Successor Liability (Rescinded May 30, 2003)

AUTHORITY: section 144.270, RSMo 1994. S.T. regulation 150-1 was last filed Oct. 28, 1975, effective Nov. 7, 1975. Refiled March 30, 1976. Amended: Filed Aug. 13, 1980, effective Jan. 1, 1981. Amended: Filed Sept. 7, 1984, effective Jan. 12, 1985. Rescinded: Filed Nov. 15, 2002, effective May 30, 2003. James R. Bates, d/b/a The Manor Inn, Successor v. Director of Revenue, 691 SW2d 273 (Mo. banc 1985). This is a case of first impression interpreting the successor liability sales tax statute, section 144.150, RSMo. The owner/operator, J. Douglas Cassity, accrued a sales tax liability to the state of Missouri. The same owner/operator defaulted on a first deed of trust to the Carney family, the prior owners. Great Southern Savings & Loan, to protect its junior deed of trust, purchased The Manor Inn at a foreclosure sale, applying the payment to satisfy the first deed of trust and using the balance to reduce its junior deed of trust. In a declaratory judgment proceeding, Cassity challenged the foreclosure sale and Great Southern Savings & Loan joined challenging the amount of the attorney’s fee. While the declaratory suit was pending, James R. Bates negotiated the purchase of the same business. Great Southern and Bates entered into a loan agreement whereby Bates executed a promissory note for $975,000, secured by a deed of trust, to Great Southern and Great Southern quitclaimed its interest in the realty to Bates and provided a bill of sale for the personal property. Simultaneously, Cassity quitclaimed his interest in the realty and provided a bill of sale for the personal property to Bates in consideration for $3000 in gemstones from Bates. The issue is whether James R. Bates was liable as a successor for the delinquent sales tax liability of the former owner, Cassity. The Missouri Supreme Court held that “to be a successor one must be a purchaser of the business property in question.” The derivative tax liability follows the assets purchased and is not extinguished in a foreclosure. The court distinguished cases cited by the appellant which involved either a court-appointed receiver in bankruptcy or a lessor’s reacquisition of possession. The court held that Bates was a successor regardless of from whom he purchased the property. If Bates purchased from Cassity, he was an immediate successor. If Bates purchased from Great Southern, who purchased from Cassity, Bates was still a successor because the statute was not limited to immediate successors. The court also noted that the term “purchase money” within the context of section 144.150, RSMo is not limited to cash transactions but is merely “descriptive of ‘the action to be taken by the person or business entity on whom the duty has been imposed’”