OK, so you want to buy a business.  The best advice is to get an experienced attorney, no?  What happens when the attorney fails to follow the directions of Tax Law § 1141(c)?  That section of the tax law is the bulk sales law, and it says that the purchaser must contact the Tax Department some number of days before closing on the sale of a business which has collected sales tax in order for the Tax Department to tell the purchaser whether there is sales tax due.  Since sales tax is reported and paid on a quarterly calendar, there is almost always some sales tax due.  If the attorney files 10 days ahead, the purchases is told how much money of the sale to put in escrow.  If not, then the purchaser is at risk for personal liability for the unpaid sales tax.  What happens if an escrow agent is appointed and the escrow agent makes a mistake?   Nilzara, Inc. v Karakus Inc. 2015 NY Slip Op 30461(U) March 31, 2015 Supreme Court, Kings County Docket Number: 1181/2013 Judge: David I. Schmidt is the answer.

“Defendant/Third Party Plaintiff NELLIE LEVITIS (“Levitis”) represented Nilzara as the purchaser and third party defendant ERIK IKHILOV represented the seller Karakus Inc. Nilzara’s complaint alleges, among other things, a claim for legal malpractice  against Levitis based on the alleged failure to timely file a “Notification of Sale, Transfer or Assignment of Bulk” with the New York State Department of Taxation and Finance and for the alleged faiure to maintain the proper escrow of the sale proceeds to ensure that funds were available in the event the seller had unpaid sales tax liabilities. Levitis commenced a third party action against Ikhilov sounding in common law indemnification and contribution premised on the allegations that Ikhilov assumed responsibility for filing the proper tax documents by preparing said documents and identifying himself as the escrow agent on the untimely filed form. Levitis claims that Ikhilov is the true tortfeasor by virtue of his premature release of the sale proceeds to his client from escrow. Nilzara now moves for summary judgment on its legal malpractice claim against Levitis and Ikhilov moves to dismiss the third party complaint in its entirety.

Here, Nilzara has established as a matter of law that it was represented by Levitis with respect to the sale of the restaurant and that Levitis failed to ensure compliance with the provisions of Tax Law 1141 (c). Thus plaintiff is entitled to summary judgment as to the liability portion of its claim. However, Nilzara has not established its damages as a matter of law. The sale of the property occurred on or about February I 16, 2010. At or about the same as the closing, the purchaser allegedly executed and filed the “Notification of Sale, Transfer, or Assignment of Bulk” with the New York State Department of Taxation I and Finance.  Thereafter, in December of 2010, the New York State Department of Taxation and Finance issued a warrant assessing $ 83,333.33 as the amount of sales tax due and owing, inclusive of penalties and interest. The record before this court does not indicate what if any portion of the assessment is still due and owing by plaintiff nor does it indicate what if any actions were taken in between plaintiffs issuance of the Notification of Sale, Transfer, or Assignment of Bulk and the issuance of the New York State Department of Tax~tion and Finance warrant. Therefore, as to plaintiffs damages there remains issues of fact with respect to Levitis’ affirmative defenses of culpable conduct and ! the failure to mitigate.”