When buying or selling a business—especially one with a liquor license—there’s one often-overlooked risk that can derail the entire deal: unpaid taxes.

Many business owners don’t realize that outstanding taxes can follow the liquor license or business assets into the hands of the buyer, creating unexpected financial liabilities.

Whether you’re buying a restaurant, selling a bar, or transferring a liquor license, it’s critical to understand the types of taxes that can encumber a business—and how working with a knowledgeable escrow company like ABC Escrow helps you avoid inheriting someone else’s tax problems.

What Does It Mean for Taxes to Encumber a Business?

When a tax agency places a lien or holds back clearance due to unpaid taxes, it can legally prevent the sale of a business or transfer of a liquor license until those debts are satisfied.

If not properly discovered and resolved, these liabilities may:

• Delay the transaction
• Void the liquor license transfer
• Transfer responsibility to the buyer

Escrow plays a critical role in identifying and clearing these issues before the deal closes.

7 Types of Taxes That Can Encumber a Business Sale or License Transfer

1. Sales Tax (Board of Equalization or CDTFA)

Unpaid sales tax is one of the most common liabilities found in business transfers. Businesses selling goods—especially restaurants, bars, and liquor stores—are frequently audited.

Agency: California Department of Tax and Fee Administration (CDTFA), or equivalent in other states
Risk: Tax hold on liquor license or business sale; buyer inherits debt without clearance.

2. Employment Taxes (EDD or IRS)

If the business failed to pay proper payroll taxes, including unemployment insurance and withheld employee taxes, these can create significant liabilities.

Agency: Employment Development Department (EDD), IRS
Risk: EDD tax lien can block closing or lead to buyer liability.

3. Income Tax (State and Federal)

The business or its entity may have outstanding income taxes due from prior years. While less common as a direct block, some states verify corporate status and standing during escrow.

Agency: Franchise Tax Board (FTB), IRS
Risk: Suspended business entities may not legally sell or transfer licenses until cleared.

4. City and Local Business Taxes

Many cities require annual business tax registration and payment. Delinquencies can result in non-renewals, license holds, or penalties.

Agency: Local tax department (e.g., City of Los Angeles Office of Finance)
Risk: Transfer denied or delayed until clearance is obtained.

5. Alcoholic Beverage Control (ABC) Fees or Penalties

If the licensee has unpaid ABC fees, penalties, or prior violations, these must often be cleared before the license can be transferred.

Agency: State ABC (e.g., California Department of Alcoholic Beverage Control)
Risk: Transfer delayed, denied, or flagged for review.

6. Excise Taxes (For Distributors or Manufacturers)

In cases where the business produces or wholesales alcohol, unpaid federal or state excise taxes can result in tax liens.

Agency: Alcohol and Tobacco Tax and Trade Bureau (TTB), CDTFA, state taxing bodies
Risk: Federal lien or regulatory block on license renewal or transfer.

7. Property Taxes (If Real Estate Is Involved)

If a business owns property or includes real estate in the sale, any unpaid property taxes will need to be resolved prior to closing.

Agency: County tax assessor and collector
Risk: Encumbrance on title, lien on property, or delayed disbursement in escrow.

How Escrow Helps Identify and Clear Tax Liabilities

At ABC Escrow, we:

• Contact each relevant taxing authority
• Submit formal tax clearance requests
• Obtain documentation confirming the seller is current
• Withhold funds in escrow if necessary to clear debts

We work directly with:

• CDTFA
• EDD
• Franchise Tax Board
• Local city agencies
• ABC
• IRS (if applicable)

By proactively managing this process, we help protect the buyer from surprise liabilities and ensure the seller can close cleanly.

Common Situations We Catch in Escrow

• A bar with years of unpaid city business taxes the seller didn’t know about
• A restaurant flagged for EDD audits and payroll discrepancies
• A liquor store with a suspended corporate status due to FTB delinquency
• A buyer trying to take over a license before sales tax liens were cleared

In each of these cases, escrow identified and helped resolve the issue—before it caused legal problems or financial loss.

Final Thoughts

Taxes can quietly sink a deal if not caught early. The good news? With the right escrow company, they don’t have to.

When you work with ABC Escrow, we:

• Proactively verify the seller’s tax standing
• Coordinate directly with the right agencies
• Resolve liens, holds, and clearance issues
• Protect both sides of the transaction

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Selling or buying a business with a liquor license?
Let ABC Escrow ensure your deal is clean, compliant, and tax-clear.

👉 Contact Us Today