Who Pays Sales Tax When Selling a Business? Here’s What You Need to Know

As business brokerage experts, we hear one question more often than others: “Who pays sales tax when selling a business?” The short answer is that it depends on several factors, including state laws, the structure of the sale, and the types of assets included in the transaction. 

The reality is far more complex. Failing to understand these nuances can lead to unexpected costs or legal complications.

Because sales tax laws are state-specific, you need to proactively understand your responsibilities before finalizing a deal. But don’t worry—you’re not in this alone. We’ve gathered the research. 

Here’s everything you need to know about sales tax when selling a business.

How Sales Tax Works When Selling a Business

Selling a business is not like ringing up items at the register, but sales tax still plays a role in the transaction.

In most states, the sale of an entire business is not subject to sales tax. That’s because you typically sell intangible assets like goodwill, customer lists, or trademarks—which aren’t taxed. However, things get more nuanced when physical or tangible personal property is involved.

Selling equipment, inventory, or furniture? Those items can be taxable. 

For example, if you include office desks, company vehicles, or inventory in the sale, some states require you to collect and remit sales tax on the fair market value of those assets. This requirement varies by state, so it's crucial to work with a tax advisor or your CPA early in the process.

Bulk sale laws are also important. Some states require that sellers of business assets notify the state or local tax authority before the sale closes to ensure outstanding tax liabilities are correctly handled. If you miss this step, the buyer could become liable for your unpaid taxes—a red flag that could derail your deal. 

Who Pays Sales Tax When Selling a Business?

In most cases, the buyer pays sales tax on taxable assets. However, some purchase agreements stipulate that the seller needs to collect and remit the sales tax on the buyer’s behalf. 

You and the buyer must clarify these contract details regardless of your state. 

Some states also allow buyers to avoid sales tax if they intend to resell the assets rather than use them for business operations. However, a resale certificate is required to claim this exemption.

Because sales tax liability varies by state, consult a tax professional before finalizing your business sale. A miscalculation could lead to significant penalties, like a hefty fine or legal trouble. 

Key Questions Before Finalizing a Business Sale

Here are some critical questions to discuss with an accountant or legal advisor before finalizing any purchase. This will ensure that the transaction goes smoothly and that you fully understand all financial, legal, and tax implications.

Keep in mind:

1. Does my state impose a sales tax on the transfer of business assets? Sales tax laws differ widely, and some states offer exemptions for business transfers.

2. Which assets in my sale are taxable? Identifying which portions of the deal are subject to tax can help both parties prepare for the financial impact.

3. Can I qualify for any tax exemptions? Bulk sale exemptions or resale certificates may reduce or eliminate sales tax obligations.

4. How should I structure the sale to minimize tax liability? Sometimes, structuring a sale as a stock purchase instead of an asset sale can result in different tax consequences.

Tax Considerations Before Selling a Business

The sale structure, the type of business entity involved, and the terms outlined in the purchase agreement all play a role in determining tax obligations when you sell your business. These choices can trigger significant tax implications, including how the IRS treats your profits—whether as ordinary income or long-term capital gains.

For example, selling capital assets like real estate or equipment may qualify for a lower capital gains tax rate, while income from services or inventory could be taxed at higher ordinary income tax rates. 

The result? A big difference in your taxable income—and your final payout.

Terms of the Sale

A well-structured purchase agreement should clearly outline the purchase price allocation between different asset types. Why? Because how you break that down can unlock potential tax benefits—or cause major tax headaches.

Sellers may sometimes explore options to defer capital gains taxes using specific strategies (like installment sales or 1031 exchanges if real estate is involved). But those strategies must align with Internal Revenue Service guidelines, so working with a tax advisor is critical. 

Sale Type: Stock Sale vs. Asset Sale

The structure of a business sale, whether an asset sale or a stock sale, directly affects tax treatment.

In an asset sale, the person buying the business purchases individual business assets rather than the company itself. Certain assets, such as equipment, furniture, and inventory, are taxed because they are considered tangible property. 

If you’re selling furniture from your company, you may need to collect and remit sales tax, but if you’re selling your brand name, you wouldn’t owe sales tax. 

In a stock sale, the buyer acquires your company’s shares rather than its assets. Sales tax usually doesn’t apply here because the legal entity remains intact. It’s simply the ownership that is transferred.

State regulations further complicate the process. Some states do not impose a sales tax on business transactions at all, while others have specific exemptions for bulk asset sales. 

For example, California taxes used equipment sold in a business sale. In contrast, Texas exempts business assets if they are part of a bulk transfer that includes most of the company’s assets.

Common Misconceptions About Selling Small Businesses

Misconceptions can cost money and time. Clearing these common misconceptions can help both parties avoid financial missteps.

“Sales Tax Always Applies to Business Sales”

While sales tax applies to many transactions, not all business sales are taxed. Some states exempt sales that involve bulk asset transfers, and stock sales typically don’t trigger sales tax. 

Intangible assets like goodwill, intellectual property, and brand names are also usually exempt.

“The Buyer Always Pays the Sales Tax”

Sales tax responsibility can shift depending on state laws and the purchase agreement. In some cases, the seller needs to collect and remit sales tax. In others, the buyer is responsible for paying it when they file their state tax return.

“You Don’t Need to Worry About Taxes if You’re Selling”

Don’t assume the tax obligations fall solely on the buyer. A seller may still be responsible for:

• Capital gains tax on the profit from the sale

• Sales tax collection and remittance on taxable assets

• State and federal income tax implications

Some business sales are taxed more favorably than others, depending on how the deal is structured. You may also qualify for certain tax deductions related to the sale—but only if they’re properly documented.

Avoid Surprises at the Closing Table

Tax mistakes can derail your business sale and lead to unexpected financial burdens. The tax treatment can be even more complex if you’re operating as a C corporation. Double taxation is a real concern—but Baton’s expert network can help you navigate the structure and avoid costly surprises.

Baton Market provides the tools, expertise, and resources to help you confidently navigate the complexities of selling your business.

Not sure how sales tax applies to your business sale? Baton helps you avoid costly surprises with expert guidance and accurate business valuations. 

Sign up today to start your sale with confidence.