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Overview

Altus Group understands that there is no tax that can scuttle a proposed merger or acquisition faster than sales tax.  Our transaction tax group has a wealth of experience in multi-state sales & use tax laws and understands their proper application to operational and capital transactions in a variety of industries. This expertise maximizes enterprise value and preserves exit strategies by minimizing audit exposure, reducing the perils of unrecorded liabilities and preventing the diversion of resources to satisfy unexpected tax assessments, penalties and interest.

Our Transaction Tax Team assisted a publishing company owned by a venture capital firm with its sales tax obligations in order to keep its balance sheet clean in anticipation of eventual sale. This entity provides a myriad of printing services both in print and online. Its customers include leading publishers, associations, societies, and university presses. Its operations entail the entire printing process offering web, offset and digital print services. As technology and the digital age continues to shape this industry, the provision of a wide array of services through a number of channels to a variety of customers in a multitude of states makes complying with sales & use tax laws a complex endeavor fraught with danger.

Challenge

Altus prepared taxability matrices for the company’s revenue streams in over twenty states, assisted with the mapping of the revenue streams into an automated tax solution, and tested the taxability determinations for accuracy. Once the sales population was fully analyzed and tax computations automated, Altus initiated voluntary disclosures in those states where taxable activities had previously been untaxed.  While the scope of the liabilities was unanticipated by the parent, discovery and correction of the liability’s pre-sale was critical to final valuation and recognition of contingency exposures for final negotiations, thereby ensuring that sales tax wouldn’t be a deal breaker uncovered by future due diligence.

Services provided

Our technology-enabled expert services enable commercial real estate professionals to connect to the market with greater speed, visibility and efficiency.

Solution

The Altus Group prefers this proactive approach to due diligence, assisting prospective buyers and sellers before a capital transaction is proposed. We understand the financial damage that can be caused when due diligence is poorly performed, leading to acrimony and lawsuits.  In a similar case, Altus was called upon after a company was purchased by a venture capital firm.  At the height of the market, the VC had purchased a company that sold goods to the hotel and lodging industry, which were in turn, provided to guests for their use.  Shortly after the purchase, the VC wasn’t realizing it hoped for return on investment due to depressed revenues caused by the hotel industry’s high vacancy rates.  They also became uneasy over this company’s treatment of sales tax on its transactions with the hotels.

Even though overall due diligence had been performed by a national accounting firm, our review uncovered an unrecorded two million-dollar sales & use tax liability. This liability occurred because the national accounting firm did not fully understand the nature of the transactions to which multi-state sales tax laws applied.  While our work proved to be sound, unfortunately nobody was happy with our findings.  The VC realized it overpaid for its acquisition, money that had been escrowed had long disappeared, the earn-out due to the company CEO took a significant hit, and the attorneys that drafted the contract’s indemnity language were concerned about the protections it afforded.

Results

These issues can all be avoided by proactive engagement of the right firm to analyze the complex sales & use tax details that surround those operational transactions acquisition targets engage in every day.  These transactions have the power to build the value of a business.  But an improper understanding of sales tax has the power to squander that value just as quickly. Sales & use tax due diligence performed by the seasoned professionals at the Altus Group transaction tax team can help ensure that the dangers presented by sales tax are identified and properly resolved before the transaction is completed.

Services provided

Our technology-enabled expert services enable commercial real estate professionals to connect to the market with greater speed, visibility and efficiency.

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