Can escrows exceed the purchase price? Why?
Yes. The Tax Court has indicated that escrows can exceed the purchase price (“There is no apparent limitation on the dollar amount of delinquent tax liability that may be assumed by the purchaser of a business if he fails to properly notify the Director of an impending closing. Indeed, a purchaser may assume personal liability for the seller’s delinquent taxes in excess of the price he pays for the business assets.” Bunting v. Director, Division of Taxation, 1 N.J. Tax 189, 197 (T.C. 1980)). The escrow amount may accurately reflect the tax obligations of the seller that must be met before the transfer transaction may proceed, even if the amount exceeds the purchase price. Furthermore, the bulk sale statute, when properly followed, protects the purchaser from being responsible for the seller’s tax liability. The escrow required to be withheld by the purchaser informs the purchaser of the potential cost it may incur for non-compliance with the bulk sale law, which, again, may exceed the
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