Purchase contracts alone can be insufficient to protect against successor liability, leaving the purchaser with tax assessments that can reach millions of dollars.
Buyers and sellers both face the potentially costly risks of unknown tax liabilities affecting the transaction. The buyer faces the risk of inheriting the liability as successor liability. The seller faces the risk that the buyer’s due diligence team will be ultra-conservative in protecting the buyer. They will likely determine potential liabilities more aggressively than state auditors would, putting the seller at a greater disadvantage on price and/or escrow amount required in a seller indemnification agreement.
For buyers, Sales Tax Colorado will help identify potential undisclosed and unknown liabilities to protect the buyer from inheriting them. We also go beyond indemnification agreements and handle the various states’ Bulk Sale Notifications or similar requirements to statutorily relieve the buyer from inheriting the seller’s liabilities.
Upon notification, states often then take an immediate look at the seller’s situation. This process moves along fairly quickly because most states are limited on how long they have to make an assessment. If a buyer unknowingly inherits liabilities, our specialists can help bring them to a satisfactory resolution.
For sellers, we challenge the buyer’s due diligence findings and push back on ultra-conservative positions to protect the selling price and to reduce the escrow amount and time frame required. With a game plan in place, sellers are better prepared to negotiate a fair price and acceptable terms. We can also help sellers identify and resolve, or put a plan in place to resolve, their Sales & Use Tax exposure. This limits the buyer’s concerns.
Some common mistakes buyers and sellers make in mergers and acquisitions can plague even those who thought they were well protected. IRS code and taxability factors are often considered during an asset purchase, a stock transfer, or contribution of assets. This can lead to unexpected consequences concerning Sales or Use Tax liabilities. For income tax purposes the liabilities generally go with stock transfers but not asset purchases. In most states, sales tax liabilities can be transferred in an asset sale. Problems can arise when there are assets in multiple states. Many states exempt casual sales of business assets from Sales & Use Tax but some states will tax the transaction. The home state’s laws on Casual Sale exemptions or taxability are often incorrectly assumed to be standard. Also, structuring transactions as “Tax Free” for IRS purposes can void certain Sales & Use Tax exemptions.
Let Sales Tax Colorado’s professionals identify and evaluate your best options before the transaction takes place. Sales Tax Colorado can also provide a second opinion and assist in renegotiating the terms of a merger or acquisition agreement.
Voluntary Disclosure Agreements (“VDA”) can also play an important role in Mergers and Acquisitions. Sales Tax Colorado frequently negotiates VDAs with multiple states. Some of our most recent VDAs have resulted in states forgiving past debts as long as the company collected going forward. In the other situations we negotiated penalty abatement, reduced interest charges, and shaped shorter look-back periods which reduced the tax amount due.
At Sales Tax Colorado, we serve businesses that want to keep their competitive edge by navigating the ambiguous, constantly changing, and highly intricate maze of Sales & Use Tax regulations.
Contact us today for a no-obligation consultation about your Sales & Use Tax issues.
