19.04.7 Tax Lien On Transfer of Majority of Assets of Business

In the case of any transfer (sale, gift, devise, merger, lease, etc.) of the majority of assets of a business, a tax lien is imposed for any tax due from the business on or before the date of any part of the transfer. S. C. Code Section 12-54-124 provides as follows:

In the case of the transfer of a majority of the assets of a business, other than cash, whether  through sale, gift, devise, inheritance, liquidation, distribution, merger, consolidation, corporate reorganization, lease or otherwise, any tax generated by the business which was due on or before the date of any part of the transfer constitutes a lien against the assets in the hands of the purchaser, or any other transferee, until the taxes are paid. Whether a majority of the assets have been transferred is determined by the fair market value of the assets transferred, and not by the number of assets transferred. The department may not issue a license to continue the business to the transferee until all taxes due the State have been settled and paid, and may revoke a license issued to the business in violation of this section.

This section does not apply if the purchaser receives a certificate of compliance from the department stating that all tax returns have been filed and all taxes generated by the business have been paid. The certificate of compliance is valid if it is obtained no more than thirty days before the sale or transfer.

Potentially, this statute has far reaching effects considering the numerous Limited Liability Companies (LLCs) that are set up to hold one real estate asset. The conveyance of the one real estate asset will trigger the statute and a lien will arise if any taxes are due.

You should note that the determination of a "majority of the assets" is based upon the fair market value of the assets transferred (in relation to the total assets) and not by the number of the assets transferred.

Revenue Ruling 04-02 issued regarding Section 12-54-124, in defining "business", the Revenue Department looks to the definition of business for income tax purposes. The South Carolina Income Tax Act defines "business" as including trade, profession, occupation or employment. Furthermore, the Revenue Ruling states that a "transfer" may take place within the meaning of the statute regardless of the period of time to complete the transfer or number of transferees involved. Under the ruling, unrelated transfers will not be aggregated.

Underwriting Guidelines: 

If it is determined that a transaction may involve a sale of a majority of the assets of a business, the following Schedule B exception should be put in the commitment/policy:

Any lien for taxes due to the State of South Carolina or political subdivisions of the State of the State of South Carolina arising under South Carolina Code Section 12-54-124.

In order to issue the policy without this exception, you must comply with one of the following alternatives:

A.  Obtain a Certificate of Tax Compliance

The section will not apply if the purchaser receives a Certificate of Tax Compliance from the Department of Revenue stating that all tax returns have been filed and that all taxes generated by the business have been paid. The Certificate of Tax Compliance Request Form (C-268) may be obtained from the Department of Revenue (or online at www.sctax.org). Payment of a $60.00 administrative fee is also required. Completed requests may be sent to the Department of Revenue at the following address:

South Carolina Department of Revenue
Tax Compliance Officer
Columbia, SC  29214-0027

Note:  The Certificate of Tax Compliance must be issued within 30 days of the consummation of the transaction.

B. Transferor Affidavit Revenue Ruling 04-02 gives the transferee an additional means of protecting itself. The transferee can obtain from the transferor a "Transferor Affidavit". The purpose of this affidavit is to protect from a tax lien under Section 12-54-124: (a) the transferee who is not receiving business assets, or (b) the transferee in the situation where the transferor is not transferring a majority of the assets of a business in the present or other related transfers. The "Transferor Affidavit" is valid for a period of 30 days from the signing by the transferor. If the Transferor Affidavit is obtained by the transferee and a transfer takes place within 30 days, then the Department of Revenue will not assert a lien under Section 12-54-124. It is noted in the Revenue Ruling that neither the Certificate of Compliance nor the Transferor Affidavit protects the transferee from liens filed on the assets prior to the transfer. So, an existing state tax lien or lien for past due property taxes would not be extinguished by obtaining a Certificate of Tax Compliance or a Transferor Affidavit.