M&A and Transaction Support
A sales tax problem that you could have quietly resolved on your own becomes something far more dangerous in a deal: leverage for the buyer.
A $500,000 liability sitting on your books is a $500,000 liability. The same $500,000 surfacing in due diligence can cost you far more, because once a buyer’s team finds it, they don’t just want it paid. They may want a larger escrow holdback, a lower price, an indemnity clause, or all three. Unresolved sales tax exposure becomes leverage, and the buyer uses it. That’s the part most sellers don’t see coming: it’s usually the seller, not the buyer, who’s caught off guard when the issue lands on the table mid-diligence.
We help companies and their advisors size that exposure quickly, bring it down, and keep the deal on track, whether we’re brought in months before a sale, in the compressed final weeks of diligence, or after closing to recover money already held back.
Related Ways We Help
- Historical exposure that surfaced during diligence - Learn More
- Whether you have multi-state nexus in the first place - Learn More
- SaaS or digital products that may have been taxable all along - Learn More
- You’re an advisor or attorney bringing us into a deal - Learn More
The Sales Tax Mistake That Kills Deals
Monika and Bill on what happens when a buyer’s diligence team surfaces sales tax exposure the seller never knew about. A common, avoidable problem, and how to handle it before it costs you at closing.
A Small Liability Gets Expensive at the Table
Outside a transaction, a sales tax liability is something you can resolve at your own pace. Inside one, it changes character. A buyer evaluating risk doesn’t price exposure at face value: they price the uncertainty around it. If no one can say confidently how big the issue is, the buyer assumes the worst case and protects against it, usually by holding back far more than the liability is likely worth.
That’s why the goal is rarely just “pay what’s owed.” It’s to replace the buyer’s worst-case guess with a defensible number, so the holdback or price adjustment reflects the real exposure instead of the fear of it. A liability that looked like a deal-breaker often shrinks once someone quantifies it properly and shows a credible plan to resolve it. Sellers often come to the table unprepared for the sales tax piece of the puzzle, and that’s where having an experienced consultant on your side can provide huge value.
Diligence Teams Know Where to Look
When a buyer, investor, or quality of earnings team digs in, the same few issues come up again and again:
- Tax not collected and returns that were never filed in states where the company had nexus but didn’t realize it
- Missing resale or exemption certificates: the company believed sales were exempt but can’t document it, which an auditor (or a buyer) won’t accept on faith
- Product taxability that was never classified correctly, which we see often with SaaS and software companies that didn’t realize their product was taxable in several states
None of these are unusual . They’re the predictable result of a business growing faster than its tax compliance, and a good diligence team knows exactly where to look.
The Best Time to Deal With This Is Early
The strongest position is to handle exposure before a transaction is ever on the horizon: a nexus and taxability review that gets you filing where you should be, with your positions documented and ready to hand to a diligence team. Walking in with that already done puts you in control of the conversation instead of reacting to a buyer’s report.
That said, it doesn’t always happen that way, and that’s fine. We’re often called in right before a deal closes, and we can still help, and we help after closing too, working with the seller to remediate exposure through voluntary disclosures and back filings so you can recover as much of the holdback as possible and protect the price you negotiated.
The Work We Actually Do
On the sell-side, our job is to identify the exposure, quantify it honestly, and remediate it, and often to push back on the buyer’s own number. When we review a buyer’s diligence analysis, we can frequently bring the estimated liability down through a deeper look at available exemptions, documented customer self-assessment, voluntary disclosure agreements, a proper product-taxability review, and letter rulings to clear up gray areas. It’s not unusual for that work to return a meaningful piece of an escrow holdback to the seller.
For the buyer’s side, the concern is usually successor liability: the risk that unpaid tax follows the business across the closing table and becomes the acquirer’s problem. We help quantify that risk and build a defensible path to resolve it before it threatens the structure of the deal.
And if you’re the M&A advisor or transaction attorney bringing us in: we work inside your timeline, we keep it practical, and we work with you and the client to remedy the issue. Our job is to make the deal easier and make you look good. A lot of our transaction work comes from exactly those relationships.
Success Story
A $2M Exposure That Didn’t Sink the Sale
During the sale of a family-owned manufacturer, due diligence surfaced more than $2 million in potential multi-state sales tax exposure tied to equipment sales and leasing. For a multi-generational business, that was the kind of number that can end a deal. We worked through the nexus analysis, found where the real exposure actually was versus where it only appeared to be, structured remediation across more than twenty states, and brought the projected liability down by roughly $1 million, and the sale went through.
Questions Companies and Advisors Commonly Ask
Yes, directly. Buyers use unresolved exposure to negotiate the price down, increase the escrow holdback, or demand indemnities, and the less clearly the issue is quantified, the more room they have to do it. Resolving or at least quantifying it before going to market keeps you in control of that conversation.
No. A lot of our transaction work starts exactly here, in the final weeks before closing. We can move quickly to quantify the real exposure and present a defensible position, and we can keep working after the deal closes to remediate it and help recover money held back in escrow.
It’s the principle that unpaid sales tax can follow the business to its new owner, meaning a buyer can inherit the seller’s tax problem after closing. It’s the main reason buyers care so much about sales tax in diligence, and a large part of what we help resolve before a deal closes.
We work both sides. For a buyer, we quantify the successor-liability risk independently, pressure-test the seller’s remediation, and help you decide what belongs in the purchase agreement (escrow, indemnities, or a pre-close fix) so you’re not inheriting an open-ended problem. If you’re on the buy-side and you already have a state tax diligence team, we’re often referred by that buy-side team to the seller as another option, since the buy-side team is in a conflict of interest if they try to represent both sides.
Yes, routinely, alongside transaction attorneys, M&A advisors, quality of earnings teams, CPA firms, and internal finance. Sales tax is but one piece of the larger deal pie, but it’s the piece we go deep on, and much of our transaction work comes to us by referral from those advisors.
Thinking About a Transaction?
The single best thing you can do is start the conversation before exposure becomes leverage in someone else’s hands. Whether you’re a year from a sale or a week from closing, a first conversation usually tells us how big the issue might be, what’s driving it, and what can realistically be done inside your timeline.
