Asset purchase basis allocation & taxes

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by a searcher from University of California, Los Angeles
in Boulder, CO, USA

1yr ago

Asset purchase basis allocation & taxes

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?

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reply by a professional 1yr ago
from University of Miami in New York, NY, USA

Chris - I’m a tax lawyer with 20+ years experience in M&A. Like many folks here have said, purchased by allocations are usually done within the asset purchase agreement, and are typically addressed in the LOI. You’re going to have to find a balance because the seller incentive to have everything allocated to the tangible property could benefit you in the short term, Having allocations favored towards intangibles could help you with depreciation recapure issues later.

I’d be happy to walk you through it. Feel free to call me or schedule something on my calendar.

redacted

reply by an investor 1yr ago
from Stanford University in Bellevue, WA, USA

Also don't forget that if you have a non-compete included, you will need to allocate a portion of the purchase price to it as well. How the purchase price gets allocated can affect how much you and the seller pay in taxes and many times are at odds with each other. Always a bit tricky.