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Due diligence and state taxes: What you don’t know can hurt you

December 7, 2016 / 3 min read

A thorough pre-transaction analysis can help to eliminate surprises and allow the seller to correct deficiencies wherever possible.

All businesses should regularly review state and local tax obligations as part of their annual budget cycle. However, it’s particularly critical that a business preparing for a merger or acquisition carefully analyzes its state and local exposures and remedies any compliance issues. A thorough pre-transaction analysis can help to eliminate surprises and allow the seller to correct deficiencies wherever possible. Even if the seller is unable or unwilling to remedy a possible deficiency, it’s still important to be aware of the potential issue at the start of any negotiations rather than face an adjustment to purchase price or escrow after the buyer’s due diligence.

Four components of a SALT review

A complete review of state and local obligations has to cover a lot of ground. For each state, there are four key considerations to examine:

The Plante Moran SALT report card

Plante Moran’s SALT report card documents the results of an analysis that evaluates potential nexus issues and tax exposure in jurisdictions around the country. Whether it’s part of the seller’s due diligence before a sale, or part of the annual tax and budgeting process, the SALT Report Card can save businesses money and help them plan more effectively. It identifies jurisdictions where filings may become required in the near future even though current activities haven’t crossed filing thresholds. In some cases, the review may identify an obligation in a jurisdiction where the business should have been filing previously. States and local jurisdictions often have voluntary disclosure programs that can reduce penalties and limit a state’s ability to look back at prior returns when a taxpayer comes forward before being contacted about the deficiency. These programs can significantly lower the cost to the business of failing to comply. 

To learn more about Plante Moran’s SALT Report Card and the role it can play in your due diligence process, please contact a Plante Moran advisor.

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