Sale & Purchase of a Business
The Arvada Municipal Code imposes a use tax upon the purchase price paid for tangible personal property, except inventory held for resale, acquired with the purchase of a business. This includes property taken in exchange for assumption or forbearance of outstanding indebtedness. Arvada use tax is due even if the seller or transferor has previously paid Arvada sales/use tax on the property sold because use tax is transactional (imposed each time a taxable event occurs).
The taxable basis is the price of such property as recorded in the bill of sale or agreement, provided that such price is greater than or equal to the fair market value of the property at the time of the sale. If the purchase is a lump-sum transaction, and the price of the property is not separately stated in the bill of sale or agreement, the greater of the fair market value of the property or the book value established by the purchaser for income tax depreciation purposes shall be the taxable basis.
When a business is taken over by other than the most recent seller in return for assumption or forbearance of outstanding indebtedness, the tax shall be paid on the fair market value of all taxable tangible personal property.
In determining the fair market value, the City uses the best information available including personal property declarations filed with the County Assessor, will prepare an estimate using an adjusted retail value, or may require an independent appraisal of the property.
Use tax should be reported on an Initial Use Tax Return, which Revenue adds to your online business center. The return must be filed and paid for by the assigned due date. Every person who purchases or establishes a business inside the City must file an Initial Use Tax Return even if no use tax is due.
Any retailer or vendor who shall sell out his business or stock of goods or shall quit his business shall be required to notify the tax and licensing division in writing of his intention to quit the business and to file a report or return and remit all taxes due and owing to the city, including those incurred on the sale of the business within ten days after the date of the sale of the business or stock of goods or quitting of the business.
Purchasers are cautioned that liens for the seller's outstanding taxes may have been attached to the property offered for sale. City tax liens attach automatically by operations of law and do not require a notice to be recorded for perfection. Purchasers are encouraged to require the seller to furnish a certificate of taxes due detailing the outstanding liability, if any.
- ABC Company purchases the assets of XYZ Company for $150,000. The sale and purchase agreement shows the following allocations: Resale inventory $50,000; goodwill $10,000; accounts receivable $35,000; furniture and fixtures $15,000; machinery and equipment $40,000. The taxable base is $55,000 and includes the furniture, fixtures, machinery, and equipment.
- DEF Company purchases the assets of UVW Company for $150,000 and no allocation is shown in the sale and purchase agreement. An appraisal determines the value of the furniture and fixtures is $25,000 and the machinery and equipment is $50,000. These amounts are entered in the fixed asset ledger. The taxable base is $75,000
- The Third National Bank forecloses on the XYZ Corporation. The business is closed until the bank can find a buyer. No tax is due on the bank's acquisition of the business assets through foreclosure as long as they are held for resale and the bank does not put the assets to taxable use.
- In the example above, if the bank operates the business while seeking a buyer, then the bank's acquisition of the business assets through foreclosure for use in the business operations may be subject to tax. The taxable base would be the amount of the debt, appraised value of the personal property, or the amount recorded on the books of the bank if the recorded amounts reasonably reflect fair market value.
- XYZ Company purchases 100% of ABC Company for the amount of $1,000.000. The purchase agreement reflects that XYZ Company is purchasing common stock and not tangible personal property. A stock purchase is not subject to sales tax.
- The Breezy Apartment complex was recently sold to a new owner. The complex consisted of 70 apartments and sold for $800,000. The purchase agreement did not allocate any amount for tangible personal property that was included in the sale/purchase agreement, however, the appliances (refrigerators, range and range hoods, microwaves, dishwashers, garbage disposal, and air conditioners) and window coverings that are located in each apartment unit are all subject to use tax at their fair market value. In addition, the washers and dryers located in the on-site laundry facility, the clubhouse furniture, and game room equipment, as well as office equipment and furniture are also subject to use tax.
Note: This information is a summary in layman's terms of the relevant Arvada tax law for this subject, industry, or business segment. It is not intended for legal purposes to be substituted for the full text of the Arvada tax code. However, the tax guide shall be used in conjunction with the Arvada tax code (chapter 98) in determining tax liability.