When a practitioner purchases a practice, they tend to purchase more than just the goodwill. If there is equipment, inventory, or supplies, there is a State Sales Tax that is required to be paid within a certain time period after the closing. It is vital that the purchaser understands their obligations as it relates to the payment of this tax after the closing has been finalized.
During the negotiations of the Asset Purchase Agreement, it is important for the purchaser to speak with their accountant, along with their attorney, about the allocation of the purchase price. Specifically regarding the amounts to be allocated to goodwill, restrictive covenant, but most importantly the amounts allocated towards the equipment, supplies, and inventory being purchased. If the purchase is being funded through a financial institution, the buyer may want to also consider discussing the potential sales tax owed based on the allocation of the purchase price and to include that amount as part of the funds being received by the bank.
In New York State, the sales tax percentage varies from county to county, so it is important to know the precise rate for the county in which the practice resides. By multiplying the allocated amount agreed upon on the equipment, inventory, and supplies of the practice by the proper sales tax, the purchaser can present an accurate figure to their lenders.
In addition, it is important to utilize the correct form with the state, in order to avoid any delays to the closing date. Working with their attorneys and accountants will ensure that the forms will be completed and submitted properly.
Overall, when purchasing a practice, the buyer should be aware of the potential state sales tax owed on the assets of the practice, as this is an amount that is in addition to the agreed upon purchase price. Therefore, the Asset Purchase Agreement should contain language that is clear on the following: 1) the allocation for equipment, inventory, and supplies and 2) the responsibility of the parties as it relates to the taxes associated with the purchase of the practice.
Stephanie J. Rodin, Esq.
Rodin Legal, P.C.
Tel: (917) 345-8972
Fax: (917) 591-4428