Asset purchase basis allocation & taxes

January 21, 2025
by a searcher from Georgetown University in Boulder, CO, USA
Hey searchers-
I'm closing my first acquisition this week. In discussion with seller's lawyer, she told me that I'll be paying sales taxes on the personal property transferred from the business, and even though my APA didn't mention it, she wanted the language to state that I'm paying that sales tax.
My original offer was all-in $750k. i know we need to agree on how that is being allocated across assets in the business. But what are the general guidelines for deciding what gets allocated across the purchase price? And do i really need to pay that sales tax?
from University of Baltimore in Denver, CO, USA
In layman's terms... you have split incentives. The more you have in personal property (equipment, vehicles, machinery, etc.), the more accelerated depreciation you can take (5-years and weighted to year-1) but the more you pay in transfer taxes. At the same time, the less you have, the more that will be allocated to Goodwill and amortized over 15-years.
I'm a money now guy, so tend to lean towards what will help impact the early years to protect cash flows. Typically sellers want more to be allocated to Goodwill.
And glad to see a fellow Coloradan. I host a large ETA meetup (900+ members) in Denver on the first Wednesday of each month. Feel free to shout if you're ever interested in attending or connecting.
from University of Miami in New York, NY, USA
I’d be happy to walk you through it. Feel free to call me or schedule something on my calendar.
https://calendly.com/petigara-law-group/meeting-with-vishal-petigara