State and local tax (SALT) issues are sometimes below dealmakers’ radar screens – but they can pack quite a wallop if they aren’t properly taken into account. This Morrison & Foerster memo provides an overview of how state & local tax laws can impact a transaction.
One of the things that the memo points out is that when it comes to taxes, the feds & the states don’t always see eye-to-eye. For instance, this excerpt highlights the fact that state & local authorities take a different point of view than does the IRS when it comes to successor tax liability in an asset deal:
For asset deals, states do not typically follow the federal income tax rule that there is no successor liability for a buyer unless the transfer constituted a fraudulent conveyance under state law. State successor liability statutes typically apply more broadly, do not require a fraudulent conveyance in order for successor liability to apply and may apply to more taxes than just sales and use taxes. State liabilities can be for all taxes. Just because you found the sales and use tax bulk sale law does not mean that you found all the tax bulk sale laws in the state. The laws can be contained in other tax statutes.
The memo also addresses how state & local income tax, sales & use taxes, real estate transfer taxes and unclaimed property laws can create problems for dealmakers – and highlights the need to include lawyers with SALT expertise on deal teams early on in a transaction.
– John Jenkins