Many people look at the stock market, the housing market, and unemployment rates as prime indicators of the economy’s health. Those are fine and good, but I also like to look at recent mergers and acquisitions. When M&A is hot, so is the economy.
When CEOs and bankers get on a roll for M&A activity, it’s hard to slow down that train. Remember the old adage “haste makes waste”? Here are three examples of sales tax and use tax problems that can cripple a hastily-executed acquisition:
- The target company’s unpaid sales tax or use tax liabilities;
- Your company’s unpaid sales tax or use tax liabilities (if you’re getting acquired); or
- Sales tax liabilities that may result from the acquisition itself.
What does this all mean? See the sound bites below:
Issue #1 above: When you acquire a company that has unpaid sales tax or use tax liabilities, you are now the proud owner of those liabilities. States will hold you accountable for those amounts even though they were generated by the legacy company.
Issue #2 above: When an acquiring company uncovers your unpaid sales tax or use tax liabilities, that’s often a matter that’s handled through downward purchase price adjustments or escrow accounts. To protect themselves, companies in this situation will be overly cautious in determining the amount of the potential liability. Get your house in order before-hand so you don’t give away more than you need to at the bargaining table.
Issue #3 above: In certain occasions, assets or inventories may be subject to sales tax as a result of the acquisition itself. Make sure you’re aware of the potential liabilities that may be triggered from this event.
All of that being said, let’s go out there and strike up some M&A so we can get this economy firing on all cylinders again!!