Why Tax Planning Should Begin Well Before a Multistate or International Business Sale

When preparing a business for sale, one of the first areas buyers examine is tax compliance. Where a company files state income, sales, and payroll taxes—and whether those filings are complete—can become a central focus of due diligence. Gaps in compliance, or even unintentional oversights, can lead to buyer holdbacks, unexpected liabilities, delays in closing, or buyers leaving the table.

Planning at least a year in advance is ideal. The sooner you start, the easier it is to assess multistate obligations, identify potential exposures, and determine your risk profile. Even if a sale is not on the horizon, staying on top of these requirements is simply good business. Hiring a remote employee, selling into a new state, or establishing a non-U.S. subsidiary can trigger filings and reporting requirements that become more complex over time. Engaging your tax advisors early ensures each obligation is addressed as it arises, reducing risk and eliminating last-minute catch-up work.

Proactive planning strengthens both day-to-day operations and future transaction readiness. For businesses with non-U.S. subsidiaries or ownership, this includes annual reporting and disclosure requirements, such as Form 5471 for controlled foreign corporations. Addressing these issues early not only reduces financial risk but positions the business for a smoother, more confident sale.

The Importance of State and Local Tax Compliance

In any potential business acquisition, buyers begin with a close look at state and local tax compliance. They will ask where your company files income tax, sales tax, and payroll tax returns and take a closer look to understand whether additional filings might be required. Questions often focus on where you have employees, where economic nexus has been reached, and whether all obligations are being met.

For transactions involving the sale of stock or LLC units (irrespective of income tax treatment), these questions take on added weight: the buyer assumes the company’s prior tax obligations, including any errors, oversights, or missing filings. Even in asset purchases, successor liability can create risk, and buyers may apply holdbacks to account for unresolved issues. They often calculate potential unpaid taxes and adjust the sale price accordingly.

Proactive planning gives you the opportunity to review filings, submit any missing returns, assess exposure, and prioritize compliance. By staying in regular contact with your tax advisors, you can address each obligation as it arises and maintain ongoing compliance, protecting both current operations and future transaction value. Early preparation turns potential vulnerabilities into clear strengths, supporting smoother negotiations and reinforcing the business’s overall valuation.

International and Non-U.S. Ownership Adds Complexity

For businesses with non-U.S. subsidiaries or ownership, tax planning extends beyond domestic obligations. Consider that each year, these companies must complete specific reporting and disclosure requirements, and missing a filing can carry significant penalties. Corporations with controlled foreign subsidiaries, for instance, must submit Form 5471, while partnerships and disregarded entities follow separate rules. Even routine cash transactions involving a non-U.S. owner holding 25 percent or more of the company must be disclosed, with non-filing penalties ranging from $10,000 to $25,000 per occurrence.

Buyers performing due diligence will want to see that all international filings are current. Noncompliance can create risks similar to unfiled domestic taxes, including potential holdbacks or reduced confidence in the transaction. Transfer pricing and intercompany pricing arrangements introduce additional complexity and typically require coordination with international tax advisors.

Engaging your advisors well before entering a new country or making changes involving foreign ownership ensures each obligation is understood and addressed in real time. Continuous oversight of non-U.S. activities not only prevents costly errors but also reinforces the value of your business in any potential sale. Maintaining compliance today simplifies future transactions and provides a clear picture of operational and financial health to prospective buyers.

How We Help

AAFCPAs helps business owners and investors navigate the complexities of multistate and international tax obligations before, during, and after a transaction. Our business transaction advisory solutions team provides tax due diligence for buy-side, sell-side, private equity, and internal transactions by reviewing filings, assessing potential exposures, and prioritizing compliance to reduce risk and strengthen deal positioning. We work closely with clients before entering any new jurisdiction—whether hiring a remote team member, expanding sales into a new state, or establishing a non-U.S. subsidiary—to ensure all federal, state, local, and international obligations are addressed proactively. By combining deep technical knowledge, scenario planning, and collaboration with legal and financial advisors, we help clients structure transactions, present tax policies clearly, and maximize after-tax proceeds while minimizing surprises and holdbacks.

These insights were contributed by Kelly Zack, MST, Partner, State & Local Tax (SALT) and Richard Weiner, CPA, MST, CM&AA, Tax Partner.

Questions? Reach out to our authors directly or your AAFCPAs partner.

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