M&A Activity Expected to be Strong For 2017

According to a KMPG, LLP survey, 84% of those surveyed expect to initiate a deal in 2017, 75% plan on doing multiple deals. Middle market deals are expected to dominate in 2017 and 78% say their deals would be worth less than $500 million. The most active industry is technology (45%).

Not all deals made it to completion in 2016. According to the KPMG survey, deal failures were most frequently caused by valuation disagreements, a bidding loss and issues revealed during due diligence (financial, operational and management).

Here is  link to the KPMG survey.

Here is a link to a Middle Market M&A study put together by Citizens Commercial Banking.

Here is a link to a Forbes article on the 4 biggest trends in M&A for 2017.

Is your company considering restructuring its business?  Perhaps creating new legal entities or re-aligning its lines of business into different entities?  Changing the ownership structure of the legal entities within the commonly controlled affiliated group?  Or maybe it is considering acquiring or merging with a new business (unrelated third-party)?

Regardless of your company's situation, in each of the above mentioned scenarios, your company must perform its due diligence prior to completing any transaction or restructuring. That due diligence should take into consideration the impact the restructuring or transaction will have on the business operations, legal obligations, insurance, finance, and tax, etc.  

In regards to the tax implications, there can be significant tax ramifications on the transaction or restructuring itself.  In addition to the federal tax impact, the state and local tax impact can be material and varied.  Some of the potential state and local taxes to take into consideration are:  income tax, gross receipts taxes, franchise taxes, sales and use taxes, property taxes and transfer taxes.

Usually the biggest concern in regards to the transaction from a state and local tax perspective are:  

• Is there any sales tax on the sale or transfer of assets or change in ownership? 
• Is there any transfer tax on the transfer of assets or change in ownership?

The answers to these questions depends on the state or states involved.

In addition to the above, the impact that the restructuring will have on the business' state tax nexus (taxable presence) position across the country should be reviewed and considered before making any changes.

So What?

If your company is currently considering any restructuring or acquisition, don't forget about performing state and local tax due diligence.  If the transaction ends up costing the company a significant amount of state tax dollars now or in the future, you may be asked if these issues were considered or reviewed prior to completing the transaction.

Does your company have potential tax liability in multiple states?

Does your company have potential tax liability in multiple states?

Is your company looking for options to resolve?

The Multistate Voluntary Disclosure Program (“MVDP”) provides a way for a taxpayer with potential tax liability in multiple states (including the District of Columbia) to negotiate a settlement, using a uniform procedure coordinated through the National Nexus Program (“NNP”) staff of the Multistate Tax Commission (“Commission”).

For all of the details, go here.

Are you concerned about what tax law changes states will make this year?

The Pew Charitable Trusts provides The Stateline 2017 calendar which includes each state’s legislative schedule as well as maps of the political landscape. Keep it handy to help you track legislative action in all 50 states.

A STATE TAX 'MUST READ' FOR 2017

With federal tax reform highly likely and international tax reform working in the background, state tax reform may be close behind.

It is definitely an interesting time to be working in the tax field. With new ideas and new perspectives, we are most assuredly closer to change than we have ever been. If we have learned anything about change, is that change requires 'us to change.' We must be open to new ways of thinking, but we must also be involved. Stay informed. Speak up. Play a part.

Liz Malm at Multistate Associates, Inc. has written 3 recent posts in their Multistate Insider publication that you have to read if you are curious at all about what will happen with multistate taxes in 2017. 

First, "Tax Issues to Watch in 2017: Taxation of Services."  According to the post, the sales taxation of services could be seriously debated in 16 states during the upcoming state sessions. The post provides a great explanation, recap and overview of all states as its relates to the sales taxation of services.

The second post you must read is "State Tax Policy in 2017: What to Expect." The post covers some of the biggest policy trends impacting multistate taxation. Trends that grew in strength in 2016, and may get even stronger in 2017, such as: sales tax nexus, sales taxation of services, short-term rental taxation, tangible personal property taxes, combined reporting and apportionment changes, tax havens, general rate increases and elimination of exemptions and deductions, and last but not least, questions surrounding what the state tax fallout will be from federal tax reform.

Third, find out what the National Conference of State Legislatures is thinking by reading "NCSL Tax Task Force Meeting Spots Emerging Issues for 2017." 

New Year, New Legislative Sessions and the MTC

I hope your new year is going well. State tax legislative sessions are beginning and talks of crazy tax hikes (Illinois), and imposing sales taxation collection obligations on remote retailers is commencing (Wyoming). Some may even try to eliminate the corporate income tax (Missouri).

The Multistate Tax Commission continues its Sec. 18 Regulatory Project. According to the MTC, the Section 1 and 17 workgroups have identified a list of issues that may need to be addressed by the Uniformity Committee in light of changes to Article IV (UDITPA) adopted by the Commission in 2014 and 2015. The list includes (but is not limited to) the following:

•  Address the possible distortion that could be caused by the exclusion of functional receipts from the definition of “receipts” for purposes of the receipts factor in certain circumstances.
• Consider exceptions to the definition of “receipts,” which now excludes receipts from securities and hedging, where these receipts might represent “transactional” receipts for certain taxpayers (e.g. brokers) as well as how possible distortion might be avoided (e.g. churning of investments).
• Consider whether receipts from factoring of receivables should ever be included in the receipts factory.
• Address any situations where general population data, used under the draft Section 17 sourcing rules, might result in distortion and what methods might be used to address that distortion.
• Consider whether there needs to be a “de minimis rule” for sourcing of receipts in certain instances so that the taxpayer may use a proxy for sourcing, or possibly throw out those receipts from the factor.
• Address regulations that might be needed to interpret and implement the amendments to Article IV, Section 18 made by the Commission in 2015.
• Consider other special industry rules that might be necessary.

In addition to the technical matters we deal with, I hope your career is moving in the direction you desire. If not, remember, action over intention. Can't get a different result by doing the same thing over and over again.

COST Releases 14th Annual Study of State and Local Business Taxes

The Council On State Taxation (COST) recently released its fourteenth annual study of state and local business taxes. The report, "Total State and Local Business Taxes: State-by-State Estimates for Fiscal Year 2015," prepared by Ernst & Young LLP, shows all state and local business taxes paid in each of the 50 states and the District of Columbia. These taxes include business property taxes; sales and excise taxes paid by businesses on their input purchases and capital expenditures; gross receipts taxes; corporate income and franchise taxes; business and corporate license taxes; unemployment insurance taxes; individual income taxes paid by owners of non-corporate (pass-through) businesses; and other state and local taxes that are the statutory liability of business taxpayers.

According to the report, businesses paid more than $707.5 billion in state and local taxes in FY 2015, an increase of 1.9% from FY 2014. State business taxes grew less quickly than local taxes, with state taxes growing 1.0% compared to local tax growth of 2.9%. In FY 2015, business tax revenue accounted for 44.1% of all state and local tax revenue. The business share has been within one percentage point of 45% since FY 2003. 

I always enjoy these reports as they provide additional insight and context into the debate around state tax policy. The difference in the amount of sales taxes paid versus income tax paid always stands out to me: 

• General sales taxes on business inputs and capital investment totaled $150.6 billion, or 21.3% of state and local business taxes. 
• State and local corporate income and business gross receipts tax revenue was $67.3 billion, or 9.5% of all state and local business taxes. 

Will the report encourage changes in state tax policy? 

Will the report encourage taxpayers to change tax planning or operations?