Unpaid sales taxes that should have been paid in the past on equipment sales follow the equipment and can become an obligation of a later owner.

New Ichiban Japanese Food, Inc. sold equipment to Kashmir Kitchen in 2013. Kashmir Kitchen resold some of the equipment to Singh Restaurant in 2015.

Soon after the first sale from Ichiban to Kashmir, the New York tax authorities concluded that Ichiban had underpaid sales and use taxes from September 2008 through February 2012. Anyone buying a business in New York is supposed to file a bulk sales notice with the state. Kashmir filed such a notice, but late. The notice is supposed to be filed at least 10 days before taking possession of the assets or making payment.

New York sent a notice to Kashmir advising it to put the entire purchase price into escrow until the state could check whether any back taxes were owed. Kashmir failed to do so. New York then sent Kashmir a demand for the full back taxes that Ichiban owed on the equipment.

Two years later, Kashmir Kitchen sold what remained of the equipment to Singh Restaurant. Singh filed a bulk transfer notice with the state on April 15, 2015. It said the sales date was April 1 and that it had put the entire purchase price into escrow.

The state sent Singh a notice in July 2015 that Singh was liable for the remaining Ichiban back liability. The back liability had been paid down by about two thirds in the intervening two years.

Under New York law, the consequence of not giving timely notice is the buyer becomes liable for any outstanding sales and use taxes owed by the seller. The buyer’s liability is limited to the purchase price paid or, if greater, the fair market value of the assets.

Singh’s notice was five days late.

The case is a warning to anyone buying equipment to make sure any sales or use taxes were paid on past transfers of the equipment. The rules vary by state.

The case is called In the Matter of the Petition of Singh Restaurant, Inc. The New York tax appeals tribunal rendered a decision in August.