Know That Your State and Local Taxes Are Current Before the Buyer Does
Preparing to sell your business is an exciting and busy time. A responsible prospective buyer is going to want a comprehensive picture of your business, including your tax obligations.
As a result, the due diligence process often involves a detailed look at the state and local tax filings of your business. This includes income/franchise, sales/use, gross receipts, local business, employment/payroll, and property tax. In a perfect world, your business is and always has been compliant with the various types of state and local tax. However, since we don’t live in a perfect world, state and local tax exposure is often uncovered as part of the due diligence process. Ideally you want to know about the potential exposure before your buyer is alerted as part of the due diligence process.
Why It’s So Important
You don’t want anything to get in the way of selling your business on your terms, as the sale is often the reward for many years of hard work. If state and local tax exposure is not uncovered and remedied prior to the due diligence process, negative consequences including the following may result:
- A delayed closing – Depending on the complexity of the state and local tax issue(s) involved, as well as the dollars at stake, it may be time consuming to reach a conclusion and then to negotiate the issue with the buyer.
- Escrowed sales proceeds – Your buyer may request you set aside a portion of the sales proceeds to cover the potential tax liability.
- A canceled sale – Depending on the magnitude of the unsettled tax obligations, your buyer may decide the deal is no longer worth pursuing.
Do It Yourself
Even if you are confident your business has been compliant with all of its’ tax-related responsibilities, it’s always a good idea to review the requirements and associated filings that have been made in order to verify the business does in fact have all of its’ “ducks in a row” prior to initiating a sale. You may already know of a weakness and plan to negotiate this as part of the sale, but since a mis-estimation of the tax involved may prove more costly than the tax itself, you will want to be certain of the dollars involved.
Get Expert Guidance
If the thought of reviewing the state and local tax obligations of your business leaves you bored and confused, or, more likely that you just don’t have the time, we’re here to help! The ideal time to do a nexus review of state and local taxes would be well before a sale is initiated and a buyer sought. Whether you’re already in this situation, or you’ve already begun purchase negotiations, we can step in and help you manage this part of the process – as well as any other element of the pending transaction that may be problematic. Contact Us, and we’ll provide the services you need.