The economic recovery since the Great Recession has allowed many businesses the flexibility to look for growth opportunities. As a result, many pundits are optimistic that mergers, acquisitions and other business restructurings will increase in 2014 and for the foreseeable future. Although the rewards of acquiring another business can be great, such transactions are complicated due to the various tax, legal, and regulatory issues involved. While both the seller and purchaser may devote significant time to the performance of due diligence procedures, they often overlook sales tax considerations.
Is the Sale of a Business Subject to Tax?
Generally, purchasers can acquire another business through either an asset sale or stock sale. Since sales tax is generally imposed on the sale of tangible personal property, the acquisition of a business enterprise through a stock sale generally will not be subject to sales tax. For other good and valid reasons, however, purchasers may want to structure the acquisition of the business as an asset sale. These asset sales, where all or part of the business's assets are transferred, are commonly referred to as bulk sales for sales tax purposes. Since these asset sales or bulk sales constitute, at least in part, the sale of tangible personal property, they will be subject to sales tax unless a specific exemption applies.