Washington Cannabis Business Sales: Avoiding Successor Tax Liability
In Washington’s closed cannabis marketplace, we see plenty of license purchases and sales, with deals structured in many creative ways, always to maximize the likelihood of regulatory approval from the Washington Liquor and Cannabis Board. Washington’s cannabis regulations are among the most stringent, consistent with Washington’s Department of Revenue’s application of Washington’s taxation statutes.
Generally, if a buyer wants to avoid successor liability issues when buying a cannabis business, the buyer will structure the deal as an asset purchase rather than a stock purchase (for a corporation) or a membership interest purchase (for an LLC). But in Washington, even a buyer needs to be aware of how to minimize the likelihood of successor tax liability.
Washington has some peculiarities that apply even in asset sales, as I explain below.
Sales Tax and Exemptions
Washington imposes retail sales tax on the portion of the purchase price allocated to tangible personal property, with some exceptions. Exceptions to this include (a) inventory for resale, as long as the buyer provides a reseller permit/resale certificate to the seller, and (b) machinery and equipment for manufacturing use, as long as the buyer provides a machinery and equipment (“M&E”) exemption certificate to the seller.