The Importance of Compliance with the New Jersey Bulk Sales Act in Business Transactions

Peter Lamont, Esq.
May 16
6 min read

The Importance of Compliance with the New Jersey Bulk Sales Act in Business Transactions

In the context of business asset purchases and sales, compliance with the New Jersey Bulk Sales Act is not optional. It is a legal obligation that carries significant consequences for those who ignore it. Business owners and buyers—particularly those involved in the transfer of tangible or intangible business assets—must understand how the statute works and why adherence to its requirements is critical to avoiding liability for the seller’s tax debts.

What the Bulk Sales Act Requires

The New Jersey Bulk Sales Act, codified at N.J.S.A. 54:50-38, is designed to protect the State’s interest in collecting taxes owed by businesses. It applies when a person or entity purchases the business assets—other than in the ordinary course of business—of another person or entity. These assets can include inventory, equipment, real estate used in the business, or even intangible property such as customer lists or goodwill.

The statute requires that, prior to the closing of any such transaction, the buyer must notify the New Jersey Division of Taxation of the pending sale. This notification must be submitted on the prescribed form (commonly referred to as Form C-9600) and must be received at least ten business days before the closing. The Division then has the right to audit the seller and determine whether any outstanding taxes are owed.

The Risk of Noncompliance

If the buyer fails to provide timely notice to the Division, or if the transaction proceeds before the Division responds, the buyer may be held liable for the seller’s outstanding tax obligations. This liability is not speculative. The statute expressly authorizes the State to hold the purchaser responsible for any taxes that were due but unpaid by the seller, including sales tax, income tax, payroll tax, and corporate business tax.

In practice, this means that a buyer who pays $200,000 for the assets of a business could later be held responsible for tens of thousands of dollars in back taxes that were never disclosed by the seller. The State may pursue the buyer for these amounts long after the transaction has closed.

Common Mistakes and Misunderstandings

One of the most common errors occurs when business buyers believe that the Bulk Sales Act applies only to the purchase of real estate. That is incorrect. While the statute can apply to real estate used in a business, its reach is much broader. Any transfer of business assets—whether from a restaurant, medical practice, or landscaping company—can trigger the obligation to file notice.

Another frequent mistake is assuming that a small business transaction is too minor to warrant Bulk Sales Act compliance. The law contains no dollar threshold. Even a $5,000 purchase of equipment from a closing business may be covered if it falls outside the ordinary course of business.

Similarly, parties who attempt to characterize the deal as an “inventory sale” or use another workaround to avoid the statute are exposing themselves to serious risk. The Division routinely audits such transactions, and courts have consistently enforced the statute in favor of the State’s right to collect taxes.

Procedural and Practical Considerations

Once the Division receives the notice of sale, it will issue a response—either a clearance letter or a notice of potential liability—typically within 10 business days. If the Division determines that taxes may be owed, it may require that a portion of the purchase price be held in escrow to satisfy any liabilities. The transaction should not close until the Division has responded, or the buyer may lose the protection the statute provides.

In most cases, experienced counsel will structure the transaction to allow for this notice and escrow process. Failure to do so—whether due to haste, lack of legal representation, or oversight—can render an otherwise routine transaction dangerously vulnerable to post-closing liabilities.

Why This Matters to Buyers and Sellers

For buyers, compliance with the Bulk Sales Act is a shield. It prevents the State from reaching into your pocket to collect someone else’s debt. For sellers, compliance ensures that the transaction will not be delayed or disrupted by an unexpected tax issue. More importantly, it signals to the buyer that the business is being sold in good faith and with transparency.

In my experience, parties who take shortcuts during the sale of a business—especially with regard to tax issues—often end up in court or under audit. Compliance with the Bulk Sales Act is not a burden; it is a protective measure built into the process to safeguard both parties and to ensure a clean, enforceable transaction.

For more information about your legal rights or to schedule a consultation, please contact the Law Offices of Peter J. Lamont at www.pjlesq.com, call 201-904-2211, or email info@pjlesq.com.

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About Peter J. Lamont, Esq.

Peter J. Lamont is a nationally recognized attorney with significant experience in business, contract, litigation, and real estate law. With over two decades of legal practice, he has represented a wide array of businesses, including large international corporations. Peter is known for his practical legal and business advice, prioritizing efficient and cost-effective solutions for his clients.

Peter has an Avvo 10.0 Rating and has been acknowledged as one of America's Most Honored Lawyers since 2011. 201 Magazine and Lawyers of Distinction have also recognized him for being one of the top business and litigation attorneys in New Jersey. His commitment to his clients and the legal community is further evidenced by his active role as a speaker, lecturer, and published author in various legal and business publications.

As the founder of the Law Offices of Peter J. Lamont, Peter brings his Wall Street experience and client-focused approach to New Jersey, offering personalized legal services that align with each client's unique needs and goals.

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