Whether you are looking to buy or sell a business, it is important to be aware of the sales tax obligations involved. Through the process of due diligence during a merger and acquisition you may find that you have past sales tax obligations. As a buyer, this can be a deal breaker. The only way forward is to mitigate the risk. As a seller, you are going to want to be able to defend your sales tax position and bring it to good standing. Let’s discuss 6 steps you can take in a merger and acquisition that will help you come out without the burden of unmitigated sales tax obligations.
Why would sales tax matter in a merger and acquisition? Sales tax that has gone unpaid and is exposed can be compounded over a number of years. This can be a major margin killer. Not to mention the penalties and interest slapped on for non-compliance. Chances are any potential buyer will see this and run. So here’s what needs to happen. You will need to:
It is critical that you know where you have nexus, both physical and economic. When the buyer is performing their due diligence, they will typically perform an advanced sales tax review throughout the due diligence process.
Every state is different. Not all services are non-taxable and not all products are taxable. You need to know your sales tax obligation state-by-state. If you find you have a sales tax obligation but have not been collecting and remitting, you have exposure that may need to be mitigated.
This is a step that needs to be taken early on in the process of a merger and acquisition. There are many different elements that go along with this. You need to take a good look at the businesses' customers and whether they are a nonprofit organization, resellers or any other industry that is exempt from sales and use tax.
If you are registered, the statute of limitations are typically 3-4 years depending upon the state. However, if you have not registered in a state but you had sales tax obligations, a state can look back as far as when you first established nexus and started having taxable sales. Looking into this will help you recognize the scope of your sales tax materiality.
Depending on your situation, it may be as simple as just choosing to register and course-correct going forward. Or potentially, you may want to enter into a VDA in order to waive penalties and interest and to limit the look-back period. There are many options that a professional can advise you on.
In order to reduce costs and avoid the risk of noncompliance it is always wise to reach out to a sales tax expert. Knowing you’ve got professionals in your corner will bring peace of mind. Reach out to us on a Whats Next Call so we can perform an in-depth risk analysis. We can take the stress of sales tax off your shoulders. We hope to hear from you soon.