, the sale of 50% or more of land held by a developer’s single asset LLC).

The statutes require the filing of a notice with the Department of Revenue by either the purchaser or the seller at least ten days before closing.  The Department will determine whether the Seller owes any taxes to the State of Illinois.  If the Department determines that taxes may be owed, the Department will issue a stop order, requiring the purchaser to withhold a portion of the funds from the closing disbursement (the parties usually agree that the title company will hold those funds until the Seller can obtain a release from the Department).  If the Department determines that taxes are not owed, it will also issue a release to allow all of the funds to be disbursed at closing.

The catch is that if the parties fail to comply with these requirements, the purchaser may be liable for the taxes owed by the seller (up to the value of the property, i.e., the purchase price).

Understandably, this creates some tension between purchasers looking to avoid the risk of seller’s tax liability and sellers looking to avoid delay and additional scrutiny by the Department of Revenue.  One alternative, not necessarily satisfactory to purchasers, is an indemnity or guarantee from a third party with the financial resources sufficient to cover the unknown tax liability of the seller.

Similar requirements may apply if the seller had employees (notice requirements under the Illinois Unemployment Insurance Act, 820 ILCS 405/100).  Some municipalities (notably Chicago) have their own version of the bulk sales requirements.

 

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jimAttorney James W. Peters

Jim has handled retail, distribution center, warehouse, storage facility and fuel center transactions from the eastern seaboard to the Pacific Coast and beyond.

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