Did you use an attorney for the purchase agreement? Every asset sale I’ve dealt with in California has a sales tax clearance as part of the deal, for this particular reason. If the seller didn’t pay sales taxes you didn’t buy the assets free and clear, at least that’s how the CDTFA views it. Your best bet is to call the seller and convince him/her to settle with CDTFA, otherwise they will continue collection efforts from you.

I knew a guy like this. He never had a plan for profitability but was damn good at talking and selling companies. He did it 3 separate times before 2008 and when markets dried up he started losing credibility. He took the helm at 4 different companies between 2008 and 2015, none of which reached profitability and none of the companies could be sold. He was so used to talking big until the company was acquired but he had no clue how to create a path to profitability. After 2015 he “retired” when no one else would hire him as a CEO.

If you didn’t set expectations at the beginning of paying him for his time off it’s hard to walk it back. It’s a tough spot but if I were you I would take it on the chin for the 3 weeks paid and lay it out going forward.