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Paying taxes during mergers and acquisitions

On Behalf of | Feb 9, 2022 | Corporate Litigation

There are certain types of taxes to pay during and after a successful merger or acquisition in New York. The amount of taxes that must be paid has a significant impact on the merger’s outcome.

A taxable merger

A taxable merger requires that either or both sides pay taxes for the new company’s capital, stocks, assets and rights that are acquired during the merger. Usually, the company that acquires the new company is obligated to pay taxes. On the other hand, the company that is acquired only pays income taxes if the assets or stocks are sold after the liabilities are paid off.

Net operating losses

The CARES Act modified the rules about net operating losses. After changing their ownership during a merger or acquisition, taxpayers are allowed to offset 100% of their future taxable income.

State and local taxes

A business that is created in a new state or city has to pay new state and local taxes. Some states have sales or income tax liabilities while others do not. If the business expands to other states, the business owner has to file additional tax returns in those new states.

A tax-free merger

Tax-free mergers and acquisitions are less common than taxable mergers. This deal is tax-free if the business is classified as a reorganization, makes greater use of stocks and has its assets reorganized instead of sold off.

Prepare your business taxes in advance

Mergers and acquisitions allow two companies to share interests in a newer, larger and more successful entity, but it’s important to pay attention to state, federal and local taxes that the business owner must pay. During the development of a new company in a new location, the tax requirements may change but must be abided by.