California CDTFA Clearance Before Escrow Releases Funds

Agree who requests clearance before closing week

CDTFA Publication 74 explains that a buyer can face liability for certain unpaid seller taxes. Withholding part of the purchase price and obtaining agency clearance are protections the closing team needs to address.

The request can be made through CDTFA Online Services or in writing. If an escrow company handles the request, confirm that responsibility rather than assuming someone else has already filed it.

Use the purchase agreement, exact seller entity, buyer details and all affected locations. An informal trading name may not be enough to identify the registered taxpayer.

A paid balance is not the same as an issued release

CDTFA reviews the account before issuing the applicable clearance. A seller statement that everything is paid does not replace the agency response a buyer or escrow needs.

The agency may identify amounts to withhold and pay. These amounts can affect proceeds available at closing, so include them in your net proceeds discussion with your CPA.

Closing a seller permit and requesting tax clearance are related but separate tasks. A final return also needs to account for taxable asset sales and retained inventory where applicable.

Leave room for the agency review

Publication 74 warns that clearance can take 60 days or more, particularly if an audit is needed or records are not readily available. Do not promise that a request will finish within your preferred escrow period.

Keep sales and use tax records, returns and payment evidence organized. Prompt access to the records helps your representative respond to questions without reconstructing the business during closing.

• Ask escrow which locations and accounts the request covers.
• Confirm who receives and follows up on agency notices.
• Keep the clearance and payment evidence with the closing file.

Compare the offer with what you can actually keep

Debt payoff, taxes, fees and amounts held in escrow all affect cash available to you. A larger headline price can still produce less immediate cash than a cleaner offer with fewer unresolved obligations.

Do not treat a tax reserve as a broker fee or an automatic price reduction. Your closing statement should explain each amount and when any remaining reserve may be released.

Confirm the scope with your advisors

Sources for this filing review are CDTFA Publication 74 and CDTFA Regulation 1702. Your escrow officer can explain the closing documents, and your CPA can reconcile the tax accounts.

This is not tax or legal advice. Confirm the rules for your transaction, account types and records with your CPA or attorney before releasing funds.

Keep the sale moving

• Coordinate the seller permit closeout
• Review the separate payroll release
• Return to the filing checklist
• Start your valuation request

Use the valuation form to outline your sale, or call (408) 555-0179.