Nick Niemann and Matt Ottemann are partners with McGrath North Law Firm. As state and local tax and incentives attorneys, they collaborate with CPAs to help clients and companies evaluate, defend, and resolve tax matters and obtain various business expansion incentives. See their websites at www.NebraskaStateTax.com and www.NebraskaIncentives.com for more information. For a copy of their full publication, “A Guide on How to Sell Your Company” or their “Nebraska Business Expansion Decision Guide,” visit their websites or contact them at (402) 341-3070 or at nniemann@mcgrathnorth.com or mottemann@mcgrathnorth.com, respectively. on the sale of their corporate stock. The Legislature’s goal in enacting the exclusion was to keep corporate shareholders from leaving Nebraska before the shareholders sold their corporate stock. Many owners of Nebraska-based corporations had been leaving Nebraska for non-income tax states to avoid paying Nebraska income tax on the capital gain from that sale. There are a number of requirements that corporate shareholders must meet to qualify for the exclusion. Each individual may elect to claim the exclusion for one corporation in his or her lifetime. The shareholder must have acquired his or her shares while employed, or on account of employment, at a corporation with Nebraska operations. Another key requirement is that the corporation must have at least five shareholders at the time of first sale or exchange for which the election to claim the exclusion is made. If possible, sellers of a corporation’s stock will want to structure their sale transaction to take advantage of this exclusion. This generally takes planning to ensure all requirements for the exclusion are met. Transfer Taxes on Sale of Assets The decision to structure a transaction as the sale of stock (or LLC interests) or the sale of assets is a key decision, made for a number of factors. One factor not to be overlooked is the potential sales and use tax from the sale of assets. For sales and use tax purposes, many states provide bulk sale exemptions for the sale, in one transaction, of the majority of assets used by one business. For example, Nebraska has such an exemption. However, some states, such as New York, have an extremely small exemption amount, which may lead to unexpected sales and use tax obligations for the buyer if the transaction is not properly structured. In addition, some states impose transfer taxes on the value of qualifying assets sold as part of an acquisition. These transfer taxes may include real estate conveyance taxes, controlling interest transfer taxes, or other taxes that are attributable to a business acquisition. For example, Nebraska has a real estate transfer tax that may be applicable to the sale of real estate in a business acquisition. Implications of a Changing Business Model Many buyers purchase an existing business and intend to update its business model to better fit within the buyer’s existing business or in an attempt to expand the existing business. Business model innovations can have signif icant tax implications, including whether sales and use tax is due on the business transactions following the change and how income is apportioned between states (as apportionment methods often vary based on the nature of the business being conducted). Therefore, buyers should be sure they have considered the state and local tax implications from changing the business model of the existing business they are acquiring. Those buyers may now have to collect sales or use tax that the existing business was not required to collect. In addition, a buyer may have a very different income tax liability than the seller had. For sales and use tax purposes, many states provide bulk sale exemptions for the sale, in one transaction, of the majority of assets used by one business. I S S U E 3 , 2 0 2 2 12 nebraska cpas
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