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Oct 17, 201809:01 PMExit Stage Right

with Martha Sullivan

The Wayfair decision — Can sales tax break a deal?

(page 2 of 2)

This presents two different risks for the buyer. The first risk is the obvious one — the states come knocking, wanting their pound of flesh after the deal closes, and the buyer is left holding the bag. The other risk is losing customers post-deal because of the increased cost of buying iSellStuff’s products at the sales-tax inflated cost. There’s no longer a “competitive advantage” based on total cost.

A buyer is unlikely to take on the first risk and will reduce the purchase price outright, demand monies be held in escrow for three years until the last of the sales tax audit risks expires, and/or have the seller warranty that they remain responsible for the liabilities to the states (including costs of enforcement). If an earnout tied to customer retention wasn’t on the table before due diligence, it is now because of the second risk. Both demands will impact the negotiations around the deal, including the timing and amount of purchase price the seller will get. Worst case, it kills the deal entirely if the seller, buyer, or both, being unprepared for the $1.425 million shock, decides to take his or her marbles and go home.

My advice to the owner of iSellStuff and any other online retailer is to take the bull by the horns today. Reach out to your:

  • In-house systems and accounting resources to understand how you’re currently set up for your sales tax systems. Analyze your current customer base and revenue streams to quantify your sales (dollars, number of customers, number of transactions) by state;
  • Accountant for help assessing the impact of Wayfair on your sales tax reporting requirements;
  • E-commerce and other software providers to understand what the system currently provides for and what steps are being taken to update the system(s) in light of Wayfair; and
  • In-house team to get your systems and processes aligned with the new sales tax rules.

Do it sooner rather than later. Significant changes may be needed to your information systems, including identifying and implementing the sales tax tool best suited for your business, updating your sales process, updating your customer database, and training your customers and team members on the new world order of sales tax. Noncompliance will be costly once the dust settles and states step up their enforcement. Whether you’re looking to buy, sell, or hold your business, the risk is real. Manage it.

***

Did you participate in the Wisconsin Owner Readiness Survey? Curious about the results? Join us at the Wisconsin Owners’ Forum being hosted by the Wisconsin Chapter of the Exit Planning Institute on the afternoon of Nov. 7.

For more information and to register, visit: http://exit-planning-institute.org/events/event/wisconsin-owners-forum/.

Click here to sign up for the free IB ezine — your twice-weekly resource for local business news, analysis, voices, and the names you need to know. If you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.

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About This Blog

Spending half her career as an advisor to privately-held and family businesses and the other half in CFO/COO roles, Martha Sullivan is a partner and the succession planning practice leader in the business transition strategies group at Honkamp, Krueger & Co., P.C. She and her team have extensive experience assisting business owners achieve their personal, business, and transition goals. “Don’t think of the 'exit' from your business like it’s a four-letter word. Make it your next adventure!”

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