Buyer Loses Dispute with Asset Seller Over Responsibility for Deal’s Sales Tax

Introduction

The language used in an M&A deal matters. In a post-closing dispute, the lawyers and judges look to the language of the M&A document to resolve the dispute. And sometimes, the language will work against what a party thought.

The deal

This case involved a $6 million purchase of the assets of a marina. The sale of the marina assets was going to generate a significant sales tax. There was language in the asset purchase agreement that said that the sales tax of the seller from the sale of the marina would be the responsibility of the seller.

The lawsuit

The sales tax turned out to be $91K and the seller refused to pay for it. The dispute ended up in a New York state trial court and then an intermediate court of appeal.  Both courts said that the New York sales tax is imposed by statute on the buyer not the seller. Therefore, the provision in the asset purchase agreement did not come into play because this sales tax was not a sales tax “of the seller.”  It was a sales tax of the buyer. The buyer was stuck with it.

This case is referred to as Gaines Mar. & Servs., Inc. v. CMS Mar. Stor., LLC, 528195, Appellate Division of the Supreme Court of New York, Third Department (Decided October 31, 2019)  

Comment

The buyer should have proposed a sales tax allocation provision that said that any sales tax arising out of the transactions contemplated by the asset purchase agreement would be the responsibility of the seller. Then you don’t have to get into whether the state’s sales tax is the obligation of the seller or the buyer.

Email:              jmccauley@mk-law.com

Profile:            http://www.martindale.com/John-B-McCauley/176725-lawyer.htm

Telephone:      714 273-6291

 Legal Disclaimer

The blogs on this website are provided as a resource for general information for the public. The information on these web pages is not intended to serve as legal advice or as a guarantee, warranty or prediction regarding the outcome of any particular legal matter. The information on these web pages is subject to change at any time and may be incomplete and/or may contain errors. You should not rely on these pages without first consulting a qualified attorney.

Posted in allocation of sales tax from transaction, asset purchase agreement Tagged with: , ,

Recent Comments

Categories