Proactive State & Local Tax Planning — Why It Matters for Every Transaction

State and local tax (SALT) issues are critical to a successful business transaction. A well-thought-out SALT strategy can mean the difference between a smooth transaction and costly surprises.

Proactive planning is the key to staying ahead of state tax pitfalls and protecting your business from lost opportunities.

Every transaction, whether it’s a merger, acquisition, or restructuring, carries unique state and local tax risks. These risks don’t just affect tax filings; they can impact valuation, holdbacks, deal structure, and closing timelines.

Common SALT Challenges in Transactions

Income/Franchise Tax

Navigating Public Law 86-272 (federal law which prohibits states from imposing a net income tax on out of state businesses that only solicit sales of tangible property in the state) and voluntary disclosure agreements (VDAs) can be challenging. Nexus studies, apportionment factor reviews, and sales sourcing analysis are key to ensuring compliance — especially when modeling post-transaction gain on sale.

Sales and Use Tax

State and local tax rates, rules, and nexus thresholds change frequently. Bulk asset sales, exemption certificate management, and marketplace facilitator rules require careful attention to avoid historical liabilities.

Business Personal Property Tax

Jurisdictional presence and exemption threshold reviews can help avoid unexpected assessments.

Payroll/Unemployment Tax

Remote workers, state residency requirements, and worker classification concerns are increasingly important in today’s flexible work environment.

Unclaimed Property

Due diligence and internal process reviews are critical to avoid legal implications.

Credits and Incentives

There are various SALT credits and incentives (R&D, land use, workforce planning) that can provide material benefits. But it is also important to maintain accurate records for claiming and defending these incentives.

Why SALT Planning Should Be on Your Radar

Consider a mid-sized technology company preparing to acquire a regional competitor. Both companies operate in multiple states, with remote employees, diverse asset locations, and a history of R&D tax credits.

During initial due diligence, the finance team realizes that state and local tax risks could derail the deal. Concerns included:

• Unclear nexus in several states due to remote workers
• Incomplete sales and use tax exemption certificates
• Incorrect sales tax laws applied to product taxability
• Unclaimed property liabilities from outstanding A/R customer credits
• Potential loss of valuable R&D credits due to poor documentation

Proactive planning can help:

• Create an organizational footprint review
• Assess asset and employee inventory to ensure accurate nexus compliance
• Conduct an internal sales and use tax assessment to identify missing documents and correct errors
• Review credit and incentive opportunities

The result: Identified tax liability, preservation of current business credits and incentives, and a smooth transaction with minimal compliance related delays.

The takeaway: Proactive SALT planning can turn a potential deal-breaker into a successful acquisition.

Practical Steps for Transaction Readiness

1. Update the Organizational Footprint

   Include commercial domicile, registered states, and ownership percentages. This impacts where returns are filed and how profits are split.

2. Inventory & Asset Tracking

   Know the location of inventory, employees, servers, and vehicles. Asset locations affect state and local nexus and filing obligations.

3. Respond to Notices & Audits

   Keep a record of all compliance communications and ensure timely responses. Established connections with government agencies can expedite resolution.

4. Document Tax Procedures

   Maintain clear processes for sales/use tax, income tax, payroll, and property tax compliance. Technology can help streamline exemption certificate management and compliance.

5. Prepare for Due Diligence

   Gather records of uncashed checks, outstanding credits, and direct deposit confirmations. Unclaimed property compliance is both a tax and legal issue.

6. Leverage Credits & Incentives

   Consult with specialists to secure credits and incentives across all 50 states.

Turn Tax Challenges into Transaction Success

Proactive SALT planning isn’t optional — it's essential. Addressing state and local tax risks early can turn potential deal-breakers into successful transactions. Our State and Local Tax team can help with proactive planning, risk minimization, and growth potential by ensuring SALT issues do not disrupt a potential transaction.