your customer is purchasing for . This will help validate your customer is properly claiming exemptions in various states and scenarios .
Buyers will also want to make sure you are paying sales tax on your purchases , where appropriate . It ’ s important to ensure you have a process in place to pay vendors when tax is due on your purchases , or that you self-assess your use tax when they haven ’ t .
• Payroll Tax If you have employees , a buyer will typically request copies of payroll filings . Key reasons why include :
• Ensures taxes collected from employees are being collected and remitted to the right state .
• Provides an understanding of where employees are located .
• Avoids State Unemployment Tax Act ( SUTA ) dumping . 1
• Property Tax This is often a pitfall for businesses that house inventory across multiple states , i . e ., through Amazon facilities . 2 Depending on the state , your inventory may be taxed , even if it ’ s sitting in a warehouse or site you don ’ t own . This is a critical area in due diligence , so it ’ s important to remain proactive in tax filings to avoid a larger liability later . A buyer will want to know where your inventory is being held , whether compliance was maintained through filing returns that reflect all personal property at a location and if the related taxes were remitted .
Planning Considerations
It ’ s never too early to start evaluating your tax position to prepare for your future transaction . Some ways to prepare your business for sale from a state and local tax perspective includes :
1 . Conduct a nexus study . A “ nexus ” refers to the connection a business has with a state or jurisdiction that triggers tax responsibilities . A nexus study can be highly beneficial for your business , as it will help determine where you have a tax obligation and for which tax types .
2 . Evaluate your prior-year returns and entity elections . Be sure to collect a list of any refunds due to you before entering a business sale transaction , especially if it is a stock sale . It ’ s also an opportune time to have your elections reviewed to see if anything should be done differently to minimize expenses or make it less costly
when you do sell .
3 . Obtain a tax clearance certificate . States will issue a tax clearance certificate , which confirms all registered taxes within that state have been paid . To ensure a smooth diligence process , we encourage you to obtain this certificate as part of your business sale preparation to provide to the buyer . Keep in mind , a tax clearance certificate does not identify unknown liabilities or guarantee returns were filed correctly , so they are not a substitute for a good tax advisor .
Here to Help
Our dedicated state and local tax advisors stay abreast the always-evolving state and local tax obligations to help keep tax liabilities small for business owners across the nation . If a business sale is in your near horizon , contact us to evaluate your current position , determine liabilities and prepare you to maximize your purchase price when the right opportunity presents itself .
About the Author
ELIZABETH POTOCKI , CPA
PRINCIPAL , DOEREN MAYHEW ADVISORS , LLC epotocki @ doeren . com
Elizabeth brings more than 20 years of experience in public accounting and is highly specialized in state and local taxes , including in state income and franchise tax , property tax , sales and use tax , and payroll tax .
1SUTA dumping is a tax evasion plan used by some employers to lower their Unemployment Insurance ( UI ) tax rate to avoid paying higher UI taxes . It can have severe penalties and is something several states strictly enforce . A buyer will want to see unemployment returns , because when they inherit the workforce , they will report information to states and their UI rate may be adjusted based upon your history .
2With Amazon , another consideration is the physical presence inventory you hold in their warehouses , as it can trigger additional filing responsibilities , including income taxes and sales taxes .
VIEWPOINTS : ISSUE 2 2024 | 07