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Top five state & local tax issues to consider when buying the assets of a business
Depressed values during an economic downturn may motivate corporate decision-makers to acquire businesses in an effort to improve enterprise capability, marketing penetration, product mix, and the production process. While business strategies drive the decision to acquire a particular business, the form of the transaction drives a multitude of tax implications. When choosing to acquire the assets of a business, a number of state and local tax issues can significantly affect the overall acquisition cost.
Acquiring the assets of a business
The following discussion examines the top five state and local tax issues to consider when acquiring the assets of a business.
These issues are:
- The seller's unpaid taxes
- Taxes triggered by the transaction
- Credits and incentives
- Income and franchise taxes
- Sales and use tax processes
(While some of these issues might arise also in the context a stock purchase that is treated as a deemed asset acquisition pursuant to IRC Section 338, a discussion of the state and local tax issues associated with deemed asset acquisitions is beyond the scope of this article. For more on state aspects of that federal provision, see, e.g., Millar, “Does an IRC §338(h)(10) Election Produce Business or Nonbusiness Income?,” 17 J. Multistate Tax’n 8 (July 2007).)