December 02, 2015

Deal Points: A Reminder about Sales and Use Tax Issues in Middle Market Dispositions

 in State & Local Tax (SALT)

As the end of 2015 nears, as in past years, we in the Business and Finance Group of Horwood Marcus & Berk find ourselves again working fervently to assist highly successful middle-market companies and their sponsors through stock sales or asset dispositions on a year-end timeline.

Common to many of these highly successful, oftentimes leanly-run middle-market companies is that state sales and use tax compliance may not have kept up with growth of the business.  Almost inevitably, the due diligence process brings to the forefront the degree to which a company's operations have extended beyond past sales and use tax compliance practices.  Frequently, such extensions of operations may have created "nexus," or "significant physical presence" in states in which a company has not previously been collecting or reporting sales or use tax.

With hindsight being 20/20, it is always better for a seller to have developed a strategy and taken necessary remediation efforts prior to being in the throes of negotiating a sales transaction.  Such strategy or remediation efforts can include things such as obtaining resale or other exemption certificates as well as initiating "voluntary disclosure" processes in key states during or prior to the marketing process.

However, once a seller is waist-deep in the disposition process, it becomes of paramount importance in negotiating post-closing seller liability to have advisors on your side that understand the plane of sales and use tax exposure and are able to rebut, refine and reduce claims made by buyer's experts during the negotiation process.  With "nexus" being an ever-evolving dialogue among legislators, courts, departments of revenue, and taxpayers, the more your advisor keeps abreast of changes in the law, the more weapons you will have in your arsenal to limit your post-closing liability.

Here at Horwood Marcus & Berk, I've had the great pleasure of working with members of our SALT group on multiple transactions where sales and use tax liability presented a late-stage closing roadblock.  With their level of sophistication and expertise combined with our group's experience in negotiating liability solutions that have the benefit of certainty and finitude, we are able to offer a package of legal assistance unique among mid-size firms.

As we move into 2016, if you or your portfolio company is preparing for a disposition, consider reaching out to a SALT expert to review your current sales and use tax exposure to put yourself in the best possible negotiation position.

This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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Welcome to HMB's SALT & Pepper blog. As the title suggests, this blog tracks important and emerging issues, trends and developments that affect our clients not only in State and Local Tax (SALT) but also in other disciplines and industries. This blog is designed to be a helpful resource. We hope our readers will find it practical, insightful and valuable.


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