You signed an LOI on a Houston dry cleaner, dental practice, or service company at a defensible price. Diligence looked clean. Then, three weeks before funding, a Texas Comptroller line item surfaces that nobody put on the schedule of liabilities, and the wire you were about to send is suddenly the number the state is going to reach for.
This is not a due-diligence failure in the ordinary sense. It is a statutory transfer of the seller's unpaid sales-tax exposure onto you, the buyer, by operation of Texas law. In Houston's current market, where listing multiples already sit below the national average, the deals that quietly reprice between LOI and closing usually reprice for this reason.
The Statute Doing The Work
Texas Tax Code § 111.020 is the mechanism. It applies whenever a person liable for state tax sells the business or the stock of goods of the business, and it does not care whether you structured the deal as a stock sale or an asset sale. The statutory language is direct:
"The purchaser of a business or stock of goods who fails to withhold an amount of the purchase price as required by this section is liable for the amount required to be withheld to the extent of the value of the purchase price."
Translated into deal terms, an asset buyer who does not withhold against the seller's unpaid sales tax becomes personally liable for that tax up to the entire purchase price. Contractual indemnities from the seller do not solve this. The Comptroller has held, and administrative law judges have repeatedly affirmed, that a taxpayer cannot contract away liability to the detriment of the state. Your purchase agreement is enforceable against your seller. It is not enforceable against Austin.
The Third Court of Appeals confirmed the reach of the statute in the Agri-Plex line of cases: a buyer who did not know about the seller's outstanding sales tax was still held liable up to the purchase price, because the Tax Code gave that buyer specific tools to avoid the exposure and the buyer did not use them.
What The Comptroller Actually Issues
The tool is the Certificate of No Tax Due, and the request now runs through Form 86-114 under Senate Bill 873 (87th Session, 2021), which converted the request into a joint filing signed by authorized representatives of both buyer and seller.
The Comptroller responds one of three ways, and each response reshapes your closing differently:
| Comptroller Response | Effect On The Buyer |
|---|---|
| Certificate of No Tax Due issued | Buyer is shielded from the seller's pre-closing tax liability up to the purchase price |
| Statement of Account listing amounts due | Buyer must withhold the stated amount from proceeds until the seller produces a receipt showing payment |
| No response within the statutory window | Buyer is released from the withholding obligation by operation of law |
The certificate is also tax-specific. If the seller has an outstanding liability for one tax type, the Comptroller will still issue certificates for other tax types where the account is clean, so a partial clearance is a real outcome you should be ready to price rather than a reason to walk.
Sequencing The Request Against Your LOI
The mistake most first-time Houston buyers make is treating the certificate as a closing-checklist item. It is a diligence item, and the sequence matters:
- Reference the joint Form 86-114 filing as a closing condition in the LOI, not the purchase agreement. Making it a condition of the LOI forces the conversation before you spend money on legal drafting.
- File Form 86-114 as soon as the LOI is signed. If no audit is required, the Comptroller typically issues the certificate or statement within roughly ten business days of a properly completed request.
- If the response is a Statement of Account, quantify the withhold and rework the purchase price allocation so the escrow reflects it in writing.
- Where the seller's records suggest possible audit exposure, expect the process to take up to 90 days and negotiate an outside date in the purchase agreement that accommodates it.
- Fund only against a written Comptroller response. Never fund against a seller representation that "nothing is owed," because that representation does not bind the state.
The 90-Day Clock Is The Buyer's Leverage
The provision most Houston buyers miss is the release. If the Comptroller does not mail the certificate or statement within the statutory window, the purchaser is released from the obligation to withhold. This is why filing early, in writing, and jointly is worth more than any indemnity language your attorney will draft.
The Agri-Plex opinion made the point explicit in reverse: the buyer could have been released from liability if the Comptroller had failed to respond within 90 days, but the buyer never filed the request. The tool existed. It was not used. The court's sympathy did not follow.
For a Houston buyer running an SBA-financed acquisition, that 90-day clock also aligns with realistic funding timelines under the tightened program. Since March 2026, new SBA rules require all company owners seeking 7(a) and 504 loans to be U.S. citizens, restricting green card holders and foreign nationals from the program, and lenders are already extending diligence on remaining borrowers. Filing Form 86-114 at LOI, not at closing, prevents the SBA timeline and the Comptroller timeline from stacking.
Where This Hits Houston Deals Hardest
BizBuySell's Q1 2026 data shows the national average cash flow multiple ticked up to 2.7x on a $350,000 median sale price, with median cash flow at $165,256. Houston listings, by the same source, are asking closer to 2.1x earnings and roughly 0.5x revenue against national averages of 2.5x and 0.65x. Some of that gap is weather and insurance repricing. A meaningful piece of it is the specific closing risk this article is about.
The categories where successor liability surfaces most often in Houston diligence:
- Restaurants and quick-service concepts with cash-heavy sales-tax collections and irregular remittance histories
- Retail and specialty-goods sellers where taxable tangible personal property makes up most of the asset schedule
- Auto-adjacent businesses (transport, service, aftermarket) where mixed-use exemptions get misapplied
- Multi-location service businesses where one underperforming site accumulated an unremitted balance the owner treated as a working-capital line
- Any seller who has already "quit the business" once and restarted under a related entity, which invites both successor liability and fraudulent-transfer analysis
The Comptroller has separately signaled willingness to assert successor liability and fraudulent transfer at the same time, and a recent administrative decision upheld an assessment against a restaurant successor under the sham-transaction rules even where the strict successor-liability elements were not met. For a buyer, the practical read is that a seller with a history of related-entity restarts is a seller whose Form 86-114 request should be filed the day the LOI is signed.
The Seller Refusal Signal
Because Form 86-114 requires the seller's authorized signature, a seller who declines or delays signing the joint request is telling you something the financials will not. The Comptroller will not issue a Certificate of No Tax Due without both signatures, which leaves you fully exposed under § 111.020 by default.
Treat a refusal, a slow-walk, or a request to defer filing "until closer to closing" as a diligence flag on par with an unreconciled bank statement. In our own transaction experience across Texas asset deals, cooperative sellers get the joint request in motion within days of executing the LOI. Sellers who resist that step are almost always managing something the P&L does not disclose.
The Practical Read
Houston's discount to national multiples is not a bargain in the abstract. It is a market price for risks that a disciplined buyer can retire and a casual buyer will inherit. The Certificate of No Tax Due is one of the few closing mechanics in Texas where the buyer holds an unambiguous statutory tool that either produces a clean shield, a withhold amount that reprices the deal correctly, or a release by operation of law after 90 days. All three outcomes are better than closing without the certificate and discovering the seller's unremitted sales tax after the wire has cleared.
The number signed at LOI survives closing when the diligence sequence respects the statute. When it does not, the buyer pays twice: once for the business and again for tax the seller never remitted.
FAQ
Does an asset purchase agreement's indemnification clause protect me from § 111.020? Not against the state. Indemnities are enforceable against the seller if the seller has assets and is reachable. The Comptroller can still assess the buyer as successor up to the purchase price regardless of what the purchase agreement says between the parties.
How long should I expect the certificate process to take on a Houston deal? If no audit is required, the Comptroller typically responds within about ten business days after receiving a properly completed Form 86-114. If the seller's records require review, the outside window is 90 days, and a non-response within that window releases the buyer from the withholding obligation.
What if the seller and I are already past LOI and have not filed Form 86-114? File it now, before funding. The joint filing needs the seller's authorized signature, so the earlier in the transaction that request goes out, the more leverage you retain if the Comptroller identifies a liability that needs to be withheld from proceeds.
If you are under LOI on a Houston business or preparing to sign one, the sequencing decisions in the next 30 days will determine whether the price you agreed to is the price you actually pay. Meridian Business Advisors works with buyers and sellers across Texas and the Southeast to structure asset acquisitions so that statutory friction like § 111.020 gets priced correctly at LOI rather than surfacing at the closing table. Inquire about this business, or schedule a confidential conversation about the one you are trying to close.
