Mergers & Acquisitions State and Local Tax Considerations. Tax Executives Institute St. Louis March 19, 2015

Transcription

1 Mergers & Acquisitions State and Local Tax Considerations Tax Executives Institute St. Louis March 19, 2015 Carl Erdmann Skadden Arps Washington, DC Charlie Fischer Deloitte Tax LLP St. Louis, MO

2 The Seller s Perspective 2

3 Plan In Advance to Maximize Value Will transfer taxes apply? Can we restructure to sell entities? NOL planning: Who is the seller? 3

4 Preparing For Due Diligence and Investigation by Buyer Assemble documents Consider adequacy of reserves Identify potential exposure for prior deficiencies (tax shelters, etc.) What kind of tax representations are we prepared to give? (accuracy of returns, nexus in some states) What if the business people can negotiate a deal in which the buyer takes the company as is and we have no liability for back taxes? 4

5 What Gain or Loss Will We Have on the Sale? Calculate basis of assets Different from federal? Calculate basis of subsidiary stock Different from federal? Differences resulting from filing separate returns in some states 5

6 Will Gain or Loss Be Business Income or Nonbusiness Income? Functional and transactional tests Statutory rules Case law on liquidating sales (including 338(h)(10) transactions) Unitary business issues if a subsidiary s stock is sold 6

7 How Will Gain Be Apportioned or Allocated? Potential for states to use special methods Will gain or gross proceeds be included in receipts factor? 7

8 Special Issues Involving 338(h)(10) and 336(e) Transactions Are the sale proceeds included in the receipts factor of the apportionment formula? Who pays income tax on the gain in states in which the selling parent and the subsidiary file separate returns? Will there be a sales tax liability? Uncertain state tax treatment of 336(e) transactions 8

9 Will There Be Sales Tax Liabilities? Are any assets exempt? Who will pay the tax? Can we potentially avoid sales tax by dropping assets into an LLC and selling the LLC interest (thereby converting a sale of tangible property into a sale of intangible property)? 9

10 Will There Be Real Property Transfer Tax Liability? Tax can apply on a sale of real estate or on a sale of stock of a entity owning real estate If there is a tax, who will pay it? 10

11 Credits and Incentives Will we lose any investment or other credits that are conditioned on our company s continuing to use property or employing people in a particular state? 11

12 How Should We Handle Our Intellectual Property? Should we retain some of it and license it to the buyer? If we do, should we isolate it in a separate holding company? Location, economic substance, and similar issues 12

13 Pre-Planning Is there any pre-sale structural planning that we can do (e.g., drop stock into a holding company with lower effective tax rate)? 13

14 Tax Administrative Problems Who will file tax returns? Transfer of records Who gets refunds from prior years? Who files refund claims? Who controls audits/litigation? 14

15 The Buyer s Perspective 15

16 General Acquisition Questions Fundamentals 3 levels of SALT analysis Does the state(s) follow federal treatment? Are there ways to potentially enhance the transaction to minimize SALT costs? Can we utilize federal or international transaction planning techniques in the SALT area? 16

17 General Acquisition Questions (cont d) Funding of acquisition All cash Debt third-party lenders Which entity is doing the borrowing? General corporate policy on debt Structuring after the acquisition Combination debt and cash 17

18 General Acquisition Questions (cont d) Review of current structure are there problems that can/should be corrected during the deal? Assets or entities in wrong places Anticipated corporate structure after acquisition Integration of newly acquired companies/assets What is the business plan for this acquisition (e.g., long term, short term, strategic assets)? 18

19 General Acquisition Questions (cont d) Are non-core assets being acquired? If yes, structure acquisition to minimize state tax consequences upon subsequent disposition nonbusiness income treatment Due diligence Instant unity? What can be done to enhance desired treatment? 19

20 Structure of the Acquisition (cont d) Stock purchase Use an acquisition company? C corporation v. pass-through entity Tax profile of combined group extent of presence in jurisdictions disallowing intercompany expenses 20

21 Structure of the Acquisition (cont d) Evaluate the benefits v. detriments of stock purchase Corporate liabilities General Taxes both federal and state Consider provision in purchase agreement to limit liability Non-tax related liabilities, e.g., environmental Did the acquired corporation implement any tax strategies: federal or state? Strengthen or end the strategy? 21

22 Structure of the Acquisition (cont d) Abandoned property compliance corporation and previously acquired corporations Indemnity vs. Escrow vs. Fix the darn problem! Tax benefits NOLs limitation of use Credits Economic incentives Tax filing positions Water s-edge elections Consolidated/combined returns 22

23 Structure of the Acquisition (cont d) Licenses Employee benefit issues plans Structuring for franchise taxes Audits and tax liabilities prior to acquisition date responsibility? Asset Purchase Valuation of assets Tangible and intangibles 23

24 Structure of the Acquisition (cont d) Sales tax issues Resale certificate for inventory items Evaluate casual sale exemptions Bulk sales notices Real estate transfer taxes Re-title real property Real property taxes trigger re-valuation? Prop 13? Movable property Retitle Reregister all movable property 24

25 Structure of the Acquisition (cont d) Employees Will employees be offered positions? Benefit plans integration into existing plans Withholding issues Unemployment rates SUTA-dumping issues? Structure after purchase Location of the assets Which company to hold assets? Nexus issues Apportionment issues Excise/sales tax issues 25

26 Structure of the Acquisition (cont d) Secure corporate records: Tax returns and back-up Support for economic incentives Any valuation studies Audits for period of prior to acquisition 26

27 Structure of the Acquisition (cont d) Deemed Asset Purchase - 338(h)(10) Consideration of actual as well as deemed liquidation for positioning acquired assets Election for federal tax purposes Election for California purposes only Valuation of assets: Allocation of purchase price Agreement between the parties 27

28 Structure of the Acquisition (cont d) Deemed Assets Purchase - 338(h)(10) Should the purchase price be adjusted due to the loss of tax benefits? Seller may request a price adjustment due to additional gains recognized on the sale of assets. Effect on business/nonbusiness treatment in states? 28

29 Structure of the Acquisition (cont d) Miscellaneous Points Integration of financial and tax systems Tax reporting positions for initial returns after acquisition Stock v. asset Tax calendar for excise tax filings Listing of state audit history 29

30 Questions? 30

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