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Sales taxes and your startup exit plan

  • Mar 11, 2017 | Laura McCamy

When you started your startup, your goal was likely just to create a viable company. You probably weren’t thinking about your startup exit plan. Before too much time passes, you should.

Statistics from the Small Business Administration show that almost a quarter of small business startups fail before the end of their first year, and only about half survive for five years. A savvy entrepreneur will temper optimism with realism and work on a startup exit plan almost from the beginning.

Whether your end goal is to sell to a larger company, go public, or transition from scrappy startup to sustainable business, you will need good financial processes and clarity on your numbers. This includes understanding your sales tax obligations.

First steps in your startup exit plan

If you sell your business, you will need to present a clear picture of your financials to potential buyers. And even if you’re not planning on selling or going for an IPO, it’s a good practice to put systems in place to stay on top of all your financial obligations.

Start planning for a potential sale well in advance. Your business will be healthier and you are more likely to get the financial reward you deserve for all those long hours of sweat and love.

Nexus and your startup exit plan

Unpaid sales tax obligations can be a drag on your startup exit plan. As your startup matured, your sales tax obligations grew. You built relationships to grow your sales and promote your brand. Now you might have sales tax nexus in more than your home state.

As you put together your startup exit plan, make sure you understand your sales tax obligations in all the states where you do business. Find out where you need to register and whether you owe back sales taxes.

Not being clear on where you owe sales tax can have negative consequences; this information can come to light during due diligence before a sale or IPO, and unpaid tax obligations tarnish your startup’s image. It could even impact the sale of your business.

Even if you plan to keep running the business yourself as it matures from startup to established venture, staying abreast of your sales tax obligations is an important component of your startup exit plan. Good systems will help your startup succeed, no matter what its path.

Sales tax registration and your startup exit plan

Your startup exit plan might be to wind down your business, close business locations in certain states, or to sell to another operator or a larger company. In any of these cases, it’s important to close out your startup’s sales tax registration.

When you stop doing business in a state where you have nexus, you’ll need to file final a sales tax return. If you’re shutting down operations in Texas, you might also owe sales tax on leftover items you purchased for resale. In New York, you will need to surrender your resale license as part of your startup exit plan. Find out what paperwork is required in each state where you have sales tax nexus and make sure you properly close your account.

For every phase of your startup, from the hopeful beginning through your graceful startup exit plan, you have a guide to help you through the maze of sales tax regulations: sales tax automation software.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Laura McCamy
Avalara Author Laura McCamy