In HUF Restaurant, Inc. v. Commonwealth, Docket No. 394 F.R. 2018 (04/19/2024), a three-judge panel of the Commonwealth Court of Pennsylvania ruled that HUF Restaurant, Inc. (“HUF”), which had purchased restaurant assets and a liquor license from Zola New World Bistro, Ltd. (“Zola”) in a bulk sale transaction, was liable for unpaid sales and use taxes owed by Zola.  HUF had obtained a lien certificate from the Pennsylvania Department of Revenue (“Department”) prior to closing which indicated that there were no outstanding state tax liens against Zola.  In addition, the Department had issued a tax clearance in conjunction with the transfer of a liquor license from Zola to HUF.

The Department had advised Zola that it would be subject to a sales and use tax audit after Zola and HUF had entered into an agreement of sale, but prior to the closing date.  The audit subsequently resulted in a sales and use tax assessment against Zola.  Zola filed a timely appeal with the Department’s Board of Appeals but did not file a further appeal after the Board denied relief.  HUF was not aware of the sales tax audit prior to closing on the transaction and only became aware of the tax assessment after the appeal period had lapsed and the Board of Appeals’ decision had become final.  Although Zola was contractually responsible for this tax liability under the agreement of sale, it failed to pay the assessment.  The Department therefore issued a bulk sale notice of assessment against HUF for Zola’s sales and use tax liabilities for the pre-closing period.

HUF appealed the Department’s assessment against it, and the administrative boards denied relief on the basis that no bulk sale certificate was obtained before HUF’s purchase of Zola’s assets.  HUF argued that it should not be responsible for the disputed tax liability because the Department had cleared HUF and Zola of any taxes owed as part of the liquor license transfer process.  HUF further claimed that the Commonwealth should be estopped from pursuing the assessment because HUF had justifiably relied on this tax clearance during its purchase of Zola’s assets, and the Department failed to inform HUF of the pending audit when it certified to the PLCB that Zola did not owe any state taxes at that time.  The Court concluded that HUF’s failure to obtain a bulk sale certificate pursuant to 72 P.S. § 1403(a) was fatal to its appeal.  The Court explained that there are no exceptions to the statutory bulk sale certificate requirement and HUF could not “rely upon the clearance provided during the liquor license transfer process because that involved a separate statutory scheme and the clearance provided was of limited scope.”   

If you have any questions about this Decision or any state or local tax issue, please feel free to contact Sharon Paxton (717-237-5393) or any member of the McNees SALT team.