701—12.14 (422,423) Immediate successor liability for unpaid tax. A retailer ceasing to do business is obligated to prepare a final return and pay all tax due within the time required by law. If a retailer ceasing to do business fails to do this, any immediate successor to the retailer who purchases the business or stock of goods is obligated to withhold from the purchase price enough of the purchase price to pay the tax, interest, or penalty which the retailer owes. Any immediate successor who intentionally fails to withhold sufficient of the purchase price to pay the delinquent tax, interest, and penalty is personally liable for the payment of the tax. However, if the immediate successor’s purchase of the business or stock of goods was made in good faith that the retailer owed no tax, interest, or penalty, then the department may waive the immediate successor’s liability.
	 12.14(1) Immediate successors having a duty to withhold. Only an immediate successor who, pursuant to a contract of sale, pays a purchase price to a retailer in return for the transfer of a going business or a stock of goods is obligated to inquire if tax, penalty, or interest is due and to withhold a portion of the purchase price if necessary. Persons who fail some aspect of this test, e.g., because they take by operation of law rather than by contract or provide no consideration, are not obligated to investigate or withhold. Nonexclusive examples of persons not so obligated are the following:
	  a.   	 A person foreclosing on a valid security interest.
	  b.   	 A person retaking possession of premises under a valid lease.
	  c.   	 A spouse electing to take under a will.
	  d.   	 A person taking by gift.
	  e.   	 Any other person taking for what would legally be considered “for value” but without the payment of a recognizable “purchase price.”
Included within the meaning of the phrase “immediate successor” is a corporation resulting from the action of a sole proprietor who incorporates a business in which the sole proprietor is the only or the controlling shareholder; or a sole proprietorship established from a corporation of which the sole proprietor was the exclusive, majority, or controlling stockholder.
	 12.14(2) More than one immediate successor. If a retailer sells a business or stock of goods to two or more persons the following rules apply:
	  a.   	 Sale of stock of goods to two or more persons. If a retailer sells a substantial portion of the retail business’s stock of goods to another person who will in turn offer those goods for sale in a retail business, that person is an “immediate successor” and personally liable for payment of tax to the extent of tax, interest, or penalty owed or the amount of the individual purchase price, whichever is the lesser.
Example: A sells the stock of goods from a furniture business, in unequal portions, to B, C, and D. B pays a $5,000 purchase price for a portion of the stock of goods, C pays $20,000 for a portion of the stock of goods, and D pays a $30,000 purchase price for the remainder of A’s stock of goods. A, at the time of the transfers, owes the department of revenue $10,000 in sales tax, interest, and penalty. Neither B, C, nor D withholds any amount for payment of tax from the purchase price. B, C, and D individually and together are liable for payment of the tax. Each is personally liable up to the amount of the purchase price which each has paid or the amount of tax, interest, and penalty owing, whichever is the lesser. In this example, B is liable for $5,000, the lesser amount of B’s purchase price ($5,000) and the amount of tax which A owes ($10,000); C is liable for $10,000, since purchase price and tax owed are equal; and D is liable for $10,000, the lesser amount of tax owed ($10,000) and D’s purchase price ($30,000). The department can proceed against any one, two, or all three of the immediate successors up to the amount of tax which each owes, as it chooses.
	  b.   	 Purchase of differing places of business. If one person owns two or more places of business, each having a separate sales tax permit, each location having its own permit is a separate business and has a separate stock of goods for the purpose of determining successor liability. A person purchasing the business at one location or the stock of goods from one location would be personally liable only for the tax owed under the permit assigned to that location.
	 12.14(3) “Sale of a retailer’s business” characterized. Usually, the sale of only the machinery or equipment used in a business without the sale or leasing of the realty of the business is not a sale of the business itself. People v.	Gabriel, 135 P.2d 378 (Cal. App.	1943). The transfer of a retailer’s machinery or equipment and business realty to a person who continues to use the machinery, equipment, and realty for the sale of any type of tangible personal property constitutes the selling of the retailer’s business, and the person to whom the business is sold is an “immediate successor” and liable for tax.
Example: A is a furniture dealer. The furniture business falls on hard times. A sells the stock of goods (the furniture offered for sale) to B. A then sells the furniture store (business realty) to C. A also sells C the office equipment and all other tangible personal property used in the operation of the furniture store except for the stock of goods (furniture). C then uses the purchased store and the office equipment in the operation of a sporting goods store. B takes the furniture purchased from A to B’s furniture store where it is sold. A owed the department $7,000 in sales tax. Both B and C are immediate successors to A and personally liable for the sales tax.
	 12.14(4) “Good faith” characterized. An immediate successor to a retailer has purchased the retailer’s business or stock of goods “in good faith” if the immediate successor demonstrates, by suitable evidence, that one of the following situations exists. The list of situations is exclusive:
	  a.   	 The department has provided the immediate successor with a certified statement that no delinquent tax, interest, or penalty is unpaid; or
	  b.   	 The immediate successor has taken “in good faith” a certified statement from the licensee, retailer, or seller that no delinquent tax, interest, or penalty is unpaid as of the date of purchase. Immediate successors should not rely upon oral statements from department personnel that no tax, interest, or penalty is unpaid. An immediate successor should request a written statement to this effect. For information regarding delinquent tax, interest, or penalty and tax liens write to: Collections Section Supervisor, Iowa Department of Revenue, P.O. Box 10471, Hoover State Office Building, Des Moines, Iowa 50306. A “certified statement” from a retailer is a statement the truth of which is attested to before a notary public or other officer authorized to take oaths. A certified statement has been taken from a retailer “in good faith” if the immediate successor, in the exercise of due diligence, had no reason to believe a retailer’s statement was false or no reason to question the truth of the retailer’s statement.
This rule is intended to implement Iowa Code section 421.28.