Tax Compliance: One of the First Things Buyers Scrutinize in a Business Sale
When preparing a business for sale, one of the very first areas buyers examine is tax compliance. Where a company files state income, sales, and payroll taxes—and whether those filings are complete—often becomes a central focus of due diligence. Even small gaps or unintentional oversights can lead to buyer holdbacks, unexpected liabilities, delayed closings, or deals falling apart entirely.
The best outcomes happen when tax compliance is treated as part of long-term planning—not a last-minute cleanup project.
Start Planning at Least a Year Before a Sale
Ideally, tax planning for a transaction begins at least 12 months in advance. The earlier you start, the easier it is to:
- Assess multistate filing obligations
- Identify potential exposure or missing filings
- Understand your overall risk profile
- Resolve issues without time pressure
Even if a sale is not imminent, staying on top of tax compliance is simply good business. Many common growth milestones can quietly trigger new filing requirements, including:
- Hiring a remote employee in a new state
- Generating revenue in additional states (economic nexus)
- Expanding operations internationally
- Creating or acquiring a non-U.S. subsidiary
Left unaddressed, these obligations compound over time—making them far more painful to fix during diligence.
State & Local Tax Compliance Matters More Than You Think
In almost every acquisition, buyers start with a detailed review of state and local tax compliance. They will ask:
- Where does the company file income tax returns?
- Is sales tax being collected and remitted correctly?
- Where are employees located, and are payroll filings complete?
- Could additional filings be required based on nexus rules?
For stock sales or LLC unit sales, these questions carry even more weight. The buyer inherits the company’s historical tax exposure—errors, omissions, and all. As a result, unresolved compliance issues often lead to:
- Escrow or holdback requirements
- Purchase price reductions
- Expanded reps and warranties
- Delays while filings are remediated
Even in asset deals, successor liability concerns can cause buyers to discount value or walk away.
International Ownership Adds Another Layer of Complexity
For companies with non-U.S. subsidiaries or foreign ownership, compliance expectations extend beyond state filings. Annual federal reporting requirements—such as Form 5471 for controlled foreign corporations—are routinely examined during diligence.
Missing or inaccurate international filings raises red flags quickly and can introduce both financial penalties and reputational risk. Addressing these requirements early helps ensure a smoother, more confident sale process.
Proactive Planning Protects Value
The most successful transactions are those where tax compliance is boring—because everything is already in order.
By working proactively with your tax advisors, you can:
- Review prior filings for completeness
- Submit any missing returns
- Quantify and prioritize exposure
- Implement processes to stay compliant going forward
Early preparation turns potential vulnerabilities into strengths, supports smoother negotiations, and reinforces the company’s overall valuation.
How Accountalent Helps
At Accountalent, we help founders, operators, and investors navigate the complexities of multistate and international tax compliance—before, during, and after a transaction.
Our team supports clients by:
- Reviewing state, local, and international tax filings
- Identifying nexus and compliance gaps
- Quantifying potential exposure before diligence begins
- Supporting audits, diligence requests, and buyer questions
- Advising on compliance when entering new states or countries
Whether you’re hiring your first remote employee, expanding into new markets, or preparing for funding or exit, we work proactively to ensure tax obligations are addressed as they arise—reducing risk, avoiding last-minute surprises, and protecting transaction value.