A Jacksonville restaurant operator closed an asset sale of three locations in February. The buyer’s counsel ran the standard pre-closing diligence checklist — UCC searches, Florida Secretary of State liens, federal-tax-lien searches, payroll-tax good-standing letters. The deal closed at the end of the month. In June, the buyer’s CFO opened an envelope from the Florida Department of Revenue. The Department was asserting a successor-liability claim for $187,000 in unpaid sales tax that the seller had collected from customers, never remitted, and walked away from at closing. The buyer had cash on its balance sheet. The seller’s entity had been dissolved. The Department wanted the money.
That is the world Florida § 213.758 has built. It is a quieter successor-liability regime than the tort and contract regimes that drive most of the discussion in M&A practice, but it is also one of the most predictable ways for a buyer to inherit a problem the buyer did not negotiate for. The cure is the Florida tax clearance certificate. Almost every Florida asset deal references the certificate in the purchase agreement. Most of those deals do not actually obtain it in time, and a meaningful share never obtain it at all.
What the statute actually says
The operative text is in Florida Statutes § 213.758, which applies to the transfer of a business or stock of goods of a business by a person who at the time of transfer is liable for any tax administered by the Department. The buyer-protective provision sits in subsection (3): the transferee of the business or stock of goods is required to withhold from the purchase price an amount sufficient to cover any tax liability of the transferor, and is personally liable for any tax due if the transferee fails to withhold and the transferor leaves the tax unpaid. The transferee’s personal liability is capped at the value of the assets transferred, which is small comfort in a deal where the assets transferred were the entire purpose of the deal.
Subsection (5) is the cure. The transferee may apply to the Department of Revenue for a certificate stating the amount, if any, of tax administered by the Department that is due and unpaid by the transferor as of the date of the certificate. If the Department issues such a certificate showing no liability, or the transferee withholds and remits an amount sufficient to cover the certificate’s stated liability, the transferee is released from personal liability under subsection (3). The certificate is the safe harbor. Without it, the buyer is exposed to whatever the Department later determines the transferor owed.
The taxes covered by the statute go beyond sales and use tax. Gross-receipts tax, communications-services tax, fuel taxes, severance taxes, and a handful of other state-administered taxes are all within the Department’s jurisdiction. Sales tax is the largest single exposure for most deals, but in any industry with material state-tax obligations the certificate matters for the full bundle.
Why deals get this wrong
The reason this provision quietly chews on buyers is that the certificate-application process does not run on the same clock as a private-deal closing. The Department’s standard turnaround for a § 213.758 certificate, in normal volume periods, is between 30 and 60 days. In busy periods it can run longer. In deals where the seller has a complicated audit history, the Department’s response sometimes is not a clean clearance certificate but a tax-liability determination that requires negotiation. None of that fits into a deal timeline that has the buyer wiring funds within 45 days of LOI signing.
What happens, in practice, is that the buyer’s counsel papers the purchase agreement to require the seller to deliver a clean tax clearance certificate at closing, and then — when the certificate is not in hand at closing — agrees to a workaround. The workaround is usually one of three things. The buyer takes a holdback against the purchase price in an amount the parties believe will cover any subsequent state-tax claim. The buyer takes a tax-specific indemnity from the seller with a longer survival period than the general indemnity. Or the buyer relies on the seller’s representations that the seller has paid all state taxes and treats the certificate as a post-closing housekeeping item.
All three workarounds are inferior to the certificate itself. A holdback is finite. If the buyer holds back $250,000 and the Department later assesses $400,000, the buyer’s exposure on the back end is real. A tax indemnity from a dissolved entity is worth less than the paper it is written on. And treating the certificate as post-closing housekeeping is the path that most often produces the situation the Jacksonville buyer found itself in — six months later, with a Department letter and a seller who is uncollectable.
The drafting move
The right approach is to start the certificate application early — well before closing, sometimes before signing — and to structure the deal timeline around the Department’s response. Section 213.758(5) does not require the application to be made by the transferee post-closing. The transferor can request the certificate, and in cooperative deals the transferor’s controller will submit the Form DR-225 to the Department within days of the parties’ execution of an LOI.
If the certificate comes back clean, the deal closes on the original schedule and the certificate is delivered as a closing condition. If the certificate comes back with a stated liability, the parties have two structural options. The seller can pay the stated liability before closing, the Department issues a clean certificate, and the deal closes with the buyer’s successor-liability exposure extinguished. Or the buyer can withhold the stated liability from the purchase price at closing, remit the amount directly to the Department, and use the remittance receipt as the evidence of compliance with subsection (5). Either approach gives the buyer the safe harbor. Both require the seller’s cooperation, which is almost always available because the seller wants the deal to close.
The drafting language in the merger agreement should make the certificate or the documented Department payment a closing condition, not a closing covenant. Closing covenants get traded away when the deal is two days from closing and the buyer wants to fund. Closing conditions are harder to waive without specific buyer-side sign-off, and the buyer-side sign-off forces the buyer’s counsel to confront whether the workaround is acceptable.
The other drafting move that consistently helps is the carve-out from the general indemnity cap and survival schedule. State-tax successor-liability claims should not be subject to the same de minimis basket, cap, or survival period that applies to ordinary representations. The Department’s statute of limitations on the underlying assessments — generally three years, longer in cases of fraud or substantial underreporting — sets the floor on how long the seller’s tax indemnity should survive. Building that into the purchase agreement is straightforward; the right language reads through to the disclosure schedules and the closing certificates without much friction.
The seller side of the trade
From the seller’s perspective, the certificate process is not a free move. Asking the Department of Revenue to certify a clean tax history is asking the Department to look. Sellers with audit exposure they have been quietly carrying — under-collection on use-tax obligations, sourcing disputes on multi-state services, a long tail of partial-period filings — are sometimes better off accepting a buyer-side holdback than triggering a Department review. That is a judgment call for the seller’s tax counsel to make in real time, and it is one of the few moves where the seller may rationally prefer the workaround to the certificate.
What sellers should not do is dismiss the buyer’s request for the certificate as a procedural ask. Buyers who insist on the certificate are correct on the law. Sellers who push back on the certificate without acknowledging that the workaround they are proposing is materially worse for the buyer are not negotiating in good faith. The cleaner deal — and the one that closes faster, with less back-and-forth on indemnity caps and tail periods — is the deal where the certificate is built into the timeline from the LOI.
The Florida-specific overlay
Florida is unusual among states for how much sales-tax revenue runs through small and mid-sized service businesses, and unusual for how aggressive the Department of Revenue has been in pursuing successor-liability claims when the prior owner is uncollectable. Other states have analogous bulk-sale and successor-liability provisions, but the Department’s institutional willingness to follow the money down to the buyer’s bank account is notably higher in Florida than in most jurisdictions. The Jacksonville restaurant deal that opened this post is one example among many in our practice; the same pattern shows up in services, retail, and small-format hospitality every year.
For Florida buyers and their counsel, the practical takeaway is short. The tax clearance certificate is a closing condition, not a closing covenant. The application should be on the desk of the Department of Revenue within a week of the LOI. The merger-agreement drafting should treat state-tax successor-liability claims as a separate indemnity bucket with longer survival and uncapped exposure. Those three structural moves convert a $187,000 surprise into a routine pre-closing housekeeping item.
The broader corporate-governance and transactional practice we run treats the certificate process as a default for any Florida asset deal involving a target with sales-tax exposure. Where the certificate is not feasible, the workaround is structured deliberately, not by default. The difference is the difference between deals that close cleanly and deals that close with a letter from the Department six months later.
If you are a Florida buyer or seller closing an asset deal where the target collects sales tax and you want to make sure the buyer is not stepping into the Department of Revenue’s queue, feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
— John
