State tax clearance certificate

Definition

A state's written confirmation that a seller owes it no back taxes.

Why It Matters

Successor liability is the reason it exists. Several states can pursue a buyer for a seller's unpaid sales or payroll tax even in an asset purchase, and the certificate is the state saying in writing that there is nothing outstanding. Request it early, because the turnaround runs to weeks in some states and the request can itself prompt a look at the account. Where the certificate will not arrive before closing, the working answer is an escrow sized to the exposure rather than a promise written into the purchase agreement.

In numbers: Where a state takes six to eight weeks to answer, a $40,000 sales-tax exposure usually sits in escrow rather than holding up the closing.