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Presented by Avalara
Growth strategies can vary widely among companies and industries. The catalyst to growth, or in some cases the outcome of growth, is an influx of new funding, intellectual or physical property, or technical capability resulting from financing events, mergers, and acquisitions, and even changes or upgrades to technology platforms.
During these dynamic change events, tax compliance often takes a backseat to other priorities. But it shouldn’t.
Company growth can vastly change your sales tax nexus footprint (the obligation to collect sales tax in a state based on sales activities in that state). Having a reliable, scalable plan in place to deal with any new tax obligations that result from these changes is imperative to avoid any lapses in compliance that could come back on you.
Here’s a look at three company-related activities that can have a dramatic impact on its tax liabilities.
1. Financing events
Companies need capital to grow. But backing a venture is a big decision — a risky one — and investors don’t fund deals without first doing their homework. For any financing event, public or private, investors not only look closely at how you plan to grow the business but also how you are managing it now. This includes tax compliance and audit histories.
The impact of sales tax on company valuation is often underestimated. But that can be detrimental. If there is a funding round, company sale, or IPO, being clean and consistent and having an auditable record is of the utmost importance. Poor sales tax management practices or unfavorable audit outcomes can impact valuation, jeopardize funding or even nullify deals.
High-visibility events like funding rounds and IPOs can also bring your business to the attention of state auditors looking to draw in more tax dollars. Companies with a higher profile and higher revenues tend to be chosen for audits more often warns Shane Ratigan, a tax attorney and compliance manager for Avalara.
Several states have nexus discovery units within their revenue departments that scour public information to find companies that are not compliant with their states’ laws. The more you “stand out from the crowd” among other businesses, the more likely they are to pay attention to your situation.
Andrew Johnson, Managing Partner at Peisner Johnson, LLP notes, “In some cases, an acquiring company requires the seller to provide a ‘tax clearance certificate’ or its equivalent from states where the target company is doing business. Certain states may also require buyers and sellers to give notice of a sale of the company.”
A phase of rapid growth can quickly change your tax profile. To avoid frequent reassessments of tax risk or worse, missing it…