Texas Certificate of No Tax Due: What Sellers Need to Know

Why Your Buyer Is Asking

Texas puts the buyer of a business on the hook for some of the seller's unpaid state taxes. That rule, called successor liability, is why a buyer's attorney will want a clean answer from the Comptroller before money moves.

For you as the seller, the certificate is mostly a timing issue. Handled early, it is a routine item on the closing list. Left to the last week, it can hold up a closing date or tie up part of your price.

This is a general overview, not tax or legal advice. Rules and procedures change, so confirm the current steps with the Texas Comptroller and your own CPA or attorney.

What Texas Law Asks of the Buyer

The rule sits in section 111.020 of the Texas Tax Code, and the Comptroller explains it in its publication 98-117. The core idea is simple.

When a business is sold, the buyer is expected to hold back enough of the price to cover the seller's unpaid state taxes.

The buyer keeps holding that money until the seller shows either a receipt from the Comptroller or a Certificate of No Tax Due.

A buyer who skips that step can become liable for the seller's taxes, up to the amount of the purchase price. Under the Comptroller's guidance, assumed debt counts toward that price.

So a careful buyer has two choices: withhold money from you, or see a certificate first. Most would rather see the certificate, and most sellers would rather get paid in full.

What the Certificate Does and Does Not Do

This part surprises a lot of owners. The certificate protects the buyer, not you. It tells the buyer they will not be pursued for your old taxes.

You still owe any state tax, penalty or interest from before the sale. If an audit later finds a shortfall from your years of ownership, the Comptroller can come to you for it.

The Comptroller also notes that a certificate has no effect if the sale never actually happens. It is tied to a real transfer of the business, not a general clean bill of health.

One Certificate for Each Tax

A certificate is specific to one tax. If your company holds more than one state tax account, expect a separate answer for each.

Sales tax is the account most sellers think of first, because so many Fort Worth shops, contractors and service companies collect it. Check with your CPA about which other accounts apply to your company.

Timing Is the Whole Game

The request has to be made before the sale closes. A request filed after closing does not give the buyer the protection the law describes.

The Comptroller has 60 days to respond. That clock starts when the request is made or when your records are made available for audit, whichever comes later.

Sixty days is a long time in a deal. Some deals move from signed agreement to closing faster than that, so waiting until diligence wraps up can leave you short.

Under the current process, the buyer and seller make the request together. Plan for both sides to gather their information early, and let your broker add it to the deal calendar right after the LOI is signed.

Getting Your Accounts in Order First

The fastest certificate is the one with nothing to find. Before the request goes in, sit down with your bookkeeper or CPA and work through a short list:

• Every state return filed for every period, including any you filed late
• Balances paid, with penalties and interest settled
• Permits and account numbers matched to the right legal entity
• Any open audit or notice from the Comptroller identified and addressed
• Old locations or accounts you no longer use closed out properly

Owners who have run a company for many years sometimes find a stray account from an old location or a past entity. It is far better to find that during planning than during closing week.

How It Fits Into the Purchase Agreement

Your asset purchase agreement will usually spell out who requests the certificate, when it is due and what happens if it is not in hand by closing.

If the certificate is late, the parties may agree to move the closing date or to hold back part of the price in escrow until it arrives. Your attorney should review that language before you sign.

The agreement will also have you promise that taxes from before the sale are yours to pay. Since you owe them anyway, that clause mostly confirms what the law already says.

If Something Turns Up

Sometimes the Comptroller finds a balance or wants records before issuing anything. That is not the end of the deal. It usually means paying what is owed and getting the receipt the law mentions.

The key is to know early and keep the buyer informed. Surprises late in a sale hurt trust more than the dollar amount does. For more on deal timing, see how long it takes to sell a business.

Planning a Year or Two Out

If a sale is on your horizon, treat state tax cleanup like any other part of getting the company ready. It costs little to do now and can be stressful to do under a deadline.

Ask your CPA to pull your account history with the Comptroller and flag anything unusual. Fixing a filing gap while no buyer is watching keeps it out of the conversation entirely.

Our page on exit planning covers the other steps that make a company easier to sell, from cleaner books to a team that runs without you.

Getting Started

State tax clearance is one of many steps a good broker builds into the plan to sell your business on schedule. Start with a free, confidential valuation.

Prefer to talk it through? Call (817) 555-0142. Then confirm the current Comptroller steps with your CPA or attorney before you list.