Mergers and Acquisitions

Question 1

Which 3 types of mergers and acquisitions transactions are most likely to raises sales tax issues?

Answer 1

• Asset sales
• Organizational transactions
• Corporate reorganizations

Question 2

What are 4 questions you should ask yourself when reviewing the taxability of an M&A transaction?

Answer 2

1. Is there a sale/transfer?
2. Is consideration given?
3. Is the type of property transferred subject to sales/use tax in the jurisdiction where it is located /used?
4. Are there any exemptions?

Question 3

What are 5 potential exemptions that could apply to an asset sale?

Answer 3

• Sale for resale (inventory transfers)
• Manufacturing
• R&D
• Transaction specific
• Occasional/Casual/Isolated sales

Question 4

What is a Section 351 transfer?

Answer 4

A transfer of property in return for stocks/shares of the company that receives the property.

Question 5

True or False: Very few states have exemptions for Section 351 transfers.

Answer 5

False, many states have exemptions for them.

Question 6

A…… involves the transfer if assets of two or more companies to a new company in exchange for stocks of the new company.

Answer 6

Consolidation

Question 7

A…… involves the acquiring company taking all of the assets and liabilities of the target company, and the shareholders of the target company receives stock of the acquiring company.

Answer 7

Merger

Question 8

A…… review must be undertaken in order to assess the potential impact of sales and use taxes on corporate transactions.

Answer 8

due diligence

Question 9

What are 10 things you should have knowledge about before completing a due diligence review?

Answer 9

1. The target
2. Review of tax returns
3. Exemption documentation
4. Nexus related issues
5. Compliance system
6. Prior/Current audits
7. Prior acquisitions/dispositions
8. Tax calendar
9. ERP system
10. Remember to work with IT

Question 10

True or false: Most states do no subject the bulk sale of business assets to sales or use tax if the sale is occasional, infrequent, or non-recurring outside of the regular course of business.

Answer 10

True

Question 11

Sales of substantially all of the assets of a trade or business are subject to state….. requirements.

Answer 11

bulk sale notification

Question 12

What is the purpose of bulk sale notification requirements?

Answer 12

They ensure that the state can collect any outstanding taxes of the selling company and to shield the purchasing company from the tax.

Question 13

What are 2 potential consequences that may happen if bulk sale notification requirements aren’t followed?

Answer 13

• The purchaser may inherit the tax liability of the seller, which may outweigh the amount they bought the assets/company for.
• The purchase may be subject to the seller’s criminal liability.

Question 14

What are obligations of the seller during and after a bulk sale?

Answer 14

• Must file their final return shortly after the sale
• Produce a receipt from the state showing that all taxes have been paid
• Allocate resources
• Collect/pay sales tax on the purchases
• Abide by the handling obligation that was set in place in the transaction service agreement
• Carve-out issues

Question 15

What does SAPA stand for and what is it?

Answer 15

• Stock and Asset Purchase Agreement
• The legal agreement that is used when one entity is purchasing another entity

Question 16

A…… deal involves acquiring a portion of the seller’s business, such as line of business owned by a single entity or multiple entities.

Answer 16

carve-out

Question 17

A…… is the extra money, unrelated or non-like-kind property, or assumption of liabilities included in an otherwise like-kind nontaxable exchange on property. This can kick you out of an exemption.

Answer 17

boot