FTB Bulk Sale Withholding: What Escrow Must Know
California’s bulk sale rules require careful coordination between the buyer, seller, and escrow company.
When a business is sold in California, the Franchise Tax Board may require the buyer to withhold a portion of the purchase price to cover the seller’s state income tax liability. This is known as bulk sale withholding. The escrow company plays a central role in this process because the funds are typically held in escrow until the FTB issues a clearance certificate. At Secured Trust Escrow, we coordinate FTB bulk sale withholding for business transactions throughout Los Angeles and Torrance.
The Clearance Certificate Process
The buyer or escrow company requests an FTB clearance certificate using Form 8701. This form tells the FTB that a bulk sale is pending and asks the FTB to confirm whether the seller owes any state income tax. The FTB has 60 days to respond. If the FTB does not respond within 60 days, the buyer is released from withholding liability. If the FTB responds with a statement of taxes due, the buyer must pay the specified amount within 30 days.
Escrow’s Role in the Timeline
The escrow company must coordinate the FTB timeline with the closing date. If the parties want to close before the 60-day FTB response period expires, the escrow company must hold back the required withholding amount. The escrow instructions should specify how much is held back, how long it is held, and under what conditions it is released to the seller or paid to the FTB. Without clear instructions, the escrow company cannot act and the closing may be delayed.
Common Escrow Mistakes
Some escrow companies fail to request the FTB clearance certificate early enough, forcing the parties to delay closing. Others draft instructions that do not address what happens if the FTB responds after closing with a higher tax bill than expected. A well-prepared escrow company requests the certificate at the same time the escrow account opens, builds the 60-day timeline into the closing schedule, and drafts instructions that cover every FTB response scenario.
Bulk Sale Escrow in California
Secured Trust Escrow coordinates FTB bulk sale withholding for business sales throughout California.
About the Author: This guide was prepared by the escrow officers at Secured Trust Escrow, a California DFPI-licensed escrow company with experience in business holding escrow, relocation escrow, liquor license transfers, and mergers and acquisitions throughout Los Angeles, Torrance, and surrounding areas.
Legal and Regulatory Disclaimer: This article provides educational information about escrow services. It does not constitute legal, tax, or investment advice. Escrow transactions involve complex legal and financial consequences that vary by transaction type and individual circumstances. Parties should consult with qualified attorneys and tax professionals regarding their particular transactions. California regulations and market conditions change periodically. Last reviewed: July 2026.
