California Real Estate Practice Exam

When a business is sold and taxes are verified as paid by the State Board of Equalization, what is issued to the buyer?

1. Clearance receipt

2. New license

3. Payment confirmation

4. Tax paid receipt

The correct answer is: Clearance receipt

The correct answer is a clearance receipt. When a business is sold in California, it is essential to confirm that all applicable taxes have been paid to ensure a smooth transfer of ownership. The State Board of Equalization issues a clearance receipt as evidence that the selling party has settled its tax obligations. This document serves as reassurance for the buyer that there are no outstanding tax liabilities associated with the business, protecting them from any potential claims or liabilities that could arise post-sale. The other options, while related, do not specifically address the verification of taxes paid in the context of a business sale. A new license is not relevant in this context since the clearance receipt pertains to tax clearance rather than licensing. Payment confirmation simply indicates that payment was made, but it does not serve as the official document required for the transaction. A tax paid receipt could imply that taxes were paid, but it does not convey the same level of assurance regarding the business transfer as a clearance receipt does.