M&A activity and excise tax: Are you prepared?
- Aug 12, 2019 | John Beaty
M&A activity continues to gain traction as energy businesses look for ways to innovate, improve services, and boost the bottom line. While everyone in the organization can be impacted, if you’re an excise tax professional at the acquiring company you may face several concerns that are rarely (yet always should be) raised during the deal-making process. Understanding and getting ahead of these issues is critical to mitigating potential risk down the road.
Recognizing top M&A challenges
For your excise tax team, M&A activity introduces many nuanced and potentially time-consuming challenges. Some of the most complex are explained below.
- New licensing and registration requirements. M&A activity may expand operations into new regions. Each state has different excise licensing requirements, so companies will need to ensure they’re registered and have the proper license for each state. The process and requirements can vary significantly between states, so this can be cumbersome and frustrating. However, continuing to do business in a state without the proper license can leave a company open to fines and other penalties.
- New counterparties. As companies merge, there’s also an expansion of resources to support a larger organization. Tax rates and responsibilities are tied to both the location of your company and the specific counterparty, as well as to jurisdictions through which items may pass during deliveries from vendors or shipments to customers. Throughout this period of transition, it’s imperative to have accurate and timely information from the entire supply chain to avoid fines and penalties.
- Tax management system migration. After an acquisition closes, the existing and new company will have to integrate tax management systems and begin data migration. Temporary service agreements can allow the acquiring company to use the systems belonging to the acquired company for a limited amount of time. Once these agreements expire, continuing to use the legacy systems can result in huge vendor fees, sometimes ranging in the millions of dollars. Planning ahead is vital for efficient migration.
Managing an effective transition
Here are three steps to take as soon as a deal is under serious consideration to help ensure a smooth transition:
- Be a part of the process. Make sure your tax team is involved as early as possible in the overall planning process so these compliance issues aren’t an afterthought or fire drill. Once the deal is closed, you’ll have minimized the risk of possible fines, fees, and penalties.
- Get to know the new organization. It’s essential for tax professionals to align with the new company well in advance. Becoming knowledgeable about partners and vendors they work with, regions they operate in, and the tax management system they use will get the ball rolling on these time-consuming details.
- Consider automation. Manual processes can allow costly and time-consuming errors to compound. Using a SaaS-based tax management solution, organizations can remain compliant by receiving real-time updates on changing tax rates and forms, manage documentation, and easily prepare forms for filing.
Outside of helping with M&A activity, an automated tax system can also have long-term benefits. Tax information is readily available and up to date, which can result in increased efficiency and reduced risk. Being well-informed, preparing in advance, and implementing a SaaS-based, automated solution can help ensure that appropriate and highly accurate tax management processes add to the overall success of the business.
Are you thinking about making a change to your tax solution due to M&A activity or other requirements? Check out Avalara's excise tax solutions to learn more.