Case Study
Protecting a Cross-Border Acquisition from Hidden U.S. Sales Tax Risk
Company H
A Europe-based technology group acquiring a fast-growing U.S. software company (“Target Y”) selling electronically delivered software and cloud subscription products nationwide.
The Challenge
The acquisition promised rapid expansion into the U.S. market — but due diligence uncovered a significant obstacle.
Target Y had not consistently collected or remitted sales tax on key revenue streams across multiple states. Its nexus footprint had never been fully analyzed. In anticipation of the sale, executives had rushed to register in several jurisdictions without establishing consistent filing or collection processes, compounding the risk rather than resolving it.
The result:
- Multi-state historical exposure tied to electronically delivered software and SaaS revenue
- Unclear liability allocation between buyer and seller
- A substantial escrow holdback imposed at closing
- Tight transaction deadlines with limited room for error
For Company H, the issue was not just historical tax — it was successor liability. Without a clear remediation plan, the buyer risked inheriting open-ended state tax exposure that could undermine the value of the transaction.
The numbers mattered. But so did the interpretation.
The Solution
Miles Consulting Group was engaged just days before closing to bring structure and strategy to an increasingly urgent situation.
Our role was not simply to calculate exposure — it was to clarify risk, allocate responsibility, and design a path that regulators would accept.
Working closely with Company H and former executives at Target Y, MCG:
- Refined the high-level exposure analysis across multiple jurisdictions
- Identified where taxability determinations required nuanced interpretation
- Distinguished liabilities attributable to pre-closing activities versus those that could impact the buyer
- Designed a remediation roadmap leveraging voluntary disclosures, negotiated settlements, and corrective filings
- Addressed inconsistencies created by rushed registrations and incomplete filings
In complex M&A environments, data alone does not solve the problem. It must be interpreted, structured, and negotiated in a way that aligns legal, financial, and regulatory realities.
MCG provided the strategic oversight necessary to move the deal forward with confidence.
The Outcome
Through targeted negotiations and structured remediation:
The escrow holdback was unlocked
Approximately $100,000 was preserved for the sellers
Company H was shielded from successor sales tax liability tied to pre-closing activities
A clear and defensible compliance roadmap was established for post-acquisition operations
Most importantly, the transaction closed without open-ended tax uncertainty undermining the investment thesis.
Company H proceeded with its U.S. expansion confident that historical state tax issues were being resolved methodically — not deferred as future risk.
