Impact Of Sales And Use Tax On Mergers And Acquisitions

Mergers and acquisitions (M&A) involve complex transactions that require careful planning and execution. One aspect that is often overlooked is the impact of sales and use tax on the transaction. Failure to properly account for sales and use tax can have a significant impact on the deal, including increased costs, potential legal issues, and decreased profitability.

One of the main reasons why sales and use tax can be a challenge in M&A due diligence is that it varies by state. Each state has its own rules and regulations regarding sales and use tax, and these rules can change frequently. This means that companies involved in M&A transactions need to be aware of the specific sales and use tax laws in each state where they operate or plan to operate.

When performing a due diligence review, it is important to address the target company’s sales and use tax exposure by reviewing nexus, previously filed tax returns, payment history, and any audits or assessments. This will help identify any potential liabilities, such as underpayment or non-payment of sales and use taxes.

It is also important to assess the target company’s sales and use tax compliance processes, including the accuracy of tax calculations, the appropriate use of exemptions and credits, and the maintenance of proper documentation.

Another important consideration in a due diligence review is the potential impact of sales and use tax on the transaction itself. In some cases, the buyer may be responsible for any unpaid sales and use tax liabilities of the target company. This can significantly increase the cost of the transaction and impact the profitability of the deal.

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Treasury Inspector General Report


Corporate mergers and acquisitions can be large dollar, complex transactions that potentially have large tax implications. Some of those transactions can be tax-free depending on the structure. It is important that the IRS ensure that these complex transactions are in compliance with the tax law and that the appropriate amount of tax is paid.


The Institute for Mergers, Acquisitions, and Alliances reports that there were 14,540 mergers and acquisitions in the United States in Calendar Year 2018, with a value of almost $1.9 trillion. There have been approximately 120,000 domestic corporate mergers and acquisitions in the last 10 calendar years, totaling $15.3 trillion. The Internal Revenue Code permits tax-free treatment for transactions that meet certain technical requirements, and taxpayers sometimes make the form of the transaction appear to satisfy those requirements while the substance does not. The Large Business and International Division (LB&I) has been transitioning to issue-based audits and has adopted a “campaign” approach to auditing specific issues. TIGTA performed this review to determine whether the IRS had an effective strategy with respect to the compliance risks presented by mergers and acquisitions.

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Monika Miles - M&A

Is your company facing a merger or acquisition? Is state tax part of the negotiations? It needs to be! Whether you’re the company buying or selling, state tax issues often arise during the process – even more so now that so many states have enacted economic nexus laws. How should you plan ahead? It begins with due diligence!

Discovering State Tax Issues During Due Diligence

It’s not uncommon for state tax issues to be uncovered during the due diligence phase of an M&A deal as both companies look at ramifications of additional states coming into play.

Often, when a major buyer is looking into a target company, its CPA firm has already addressed it, whereas the seller company (which is usually smaller) generally hasn’t dealt with the ramifications of selling their products across state lines because they often have little or no representation. We work with many companies on the selling side of M&A deals, and help dispute or reduce the estimates the acquiring company’s CPA firm provides.

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Monika Miles - State Exposures

Thinking About An Acquisition? What Are Your State Exposures?

A Company may be in the process of either acquiring another company or are looking to be acquired themselves. In either case, the company wants to be aware of any potential state tax exposure areas, so they can move forward appropriately. Often however, the due diligence process is the first time the Company has addressed the multi-state landscape. Sometimes deals fall apart because a target company does not have its sales tax house in order. If a suitor company does its due diligence and finds significant exposure related to years of non-compliance with sales tax collection or income tax filing, it can either derail an entire deal, or significantly impact the purchase price.

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The announcement of a merger or an acquisition of a company can affect everyone from Wall Street to the person walking home on the street that day. It sends waves of excitement, thoughts of one’s career security and confusion all at the same time. Every time a call arrives from a tax professional working in a corporate tax organization that is being acquired, fortunately my years of experience with these situations enables me to help them knowing what to expect. Read More

As a follow up to the very popular blog post “Corporate Tax Professionals Surprised By Stunning ‘Spans & Layers’ Report By Bain And Company“, I want to share with you several people sent me private emails commenting on the blog post because they did not want to post publicly. However, they wanted to acknowledge the article as something that hit a nerve for them.  One comment that covered the thoughts of many was “It is much harder in corporate these days as the expectation is to do much more work with much less in-house support.” Corporate tax leaders are often pushed to the limit in a more complex tax environment. As a result, the future Read More

Foreign direct investments have been increasing for the past few decades.

According to Baker & McKenzie for multinational companies venturing into China through Mergers and Acquisitions there are eight essentials that these companies need to be aware of in order to succeed.  They are as follows:

1. Knowing your China counter-party
2. Conducting deep due diligence
3. Structuring the deal
4. Navigating government approvals
5. Satisfying valuation requirements Read More