State Taxation of Mergers and Acquisitions, written by Gregory E. Stern, Esq., analyzes the state and local tax implications of mergers and acquisitions by corporate multistate taxpayers. The potentially significant state and local tax liabilities generated by these transactions can often be reduced or eliminated through proper planning.
This Portfolio begins with a review of the various types of state and local taxes, focusing on their applicability to the corporate multistate taxpayer. The discussion then turns to the primary state and local tax considerations for selected corporate transactions not in the regular course of the taxpayer's trade or business. These transactions include transfers of property to and from corporations, stock and asset acquisitions, and mergers and reorganizations.
The discussion addresses mergers, other reorganizations, and property transfers in those states with specific tax exemptions. Stock and asset transactions are discussed, with planning considerations set out for each type of acquisition from the perspective of both buyers and sellers.
With respect to stock acquisitions, this Portfolio discusses the advantages and disadvantages of combined or consolidated reporting, the availability of state net operating loss carryforwards, and the state tax treatment of elections under §338, including the election under §338(h)(10). The Portfolio summarizes the characterization of gain from the sale of subsidiary stock as business or nonbusiness income from the seller’s standpoint, the constitutional limitations on state taxation of this income, and the apportionment or allocation of any such gain to the various states in which the seller does business.
With respect to asset acquisitions, State Taxation of Mergers and Acquisitions provides planning techniques to minimize state taxation through purchase price allocations and the use of investment subsidiaries. Nexus and the effect of purchasing assets on a buyer's national or worldwide income are covered, as are the various exemptions from sales and use tax in each state upon the acquisition of assets.
The buyer's potential liability for the seller's state taxes is also analyzed, with a discussion of the requirements in each state for avoiding successor liability, whether through escrows, clearance certificates, or the relevant bulk transfer statutes.
Finally, this Portfolio discusses some of the principal issues that arise when the buyer has multinational operations, including the interaction of state tax regimes and foreign source income and loss.
Although terminology may vary from state to state, the Portfolio examines the following types of state and local taxes and credits, which are most likely to be involved in the corporate transactions:
State Taxation of Mergers and Acquisitions allows you to benefit from:
This Portfolio is part of the U.S. Income Portfolios Library, a comprehensive series that includes more than 200 Portfolios, which cover every federal tax topic with expert, in-depth analysis, and offer commentary on a wide range of federal taxation topics, including Compensation Planning, Deductions and Credits, Partnerships and Corporations, Special Pass-Through Entities, Corporate Reorganizations, Real Estate, Procedure and Administration, and more.
Detailed Analysis
I. Introduction
II. Overview of State Taxation
A. Sales and Use Taxes
1. In General
a. Sales Taxes
b. Use Taxes
2. Common Sales and Use Tax Exemptions
a. Occasional or Casual Sale
b. Sale-for-Resale
c. Manufacturing Property
d. Transactional Exemptions
e. Exempt Organizations
3. Bulk Sales
B. Gross Receipts Taxes
C. Corporate Income Taxes
a. Jurisdiction to Tax
b. Business vs. Nonbusiness Income
c. Unitary Businesses
2. Other Income Tax Laws
a. Interstate Income Law
b. Multistate Tax Compact
D. Franchise (Capital Stock) Taxes
E. Real Property Taxes
1. Reassessment
2. Transfer Taxes
F. Unemployment Taxes
III. Mergers, Reorganizations and Property Transfers
IV. Stock Transactions
A. In General
B. Tax Planning
1. Buyer's Perspective
a. Representations and Warranties
b. Combined or Consolidated Reporting
c. Net Operating Loss Carryforwards
(1) Federal Provisions
(2) State Provisions
d. Deductibility of Interest
e. Elections Under § 338(g) and (h)(10)
(2) State Provisions - Overview
(3) State Provisions - Specific
2. Seller's Perspective
a. Amount of Gain
b. Characterization of Gain
(1) State Law
(2) Federal Constitutional Limitations
(3) Planning Opportunities
c. Election Under Section 338(h)(10)
d. Loss Upon Sale
C. State Law
V. Asset Transactions
A. General
a. Purchase Price Allocation
b. Successor Liability
c. Nexus and Apportionment
d. Investment Subsidiaries
e. Net Operating Loss Carryforwards
f. Sales and Use Tax Exemptions
g. Real Property
c. Apportionment of Business Income
1. Alabama
2. Alaska
3. Arizona
4. Arkansas
5. California
a. Sales and Use Taxes
(1) Sale for Resale
(2) Occasional Sales
(3) Bulk Sales
(4) Mergers, Reorganizations and Property Transfers
b. Property Taxes
c. Income Taxes
6. Colorado
7. Connecticut
8. Delaware
9. District of Columbia
10. Florida
11. Georgia
12. Hawaii
13. Idaho
14. Illinois
b. Bulk Sales
c. Reorganizations
15. Indiana
16. Iowa
17. Kansas
18. Kentucky
19. Louisiana
20. Maine
21. Maryland
22. Massachusetts
23. Michigan
24. Minnesota
25. Mississippi
26. Missouri
27. Montana
28. Nebraska
29. Nevada
30. New Hampshire
31. New Jersey
b. Income Taxes
32. New Mexico
33. New York
(1) Manufacturing Equipment
(2) Sale for Resale
(3) Mergers, Reorganizations and Property Transfers
(4) Other Exemptions
(5) Bulk Sales
(a) Buyer's Obligations
(b) Seller's Obligations
(1) Mortgage Recording Tax
(2) Real Estate Transfer Tax
(3) Real Property Transfer Gains Tax
34. North Carolina
35. North Dakota
36. Ohio
37. Oklahoma
38. Oregon
39. Pennsylvania
40. Rhode Island
41. South Carolina
42. South Dakota
43. Tennessee
44. Texas
45. Utah
46. Vermont
47. Virginia
48. Washington
49. West Virginia
50. Wisconsin
51. Wyoming
VI. International Considerations
Introductory Material
A. Worldwide Combined Reporting and the “Water's Edgeâ€
B. Foreign Dividends and Deemed Dividends
C. Foreign Sales Corporations and Extraterritorial Income Exclusions
Working Papers
Table of Worksheets
Other Resources
Worksheet 1 Exchange of Information Agreements (Income Tax, Sales and Use Tax) (proposed by the Multistate Tax Commission)
Worksheet 2 Multistate Tax Compact (proposed by the Council of State Governments)
Worksheet 3 Uniform Division of Income for Tax Purposes Act (proposed by the National Conference of Commissioners on Uniform State Laws)
Worksheet 4 Multistate Tax Commission Allocation and Apportionment Regulations
Worksheet 5 Uniform Sales and Use Tax Certificate (proposed by the Multistate Tax Commission)
Worksheet 6 Model Recordkeeping and Retention Regulation
Worksheet 7 Stock Purchase Agreement
Worksheet 8 State Tax Acquisition Checklist
Bibliography
OFFICIAL
Statutes:
State Statutes:
Federal Statutes:
Treasury Rulings:
Cases:
UNOFFICIAL
Texts and Treatises:
Periodicals:
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2001
2002