Income Taxes: Mergers and Acquisitions (Portfolio 1240)

Description

Tax Management Portfolio, Income Taxes: Mergers and Acquisitions, No. 1240, addresses the state income and franchise tax considerations that should be taken into account in planning corporate acquisitions. Tax planning for corporate acquisitions generally involves a primary emphasis on federal tax considerations. State and local tax considerations are often not addressed completely or are addressed too late in the process. Although all types of state and local taxation, e.g., sales and use taxes and property taxes, should be considered in planning corporate acquisitions, this Portfolio focuses on state and local income and franchise tax considerations.

The state and local income and franchise tax consequences of a corporate acquisition can go beyond merely subjecting the buyer to tax on the income of the target from the state. Many states would require the buyer to file corporate franchise tax returns on which its worldwide income would be reported. The state’s share would then be determined by applying an apportionment formula computed by using the buyer’s worldwide property, payroll, and sales. This could result in a state tax liability substantially higher than the taxes that the target was previously paying on its operations in the state. Thus, the projected tax consequences of subjecting the buyer to tax in the jurisdictions in which the target does business should be determined when the transaction is structured. Finally, establishing a small location in a unitary state as a result of a poorly planned acquisition transaction, can often subject a post-acquisition corporate group into an unintended unitary filing.

Updates to the print and internet version of the Portfolio will be incorporated directly into the Detailed Analysis.

Subscribers to the Internet version of the Portfolio will find late-breaking developments reported in the Bloomberg Tax Daily Tax Report – State.

This Portfolio may be cited as Faber, 1240 T.M., Income Taxes: Mergers and Acquisitions. Within the Multistate Tax Portfolio Series, however, references to the Portfolios will include only the Portfolio numbers and titles.

Table of Contents

1240.01. Introduction
1240.02. General Considerations
1240.03. Taxable Acquisitions
1240.04. Tax–Free Reorganizations
1240.05. Net Operating Loss Carryovers And Other Tax Attributes