Question

1.      What nonimcome/franchise tax issues should the consultant be concerned with in M&A transactions?

Answer 1

Non -income tax are taxes that are not charged on the income of the person but they are the various state taxes like excise,VAT,sales tax and other state related taxes levied on an individual.Franchise tax on the other hand is a tax that states charge on corporations and other business entities,such as limited liabilty comapnies(LLCs),for the previlege of incorporating or doing business in their state.these taxes are seperate from state income taxes imposed on corporations and other businesses.

the major tax issues to be concerned with in MERGERS and ACQUISITIONS transactions are:

1)bulk sales tax law : many states have adopted bulk saes tax laws that holds that the purchaser of assets are liable for sellers unpaid state tax laibilties.this is done to minimize the risk that a seller will sell some of the companies assets without payment pf outstanding state tax liabilities and provides an alternative means for recivery of tax liabilties.so this should be taken care of during any merger and acquisitions.

2)change in the business structure: the decison to operate a newly acquired company as a seperate entity or as a division pf the acquirer may have significant changes for purpose of franchise,corporate income and sales taxes.lets take an example that if a company A of state x merges with company B of state y , forming a new company in state y,then the company A needs to review its tax consequences as per the state Y.

3)FRANCHISE TAX consequences:franchise tax issues are also important to consider.For income tax purposes,a states combined reporting rules may reduce the effects of exposing a compays income to tax as a result of mergers and acquisitions for example inter company transactions elimination rules varies in different states.

4)sales taxes and real estate transfer taxes : many sales tax statutes are broadly written and could encompassmergers and acquisitions unless some states may exempt some sales from purview of sales tax by excluding such transaction from definition of "sale". another set of taxes to consider are state and locality transfer taxes on sales or transfer of real property that is located in a state.such taxes may be based on amount paid for the property ie. the value thereof.the internal reorganisations during M&A can create opportunities for some fauts and should bespecifically considered.

The above considerations are some tax issues which a consultants should be concerned with during any meregers and acquisitions as related to non income realted taxation.