“Merging or acquiring? Don’t forget state and local taxes.”
Posted on 03.07.18
Terry Barrett, Keiter Tax Senior Manager and Leader in Keiter's State and Local Tax team, in the March/April 2018 issue of VSCPA's Disclosures Magazine article, "Merging or acquiring? Don't forget state and local taxes." This includes certain state and local taxes, such as income/franchise tax and property tax, that may represent potential liability or exposure.
Potential state and local tax considerations are often given only cursory attention in a merger or acquisition. If the transaction is structured as the acquisition of stock (or ownership interest in the case of a non-corporate entity), the acquiring company is obtaining the target and all of its tax liabilities and exposures, except for those which may be mitigated or limited through the purchase agreement. Therefore, it is very important that the acquiring company identify — and, if possible, quantify — potential liabilities and exposures before finalizing the transaction.
Obtaining the information necessary to do this, though, is often hampered by the confidentiality of the proposed transaction and cooperation on the part of the target company. However, given the potential exposure, it's imperative to analyze the target's tax situation as thoroughly as possible. This article focuses on some of the state and local tax issues that may represent potential exposure or liability.