TABLE OF CONTENTS To evaluate the state and local income tax consequences of a transaction or effectively recommend alternative transaction structures to taxpayers involved in mergers and acquisition (M&A) activities, business decision makers must understand the business and legal constraints on the transaction structure of the multistate operations of the entities involved. They also must understand the Federal income tax treatment of the transaction. This is important for entrepreneurs and managers, but vital for outside accountants, attorneys, and management consultants.
Although consultants typically focus on the Federal tax consequences of M&A transactions, state and local taxes also are very important. One of the primary reasons for this is that managers and other people inside business organizations rarely have more than a rudimentary knowledge of taxation in jurisdictions other than the one in which they work.
Before discussing the specific state income tax treatments of common M&A, it is best to make sure that there is a firm understanding of the following general state income tax issues: state tax conformity or nonconformity with Federal tax treatment, nexus changes, filing status changes, apportionment/allocation changes, and compliance issues.
As discussed previously, states often deviate from Federal income tax treatment. There can be a wide variety in their approach from state to state. It thus is important to carefully analyze any M&A transaction to...
