Business owners sometimes decide to put their companies on the market. When doing so, they may focus on the federal tax implications of a sale and ignore the state tax implications, too. This brief article touches on some key issues regarding state taxes.
For various reasons, business owners will put their companies on the market. To successfully negotiate the sale of a business, it’s critical to understand the tax implications of the various transaction structures and sales price allocation to quantify the net proceeds after all taxes. Armed with this knowledge, the sales price should be adjusted accordingly.
Business owners tend to focus on the federal tax implications of a sale. Don’t ignore state taxes including sales tax, income tax and multi-state claims on the gain. Federal tax rates are lower than they’ve been in the past; state taxes may take on added significance. If applicable, relocating to a state with lower taxes before the sale may reduce the tax bill.
Before you attempt this strategy, consult a qualified tax advisor. Changing your business location and residence for tax purposes isn’t like flipping a switch. You’ll need to take several specific actions to demonstrate your intent to establish a permanent place of business in the new state, including registering with the state and confirming to various state reporting rules. For proof of a change of resident state, moving to a local residence, obtaining a driver’s license, registering to vote, and becoming involved with local organizations and activities provide evidence of the change.
There may be rules about the number of days spent in the state to establish residency. For instance, if you live in your “old” state most of the year and spend only a couple months in your new state, you could find for tax purposes, you’re deemed a resident of both states. We can help you prepare for the state tax implications of a business sale and personal relocation.
The HoganTaylor Tax Practice
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax practice, please email Tony Otto, Tax Practice Lead, at jotto@hogantaylor.com. You may also contact Denise Felber, Tax Partner, at dfelber@hogantaylor.com
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
