Texas Comptroller Form 86-114 (Certificate of No Tax Due): Successor Liability in a Business Sale
Many Texas owners assume that selling their company in an asset sale keeps all historical tax questions inside their old LLC. Not in Texas. Under Texas Tax Code §111.020, a buyer of a business or stock of goods becomes personally liable for the seller’s unpaid Texas Sales & Use Tax and Franchise Tax up to the full purchase price unless the buyer withholds closing funds or obtains an official Certificate of No Tax Due (Comptroller Form 86-114). Here is how to clear Form 86-114 before closing so 10% to 15% of your check doesn’t sit frozen in a tax escrow account.
1. Four Closing Approaches to Texas Tax Code §111.020 Compared
When the buyer’s transaction attorneys run your due diligence checklist, they will insist on one of four mechanisms to protect the buyer from successor tax liability under Texas Tax Code §111.020 and 34 TAC §3.7:
| Closing Mechanism | How It Works Under Tex. Tax Code §111.020 | Impact on Seller’s Day-1 Cash Wire | When to Use It |
|---|---|---|---|
| 1. Pre-Closing Form 86-114 Certificate of No Tax Due | Seller submits signed Comptroller Form 86-114 20–30 days before close; Comptroller issues official clearance certificate for all open tax accounts. | $0 additional tax holdback on historical periods; seller receives 100% of net closing wire on Day 1. | Best-practice default whenever Sales & Use Tax and Franchise Tax filings are current and clean. |
| 2. Dedicated Tax Escrow Holdback (5%–15% of Price) | Closing proceeds equal to estimated tax exposure (or 5%–15% of price) are held in third-party bank escrow until final stub-period returns and Form 86-114 clear post-close. | $150,000 to $750,000+ frozen for 60 to 180 days post-closing pending Comptroller release. | Required when closing occurs mid-month before the final stub-period Sales Tax return can be filed and cleared. |
| 3. Pre-LOI Voluntary Disclosure Agreement (VDA) | If pre-sale review finds uncollected commercial remodeling sales tax (34 TAC §3.357), seller initiates a Texas Comptroller Fast-Track VDA before buyer diligence. |
Waives penalties and typically caps lookback at 48 months; converts an open-ended deal killer into a known, capped payoff at close. | Essential when a contractor or distributor discovers missing resale/exemption certificates (Form 01-339) before going to market. |
| 4. Contractual Seller Indemnity Only (No Certificate) | Buyer waives Form 86-114 prior to close and relies solely on the Asset Purchase Agreement’s Fundamental Tax Indemnification and seller note set-off rights. | No separate tax escrow, but buyer typically increases general R&W escrow or demands broad right of set-off against any seller promissory note. | Rare in PE or SBA 7(a) deals; only accepted when seller has minimal taxable Texas sales (e.g., pure B2B out-of-state or exempt services). |
2. Step-by-Step Timeline: Clearing Form 86-114, Commercial Remodeling Sales Tax & TWC Before Close
Under Texas Tax Code §111.020(c), once a buyer properly requests a Certificate of No Tax Due, the Comptroller has up to 60 days from the date the records are made available to issue the certificate or notify of an audit—after 90 days without issuance or notice, the buyer is released from liability. Do not wait until Closing Week to start that clock:
| Timeline Milestone | Texas Agency & Form | Exact Action Required by Seller & CPA | Common Mistake That Delays Closing |
|---|---|---|---|
| Day -45 (Pre-LOI / Early Diligence) | 34 TAC §3.357 vs. §3.291 Internal Sales Tax Audit | Verify that commercial repair/remodeling jobs charged 8.25% sales tax on total labor + materials (or have valid signed Form 01-339 resale/exemption certificates on file). | Treating commercial tenant build-outs or HVAC/electrical retrofits as tax-free “new construction” without an exemption certificate. |
| Day -30 (Mid-Exclusivity) | Texas Secretary of State & Webfile Account Check | Confirm entity status is In Existence / Active and all historical Franchise Tax Public Information Reports (PIR) and No-Tax-Due / EZ Computation reports are filed. |
Discovering a forgotten subsidiary or DBAs had a Franchise Tax forfeiture flag from an unfiled PIR. |
| Day -21 (3 Weeks Before Close) | Texas Comptroller Form 86-114 | Authorized officer/member signs Form 86-114 (checking All Open Taxes and Fees) with 11-digit Texas Taxpayer Number and submits via email/portal (`[email protected]`). | Having the buyer’s attorney submit Form 86-114 without the seller’s signature or a valid Form 01-137 Power of Attorney—Comptroller will reject it immediately. |
| Day -14 (2 Weeks Before Close) | Texas Workforce Commission (TWC) SUTA Clearance | Pull TWC employer tax account statement verifying zero unpaid state unemployment tax (Texas Labor Code Ch. 204) and current unemployment experience rating. |
Assuming Comptroller Form 86-114 covers unemployment payroll taxes (TWC is a separate agency). |
| Closing Day & Day +20 Stub Return | Final Sales Tax Return & Form 86-114 Release | Deliver pre-closing Certificate of No Tax Due at the closing table; file final stub-period sales tax return by the 20th of the month following close to release any residual holdback. | Forgetting to close or transition the seller’s active Sales Tax Permit after the asset sale closes (model your net closing wire). |
3. Three Texas Sales Tax Traps That Trigger Six-Figure Closing Escrows
1. Commercial Remodeling vs. New Construction (34 TAC §3.357)
In Texas, residential repair labor is exempt from sales tax, and lump-sum new construction labor is exempt (34 TAC §3.291). However, non-residential (commercial) repair, maintenance, and remodeling is 100% taxable on both labor and materials under 34 TAC §3.357. Buyers of Texas HVAC, electrical, plumbing, and commercial roofing companies always audit whether you collected sales tax on commercial service and retrofit work.
2. Missing Form 01-339 Resale & Exemption Certificates
When you perform subcontract work for a general contractor on a taxable commercial remodel, you only avoid charging sales tax if you hold a properly completed Texas Sales and Use Tax Resale Certificate (Form 01-339) from the GC. A buyer’s QoE team will sample your top 30 commercial jobs; every missing certificate is priced as a potential 8.25% + penalty liability.
3. Occasional Sale Exemption Limits on Equipment at Closing
While the sale of the entire operating business generally qualifies for the Texas Occasional Sale Exemption (Texas Tax Code §151.304) on transferred furniture, fixtures, and non-titled machinery, titled motor vehicles (service vans, bucket trucks, haulers) are subject to Texas Motor Vehicle Sales Tax (6.25%) transferred through the county tax assessor-collector at closing.
4. Unfiled Final Franchise Tax Public Information Reports
Even if your Texas LLC or S-Corp falls below the Texas Franchise Tax no-tax-due revenue threshold ($2.47 million annualized), failing to file your annual Public Information Report (`Form 05-102`) or Ownership Information Report (`Form 05-167`) blocks the Comptroller from issuing a clean Form 86-114 certificate.
Check your Texas statutory & financial records before a buyer’s lawyer does: SweetSpot Business Advisors is an operator-led Texas advisory firm working for fixed, published fees and 0% broker commission (see our Q4 2026 Verified Fact Sheet). Start with the free 12-minute Sale Readiness Self-Assessment ($0), order a custom 24-page $250 Sale Readiness Field Guide, commission a remote 48-hour $2,500 Business System Inspection, or book a 30-Minute Working Call.
Questions Texas Sellers Ask About Certificates of No Tax Due
What is Texas Comptroller Form 86-114 in a business sale?
Form 86-114 (Request for Certificate of No Tax Due) is the official application submitted to the Texas Comptroller of Public Accounts under Texas Tax Code §111.020 and 34 TAC §3.7 to verify whether a business or its owner owes any Texas Sales & Use Tax, Franchise Tax, or other Comptroller-administered taxes at the time of a Texas business sale.
Why does Texas Tax Code §111.020 cause buyers to hold back 5% to 15% of the purchase price in escrow?
Under Texas Tax Code §111.020(a)–(b), even in an asset purchase where the buyer does not buy the seller’s LLC or stock, the buyer becomes statutorily liable for the seller’s unpaid Texas state taxes up to the full purchase price unless the buyer withholds funds from the purchase price or obtains an official Certificate of No Tax Due from the Comptroller.
Why do Texas commercial contractors (HVAC, electrical, plumbing, roofing) face the highest Sales Tax audit risk during a sale?
Texas sales tax rules sharply distinguish between non-residential repair/remodeling and new construction. Under 34 TAC §3.357, commercial repair, retrofit, and remodeling labor AND materials are 100% subject to Texas sales tax, whereas under 34 TAC §3.291 lump-sum new construction contracts are not taxed on labor. If a contractor misclassified commercial tenant-finish or retrofit jobs as lump-sum new construction without valid exemption certificates (Form 01-339), buyer due diligence will flag the exposure and require a special tax escrow or voluntary disclosure.
Who is legally allowed to submit Form 86-114 to the Texas Comptroller?
Because tax records are confidential under Texas law, Form 86-114 must be signed by the current business owner (an authorized officer, director, partner, or member listed with the Comptroller) or accompanied by a signed Texas Comptroller Power of Attorney (Form 01-137) before the Comptroller will release the Certificate of No Tax Due to the buyer or closing attorney.
Does Form 86-114 cover Texas Workforce Commission (TWC) unemployment taxes?
No. Form 86-114 only covers taxes administered by the Texas Comptroller of Public Accounts (such as Sales & Use Tax and Franchise Tax). State unemployment tax (SUTA) and experience-rating transfers are administered separately by the Texas Workforce Commission (TWC) under Texas Labor Code Chapter 204, requiring a separate TWC tax-clearance verification during due diligence.