State and Local Tax Considerations for Business Acquisitions and Divestitures

Patrick Duffany, CPA, and Milo W. Peck, JD, and Corey Rosenthal, JD

There are several points in a business's life cycle that represent increased risk. One prime example is the buying or selling of all or part of a business. Aside from the operational risks in such an undertaking, there are tax risks that can be complex but can also present opportunities to both the buyer and seller. State and local tax risks vary, based upon the type of transaction (i.e., stock or asset sale), type of entity being purchased or sold (i.e., partnership or corporation), and the type and history of the business being acquired. Understanding the tax profile of the buying and selling entities, the jurisdictions in which each business has operations, and the long-term goals of the parties is key to providing prudent advice. This article focuses on certain state and local risks that should be considered in any purchase/sale transaction.