Great question. The Illinois Replacement Tax, depending on the type of entity, is between 1.5% and 2.5% of your reported net income at the state level for your business entity. It would be acceptable to add this tax back and then adjust for what you think your future tax exposure would be . Assuming you have the ability to write-off depreciation, interest expense, and amortization on your acquisition, the amount of net income you would have to pay taxes on should be significantly less going forward. But lenders will adjust for what the new tax would be. I hope this helps. If you have additional questions you can reach me here or directly at redacted Good luck.

Echoing Brad's comments, valuation is always done on a pre-tax basis (EBITDA or SDE). The Illinois Replacement Tax is a form of income tax, so it is safe to add back. I would want to make sure they don't add back sales / use tax. When it comes to your financial model, you would want to consider taxes to evaluate what your debt service coverage is after tax.