Selling your tech company? How sales tax exposure could cost you at the closing table

If you’ve built a tech or SaaS company to $10 million or more in revenue and you’re considering a sale, there’s a good chance your sales tax exposure is larger than you think. We say this not to alarm you, but because we’ve seen it play out dozens of times. The seller is confident their tax house is in order. The buyer’s due diligence team runs their own analysis. And a six- or seven-figure liability appears that nobody anticipated.

At Miles Consulting Group, we work with companies on the selling side of M&A transactions to identify, quantify, and resolve sales tax exposure before it erodes the value of the deal. The companies most affected tend to be fast-growing tech and SaaS businesses selling digital products and subscriptions across state lines, which is exactly the profile of the companies we work with.

Key takeaways: protecting your valuation from sales tax exposure

• Tech and SaaS companies are particularly vulnerable to undetected multi-state sales tax exposure because of economic nexus laws and complex taxability rules for digital products.
• Buyers will find your exposure during due diligence and use it to negotiate the purchase price down or impose escrow holdbacks.
• Proactive remediation before going to market protects your valuation and keeps you in control of the conversation.
• Voluntary disclosure agreements can reduce historical liability, waive penalties, and shorten lookback periods across multiple states simultaneously.

Why economic nexus creates hidden sales tax exposure for tech and SaaS companies

Since the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc. (PDF), every state with a sales tax has adopted economic nexus rules. If your company generates more than $100,000 in revenue in a state (the threshold in most jurisdictions), you may be required to collect and remit sales tax there, even with no physical presence.

For a SaaS company selling subscriptions nationwide, crossing that threshold in 20 or 30 states is not unusual. And the taxability of your products makes the picture even more complicated: states classify SaaS differently. Some treat it as tangible personal property, others as a taxable service, and some exempt it entirely. Implementation fees, training services, data processing, and AI-powered features may each be treated differently within the same state.

Many companies rely on a general accountant or an automated tax platform without specialist oversight. The software calculates rates, but if the underlying configuration doesn’t reflect how each state classifies your specific products, the output is wrong. We’ve seen cases where companies filed for years based on flawed assumptions and never knew it.

The exposure compounds quickly. At an average combined rate of 6% to 8% across multiple states, even moderate revenue can generate a liability in the hundreds of thousands, and it grows with every quarter you continue selling without collecting.

What happens when a buyer uncovers your sales tax exposure

When a larger company is considering acquiring your business, their tax advisors (often a Big Four firm or a specialist state tax practice) will run their own tax due diligence. They’ll look at where you have economic nexus, where you’re registered, where you’re filing, and where the gaps are.

If they find exposure, the deal starts to shift. You may see a reduced purchase price, an escrow holdback to cover the estimated liability, indemnification clauses in the purchase agreement, or, in some cases, a deal that falls apart entirely. The buyer’s estimate is designed to protect the buyer, so it tends to be conservative. If you haven’t done your own analysis, you’ll be responding to their numbers rather than presenting your own.

We worked with a family-owned manufacturer and equipment lessor that was preparing for sale when the buyer’s due diligence identified potential sales tax exposure exceeding $2 million across more than 20 states. The company had collected tax properly in its home state but hadn’t evaluated the impact of economic nexus laws or destination-based sourcing rules in other jurisdictions. What had long felt like a localized compliance issue became a transaction-level risk that threatened the value of the family’s exit.

Their M&A consultant referred them to Miles Consulting Group. We conducted a comprehensive nexus study and taxability review, entered into voluntary disclosure agreements to reduce lookback periods, negotiated penalty abatements, and contacted customers to determine whether tax had already been self-assessed. The initial $2 million estimate was reduced by approximately $1 million, and the transaction closed successfully.

How to address sales tax exposure before you go to market

The best approach is to take control of the analysis before a buyer does it for you. We recommend working through these steps in order.

Commission a nexus study. Understand where you actually have collection obligations based on your current revenue, transactions, and activities. This is the foundation for everything that follows.

Conduct a taxability review. Determine how your specific products and services are classified in each relevant state. For tech companies, this is especially critical because sales tax on digital products is applied inconsistently across jurisdictions.

Quantify your exposure. Get a realistic, defensible number rather than waiting for the buyer to guess. A specialist-reviewed analysis carries weight in negotiations that an internal estimate does not.

Remediate strategically. Voluntary disclosure agreements, offered by most states, allow you to come forward and resolve past-due obligations with reduced lookback periods (typically three to four years) and penalty waivers.

Document everything. A clean, well-documented sales tax compliance posture gives buyers confidence, reduces the risk of successor liability disputes, and preserves your negotiating position.

The ideal time to address sales tax is before M&A is ever on the agenda. Once it is, timing matters. 6 to 12 months before going to market is ideal, but even during active due diligence, remediation is possible. We’ve worked on transactions where we were brought in just days before closing and still achieved meaningful results.

The difference between a defensible number and a guess

Sellers who present a documented, specialist-reviewed exposure analysis are in a stronger negotiating position. The buyer’s estimate is built to protect the buyer; yours should protect you.

In the case of the family-owned company referenced above, the buyer’s initial $2 million figure included assumptions that didn’t hold up under specialist review. By analyzing the actual nexus triggers, taxability classifications, and lookback periods state by state, we reduced the number by approximately half. That wasn’t about hiding liability. It was about accuracy.

You’ve spent years building this company. Don’t let unresolved sales tax exposure erode the value you’ve created. The best time to address it is before anyone asks. The second-best time is now.

Considering a sale in the next 12 to 24 months?

Let’s review your sales tax posture before due diligence begins. Contact Miles Consulting Group at info@milesconsultinggroup.com or book a consultation through our website.

Frequently asked questions

How much can unresolved sales tax exposure reduce a business valuation?

It depends on the scale of the exposure and the deal structure, but in our experience, holdbacks of $500,000 to $2 million are not uncommon in mid-market tech transactions. In some cases, deals have collapsed entirely because the buyer couldn’t quantify the risk or the seller couldn’t demonstrate a path to remediation.

What is economic nexus and why does it matter when selling a business?

Economic nexus means a state can require you to collect and remit sales tax based on your revenue or transaction volume in that state, even without any physical presence there. For tech and SaaS companies selling nationwide, this typically creates obligations in dozens of states. When selling a business, any unresolved obligations become a liability that the buyer will identify and factor into the deal.

Can sales tax exposure be resolved during an active M&A transaction?

Yes. While earlier is always better, experienced specialists can design and execute remediation plans during due diligence or even in the final days before closing. Tools like voluntary disclosure agreements allow companies to come forward and resolve past-due obligations with reduced penalties and shortened lookback periods, even under tight transaction timelines.

What is the difference between a nexus study and a taxability review?

A nexus study identifies where your company has a legal obligation to collect and remit sales tax, based on your revenue, transactions, and physical activities in each state. A taxability review determines how your specific products or services are classified and taxed in each jurisdiction. Both are essential: you need to know not only where you owe, but what you owe on.

How do voluntary disclosure agreements reduce sales tax liability?

Voluntary disclosure agreements are programs offered by individual states that allow businesses to resolve past-due tax obligations proactively. They typically limit the lookback period to three or four years rather than the full statute of limitations, waive penalties, and provide a structured path to ongoing compliance. For companies preparing for a sale, VDAs are one of the most effective tools for reducing historical exposure.