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BDO KNOWLEDGE Webinar Series ‒ State Tax Considerations for M&A Transactions

@BDO_USA_Tax

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. @BDO_USA_Tax

STATE TAX CONSIDERATIONS FOR M&A TRANSACTIONS

3/17/2016


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CPE AND SUPPORT

CPE Participation Requirements ‒ To receive CPE credit for this webcast:• You’ll need to actively participate throughout the program.• Be responsive to at least 75% of the participation pop-ups. • Please refer the CPE & Support Handout in the Handouts section for more information

about group participation and CPE certificates.

Q&A: Submit all questions using the Q&A feature on the lower right corner of the screen. At the end of the presentation, the presenter(s) will review and answer all questions submitted.

Technical Support: If you should have technical issues, please contact LearnLive:• Click on the Live Chat icon under the Support tab, OR call: 1-888-228-4088

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WITH YOU TODAY

• JOSEPH CARR – National SALT Business Development & Marketing Leader

• RICHARD SPENGLER – Senior Director, Multi-State Tax Consulting

• STEVE OLDROYD – National SALT Sales & Use Tax Services Leader

• PAUL CHEUNG – National SALT Employment Tax Services Leader

• TOM ALBERTE – National SALT Credits & Incentives Services Leader

• ARDIST CONNER – Property Tax Energy Team Leader

• ELIZABETH FOLEY – Boston & Mid-Atlantic Regional Unclaimed Property Practice Leader


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INTRODUCTORY COMMENTS

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DID YOU KNOW?

• Global M&A volume increased for the third consecutive year to a record $5 trillion in 2015 (represents a 37% increase over 2014). 1

• One source suggests that the 2015 deal activity will carry into early-2016. 2

• This expectation is supported by a survey of 680 global M&A professionals regarding the overall outlook for 2016:• 50% reported that they are optimistic about the current deal environment.• 49% expected to participate in more deals in the first half of 2016 than they did six months ago.• 47% thought M&A deals in Q1 2016 in their respective region will be higher than in Q1 2015. 3

• Business sectors expected to be very active for M&A in 2016 include: healthcare, technology, government contracting, general manufacturing, and energy sector (for exploration and production and oil field services companies). 4


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DID YOU KNOW?

Source: Dealogic, M&A StatShot: Insightful Analysis of Merger & Acquisition Activity and Trends Around the World, at http://www.dealogic.com/media/market-insights/ma-statshot/ (last accessed Mar. 6, 2016).

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SOURCES

1 Brett Turvey, US Targeted Cross-Border M&A Volume Highest in 17 Years, Dealogic M&A Statshot (Feb. 16, 2016), at http://www.dealogic.com/media/market-insights/ma-statshot (last visited Mar. 1, 2016).

2 Bridget McCrea, The Mergers and Acquisitions Outlook, Ted Magazine (October 1, 2015), at http://www.tedmag.com/News/features/The-Mergers-and-Acquisitions-Outlook.aspx (last visited Mar. 1, 2016).

3 2016 Outlook: How M&A Professionals Feel about the Fed Rate Hike and Other Market Factors, Deal Closer Blog (Dec. 21, 2015), at http://blogs.intralinks.com/dealcloser/2015/12/2016-outlook-ma-professionals-feel-fed-rate-hike-market-factors (last visited Mar. 1, 2016)).

4 Bob Rubino, The Hottest Sectors for M&A in 2016, CNBC (Feb. 1, 2016), at http://www.cnbc.com/2016/02/01/ma-the-hottest-sectors-in-2016-commentary.html (last visited Mar. 1, 2016).


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AGENDA

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AGENDA

• Income/Franchise Taxes• Sales & Use Taxes• Employment Taxes• Credits & Incentives• Property Taxes• Unclaimed Property


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INCOME/FRANCHISE TAXES

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SALE STRUCTURING/TIMING TRAPS TO CONSIDEREXAMPLE 1: RESTRUCTURING BEFORE SALE

• LLC 1 is an LLC taxed as a partnership for federal income tax purposes.

• LLC 1 is doing business in many states.

• Corp 1 and Corp 2 are interested in selling the business of LLC 1.

• An asset sale is being contemplated because buyer does not want certain assets within LLC 1. LLC 1

(taxed as partnership)

Corp 1 Corp 2


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SALE STRUCTURING/TIMING TRAPS TO CONSIDEREXAMPLE 1: RESTRUCTURING BEFORE SALE (CONT’D)

• The sale had been facilitated by forming LLC 2 and having Corp 1 and Corp 2 transfer their interests in LLC 1 to LLC 2.

• LLC 1 will choose the default classification under the “check the box” rules to be treated as a disregarded entity.

• LLC 2 is organized in Tennessee.• Unwanted assets are moved from

LLC 1 to LLC 2 prior to the sale of the LLC 1 membership interest to buyer.

LLC 2(taxed as

partnership)

LLC 1(taxed as

partnership)

Unwanted Assets

Corp 1 Corp 2

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• Since LLC 1 is disregarded for federal income tax purposes, and so the transfer of the “unwanted assets” will be ignored and treated as a transfer between divisions of the same entity.

• The sale of the membership interest will be treated as an asset sale for federal income tax purposes.

• A “trap” exists in this fact pattern for state income tax purposes. Tennessee does not fully conform to the “check the box” rules and so the formation of LLC 2 will be treated as one regarded taxpayer owning a second regarded taxpayer. This could cause 100% of the gain on the sale of the membership interest in LLC 1 to be taxed in Tennessee.

SALE STRUCTURING/TIMING TRAPS TO CONSIDEREXAMPLE 1: RESTRUCTURING BEFORE SALE (CONT’D)


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SALE STRUCTURING/TIMING TRAPS TO CONSIDEROTHER EXAMPLES OF PRE-SALE REORGANIZATIONS/CHOICES• Liquidation of corporate subsidiaries prior to sale.• Asset sale consummated on first day of tax year.• Target drops assets of corporation into a partnership and then sells an interest

in the partnership to buyer.

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STATE INCOME TAX ISSUES THAT ARISE IN 338(H)(10) TRANSACTIONS

• IRC § 338(h)(10) election causes a stock sale to be fictionally treated as an asset sale.

• The election is available to S corporations or corporations being sold out of a federal consolidated group.

• There are various state tax issues to consider when an (h)(10) election is made:• Does the state respect/adopt the (h)(10)?• The (h)(10) election will be ignored in certain states.

• EXAMPLE: An S corporation that has not made a NY S corporation election is treated as a C corporation. Federal S/NY C corporations are required to calculate their taxable income as if they are C corporations.

• Does the state treat the gain from the (h)(10) election business or non-business income?• If the income is treated as business income then how is apportionment impacted from the fictional

asset sale?


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STATE TAX INCOME ISSUES THAT ARISE IN 338(H)(10) TRANSACTIONS (CONT’D)

• When we represent an S corporation or consolidated group seller that is considering making an (h)(10) election it is critical that the seller advocates for an equalization mechanism in the purchase agreement.

• Equalization Provision for Incremental Tax From IRC § 338(h)(10) Election• S corporation sellers need for federal income tax purposes as a result of a change in character of

certain items of income.• For state income tax purposes, an equalization provision will address entity-level taxes that are

incurred as a result of the election that would not have otherwise been present if the sale is treated as a stock sale, and for incremental taxes that are incurred as a result of the gain on sale of fictional assets being taxed in any state that the corporation is doing business. A state tax equalization provision is applicable to both S and C corporations that make (h)(10) elections.

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• S Corporation EXAMPLE:• Florida resident owns a multi-state S corporation.• S corporation files in a variety of states, including Georgia.• Florida resident has not consented to Georgia taxation.• S Corporation files as a C corporation in New York.

• Reimbursement for incremental taxes is treated as an addition to purchase price. The addition to purchase price creates more incremental tax. This creates a circular calculation that will converge. The existence of an entity-level tax will cause the gross-up percentage to vary with different sales prices.

• Equalization calculation is intended to cause the net proceeds with and without election to be the same.

STATE TAX INCOME ISSUES THAT ARISE IN 338(H)(10) TRANSACTIONS (CONT’D)


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MISCELLANEOUS STATE INCOME TAX ISSUES THAT ARISE POST-TRANSACTION

• State tax return and ES due date issues• Be careful when Treas. Reg. § 1.1502-76(c) is involved.

• Application of IRC § 382 to state loss carryovers• Three key questions to ask:

• Has the state adopted IRC § 382?• Does the state have a “net operating loss” deduction?• Is the state’s NOLD determined on a pre or post-apportioned?

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SALES & USE TAXES


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LIABILITY FOR TAX ON SALE – STOCK SALES

• Stock sales• States should follow legal form of transaction.

• Stock sales treated as asset acquisitions for federal income tax purposes – e.g., IRC § 338(h)(10)• States should follow legal form of transaction.

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LIABILITY FOR TAX ON SALE - MERGERS

• States should generally follow legal form of transaction but states vary on taxability.

• California• A transfer pursuant to a statutory merger is not a sale but is instead a transfer by operation of

law. Cal. Code Regs. tit. 18, § 1595(b)(3).

• Maryland• Under casual and isolated sale exemption, sales and use tax does not apply to a transfer of TPP

“under a reorganization within the meaning of § 368(a) of the Internal Revenue Code.” Md. Code Tax-Gen. § 11-209(c)(1)(i).


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LIABILITY FOR TAX ON SALE – MERGERS (CONT’D)

• New York• The term “retail” sale does not include “[t]he transfer of tangible personal property to a

corporation, solely in consideration for the issuance of its stock, pursuant to a merger or consolidation effected under the law of New York or any other jurisdiction.” N.Y. Tax Law §1101(b)(4)(iv)(A).

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LIABILITY FOR TAX ON SALE – ASSET SALES

• Taxable to the extent of tangible personal property purchased/sold, unless an exemption applies.

• Sale for resale exemption• Tax should not apply to a purchase of tangible personal property if: (i) at the time of the

purchase, buyer intends to resale the property at issue; and (ii) seller obtains a properly completed resale certificate.

• Manufacturing exemption• Tax should not apply to a purchase of tangible personal property if: (i) the state has a

manufacturing exemption; (ii) the property is used in manufacturing; and (iii) seller obtains a properly completed exemption certificate.


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LIABILITY FOR TAX ON SALE – ASSET SALES (CONT’D)

• Manufacturing exemption (cont’d)• Nevada (not exempt)

• “The tax applies to the sale of tangible personal property to persons who purchase it for the purpose of use in manufacturing, producing or processing tangible personal property and not for the purpose of physically incorporating it into the manufactured article to be sold.” Nev. Admin. Code § 372.370.1.

• Alabama (taxed at a reduced rate)• “Upon every person, firm, or corporation engaged or continuing within this state in the

business of selling at retail machines used in mining, quarrying, compounding, processing, and manufacturing of tangible personal property an amount equal to one and one-half percent of the gross proceeds of the sale of the machines.” Ala. Code § 40-23-2(3).

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• Bulk/isolated/occasional sale exemption• Tax should not apply to purchases of tangible personal property if state has a

bulk/isolated/occasional sale exemption.• Bulk/isolated/occasional sale generally refers to non-recurring, single event transactions outside

regularly offered goods in the normal course of business, or the sale of all or a major part of a business.

• States that do not have a bulk/isolated/occasional sale include, among others, Colorado and Oklahoma. See Colo. Rev. Stat. § 39-26-114 and Okla. Stat. tit. 68, § 1354.


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• Bulk/isolated/occasional sale exemption (cont’d)• Variations of bulk/isolated/occasional sale exemptions

• Arkansas• An isolated sale includes the one-time sale of an item or group of items not made by an

established business.• The sale of non-inventory assets is considered an isolated sale.• Exemption does not apply to the sale of motor vehicles, trailers, semi-trailers, mobile

homes, airplanes. See Ark. Reg. GR-49.• California

• Sales of property not held or used by a seller in the course of activities for which the seller is required to hold a seller's permit or permits or for which the seller would be required to hold a seller's permit or permits if the activities were conducted in California. See Cal. Rev. & Tax. Code § 6006.5(a).

• Excludes sales of most types of boats, aircraft and vehicles. See Cal. Rev. & Tax. Code §6367.

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• Variations of bulk/isolated/occasional sale exemptions (cont’d)• Connecticut

• Exempt casual sales include “[s]ale of a business in its entirety by the owner.” Conn. Agencies Regs. § 12-426-17(c).

• Iowa• Sales of all or substantially all of the tangible personal property or services held or used by a

seller in the ordinary course of business when the seller transfers his trade or business to another person who will engage in a similar trade or business.

• Does not apply to vehicles subject to registration, all-terrain vehicles, snowmobiles, off-road motorcycles, off-road utility vehicles, aircraft, or commercial or pleasure watercraft or water vessels. See Iowa Code § 423.3(39).


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• Exemption Certificates• May be required for purposes of exemption or may be required for presumption of exemption,

depending on the state.• Must comply with certificate form/information requirements (e.g., proper form, proper

information, etc.).• Purchaser may be required to be registered in the state in order for exemption certificate to be

valid.

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LIABILITY FOR HISTORIC TAX LIABILITY OF SELLER

• States that impose a sales/use tax have bulk sale laws that subject a purchaser to successor liability (either as a direct liability or as a lien on the assets purchased) when it purchases all or substantially all of the assets of the seller’s business, unless the buyer/seller complies with bulk sale notification procedures, receives a tax clearance certificate, and/or withholds the proper amount of tax due.

• Successor liability may be imposed by any state in which the seller is subject to tax.

• Successor liability may extend to sales tax only or all taxes owed the state by the seller.

• The extent of the liability is typically limited to the purchase price or the FMV of the assets purchased, depending on the state.


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POST-PURCHASE NEXUS

• Asset purchase• Buyer may have sales/use tax nexus in each of the states where the assets purchased are located.

• Stock purchase• Buyer may have sales/use tax nexus in each of the states where the target conducts business if the

state presumes an affiliate creates nexus for its owner.• Colorado

• “A person is presumed to be doing business in this state if such person is part of a controlled group of corporations, and that controlled group has a component member, other than a common carrier acting in its capacity as such, that has physical presence in this state and such component member with physical presence …” Colo. Rev. Stat. § 39-26-102(3)(d)(I).

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• Stock purchase (cont’d)• Oklahoma

• “Any retailer that is part of a controlled group of corporations, and that controlled group of corporations has a component member that is a retailer engaged in business in this state as described in subparagraph b of this paragraph, shall be presumed to be a retailer engaged in business in this state.” Okla. Stat. tit. 68, § 1401(9)(d).

POST-PURCHASE NEXUS (cont’d)


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EMPLOYMENT TAXES

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MANDATORY FILING REQUIREMENTS

• State unemployment tax• Stock purchase – Notification• Asset purchase – New account application for new employer; successor employer

notification/application for existing employer

• State withholding tax• Stock purchase – Notification• Asset purchase – New account application for new employer; no requirement for existing employer

• Local withholding tax• Stock purchase – Notification• Asset purchase – New account application for new employer; no requirement for existing employer


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STATE UNEMPLOYMENT TAX CONSIDERATIONS FOR ASSET PURCHASE

• No common ownership between seller and buyer• New employer

• New employer rate is available.• Consider applying for the predecessor state unemployment tax rate (may be mandatory).

• Existing employer• Consider applying for the predecessor state unemployment tax rate and combine with existing

rate (may be mandatory), or• Deny the predecessor state unemployment tax rate and continue with its own rate.

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STATE UNEMPLOYMENT TAX CONSIDERATIONS FOR ASSET PURCHASE (CONT’D)

• Common ownership exists between seller and buyer• New employer

• Take on the predecessor state unemployment tax rate.• Existing employer

• The predecessor state unemployment tax rate and the existing tax rate are combined.


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SOCIAL SECURITY TAX AND FEDERAL UNEMPLOYMENT TAX CONSIDERATIONS

• Wages paid by the seller during a calendar year prior to the acquisition may be considered as having been paid by the purchaser if:• The purchaser acquires substantially all the property used in a trade or business, or used in a

separate unit of a trade or business of the seller, and• Immediately employs an individual who was employed in the trade or business, or a unit of the

trade or business of the seller.

• Similar rules apply to both Social Security tax and federal unemployment tax

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SOCIAL SECURITY TAX AND FEDERAL UNEMPLOYMENT TAX CONSIDERATIONS (CONT’D)

• Example: Company A purchased all the property of Company B on April 30, 2015, and hired Joe who was an employee of Company B at the time of the acquisition. Company B paid Joe $60,000 of wages prior to the acquisition. Company A paid Joe another $120,000 of wages in 2015.• Employer share of Social Security tax for Company A (no wage base restart)

• ($118,500 - $60,000) x 6.2% = $3,627• Employer share of Social Security tax for Company A (wage base restart)

• $118,500 x 6.2% = $7,347• Difference = $3,720


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W-2S FOR THE YEAR OF ACQUISITION

• Standard Procedure• Purchaser and seller issue separate W-2s.• Purchaser and seller report their own employment taxes on their own separate returns.• Each employee will receive two W-2s for the calendar year.

• Alternate Procedure• Purchaser issues a single W-2 to each employee that includes wages paid and taxes withheld by

both companies within the calendar year.• Purchaser and seller report their own employment taxes on their own separate returns.• Both companies file Schedule D (Form 941) to reconcile the discrepancies between their

employment tax returns and W-2s (not to be confused with Schedule D (Form 1040)).

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CREDITS AND INCENTIVES


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CREDITS & INCENTIVES CONSIDERATIONS: PRE-TRANSACTION

• Target may have incentives agreements in place with state and local governments in return for meeting certain performance criteria such as job creation and investment. Typical incentives include:• Income tax credits• Payroll withholding tax credits• Property tax exemptions, rebates, and payment in lieu of tax (PILOT) agreements• Cash grants• Tax incremental financing• Subsidized financing• Land acquisition subsidies• Sales and use tax exemptions/rebates

• These agreements are underwritten by the state and local governments using the Target’s financial, job creation, investment and other relevant information.

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CREDITS & INCENTIVES CONSIDERATIONS: PRE-TRANSACTION (CONT’D)

• These agreements almost always have “clawback” provisions that will be triggered if Target does not meet the agreed upon performance criteria (e.g., job creation and investment).

• Review Target’s incentives agreements in order to determine the impact of the proposed merger/acquisition on “clawback” provisions and the ability to monetize the incentives.• Will the agreements continue to apply to a successor corporation?• Will a new owner get the same property tax abatements or PILOT as Target?• Will they have to enter into a new agreement?• Will the proposed structure trigger “clawback” provisions ?• Will the acquirer be able to meet the required performance criteria under the agreement?


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CREDITS & INCENTIVES CONSIDERATIONS: PRE-TRANSACTION (CONT’D)

• Will the proposed post-merger/acquisition organization legal structure continue to allow the monetization of Target’s incentives? • Will an alternative legal structure provide a better result?

• Due to confidentiality/secrecy it might not be possible to discus incentives agreements with state and local governments prior to closing the transaction.

• Determine whether the proposed merger/acquisition transaction allows Acquirer to succeed to Target’s state and local tax incentives/attributes that it has already “earned” (e.g., income tax credit carryovers).• Does state have provisions similar to IRC §§ 381, 382 & 383? • Are all tax carryovers covered (e.g., R&D credit, jobs tax credits)?• Will any tax credit carryovers be limited (IRC § 383 like rules)?• Do the combined filing states have SRLY rules that might limit use of carryovers?

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CREDITS & INCENTIVES CONSIDERATIONS: POST-TRANSACTION

• Are there opportunities to negotiate additional incentives after the merger/acquisition?• What are the plans over the next several years that will impact employment, investment and or

training?• Expansion of operations?• Consolidation of operations?• Downsizing of operations?• New headquarters?

• Will need to determine what paperwork is needed and filing deadlines required to monetize incentives.


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PROPERTY TAXES

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PROPERTY TAX CONSIDERATIONS: POSSIBLE EXPOSURE

• Prior Year(s) Exposure• Unpaid tax bills• Unreported personal property assets• Abatement and exemption considerations or stipulations

• Current and Future Potential Increases/Decreases• Change in ownership• Disclosure of purchase price• Asset write-up for federal income tax


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PROPERTY TAX CONSIDERATIONS: PRIOR YEAR EXPOSURE

• Unpaid Tax Bills• Self-explanatory• Penalties and interest differ from state to state• Laws differ from state to state personal property tax liability after transaction• What to ask for:

• All previous real and personal property tax bills and proof of payment• Quantification:

• Usually straightforward• Interest is compounding so the exposure is changing

• Unreported Personal Property Tax Assets• Seller has never filed a return • Seller has not reported all of their taxable assets• Seller has over-reported and may need to file an amended return• What to ask for:

• All prior year returns dating back to the statutory limit for back assessment• Fixed asset listing

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PROPERTY TAX CONSIDERATIONS: PRIOR YEAR EXPOSURE (CONT’D)

• Unreported Personal Property Tax Assets (cont’d)• Quantification:

• Estimate personal property valuation for each year back to the statutory limit• Multiply the valuation by the tax rate for the corresponding year• Add interest and penalties for each year and sum for the estimated exposure

• Abatement or Exemption Considerations and Stipulations• Ensure terms of the abatement are being met• Ensure all information provided to certify the abatement is correct• Determine if exemptions are quantified and qualified correctly (environmental)• What to ask for:

• Copies of all abatements and exemption determinations• Copies of all notices of property tax valuation


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PROPERTY TAX CONSIDERATIONS: FUTURE PROPERTY TAX CONSIDERATIONS

• Abatement or exemption considerations and stipulations (cont’d)• Quantification:

• Usually spelled-out in the terms of the abatement agreement and differ depending on the contract

• Exemption may be retroactively denied – calculate the value of the property without the exemption and multiply by the tax rate

• Change in Ownership• California Prop 13 – Does the change in ownership generate a reassessment?

• Could be a substantial value change going forward and a huge property tax increase• Depending on the time of year of the purchase, California may provide a supplemental

assessment with penalties and interest.

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PROPERTY TAX CONSIDERATIONS: FUTURE PROPERTY TAX CONSIDERATIONS (CONT’D)

• Change in Ownership (cont’d)• Quantification:

• Multiply the purchase price by the tax rate to estimate future potential exposure• Don’t let your buyer be surprised

• Disclosure of Purchase Price• The disclosure of the purchase price may lead to revaluation• Quantification:

• Multiply the purchase price by the tax rate to estimate future potential exposure


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PROPERTY TAX CONSIDERATIONS: FUTURE PROPERTY TAX CONSIDERATIONS (CONT’D)

• Asset Write-Up• This benefit for federal income tax purposes has the potential to increase property taxes• Most assessors prefer historical original asset cost and year over purchase price allocations• Increases risk of exposure during future audits• Cannot truly be quantified until after the purchase price allocation is completed

• Estimate valuation based on new equipment cost• Multiply by the tax rate

• Again, do not let buyer be surprised

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UNCLAIMED PROPERTY


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WHAT IS UNCLAIMED PROPERTY?

• All 50 states and the District of Columbia have enacted unclaimed property laws.

• Unclaimed property is not a tax.• States actively pursue unclaimed property as an additional source of revenue

for the state, which avoids raising taxes.• Generally intangible personal property for which there has been no owner

activity for a specified period of time (“dormancy period”).• Examples of unclaimed property:

• Uncashed payroll or commission checks• Uncashed payable/vendor checks• Gift certificates/gift cards• Customer merchandise credits, layaways, deposits, refunds or rebates• Overpayments/unidentified remittances• Suspense accounts• Unused/outstanding benefits (non-ERISA)• GR/IR (Goods received, not invoiced)• Miscellaneous income/bad debt expense accounts

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UNCLAIMED PROPERTY INTRODUCTION: WHERE DO I REPORT UNCLAIMED PROPERTY?

• The Supreme Court of the United States in Texas v. New Jersey, established the following unclaimed property sourcing rule:• First, to the state of the rightful owner’s last known address, if known, or• Second, to the state of the holder’s incorporation (commercial domicile for unincorporated

entities).

• The priority rules in Texas v. New Jersey were upheld in Pennsylvania v. New York (escheat of money orders) and Delaware v. New York (unclaimed dividends and interest).

• If the owner is unknown, property and estimation defaults back to the state of incorporation based on the second priority rule .


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UNCLAIMED PROPERTY & M&A TRANSACTIONS

• What unclaimed property did your company acquire? • Stock vs. Asset Acquisitions

• Stock Acquisition: Historical unclaimed property liabilities are acquired by the buyer. • Asset Acquisition: Historical unclaimed property liabilities are typically not acquired by the

buyer, unless stated in the purchase and sale agreement.

• What was reviewed during the due diligence process? • Unclaimed Property is typically only reviewed at a high-level during a merger or acquisition due

diligence review • Policies & procedures • Filing history & prior audits/voluntary disclosure agreements • Current identified liabilities (e.g. open A/R credits, gift card balances, etc.)

• Purchase & sale agreement considerations • Identify unclaimed property in the escrow definition • Unclaimed property is not a tax

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UNCLAIMED PROPERTY & M&A TRANSACTIONS (CONT’D)

• What steps should I take following an acquisition to address unclaimed property?• Determine the scope & liabilities acquired

• Stock or asset acquisition • Historical compliance • Historical policies & procedures • State of incorporation & potential look-back • Identify escrow & time frame

• Address unclaimed property timely • Perform a risk assessment & determine next steps (VDA, prospective compliance filings, etc.) .• The publicity of mergers and acquisitions can flag a company and create additional scrutiny from

state unclaimed property administrators and auditors .• Many legacy employees with historical knowledge of records and processes leave during or after an

acquisition.


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• What steps should I take following an acquisition to address unclaimed property? (cont’d)• Record keeping is key

• Hard Copy Records • G/L Data & Accessibility • Implement a record retention policy

• Examples of records needed for unclaimed property reviews: • Organizational Charts & Tax Returns/Financial Statements • General Ledger Trial Balances • Bank Statements, Reconciliations & Check Lists • Check Registers • A/R aging reports • General Ledger Account Detail & Journal Entries of Write-offs • Copies of Invoices• Prior Unclaimed Property Filing Reports • Records of Benefits/Insurance Plans

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• What steps should I take following an acquisition to address unclaimed property? (cont’d)• Establish a Prospective Unclaimed Property Compliance Plan

• Implement Policies & Procedures • Property Types • Time frames • Key Personnel

• Annual Filings – Consolidated vs. Stand Alone


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CLOSING COMMENTS

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BDO KNOWS

• Virtually every type of state and local tax, including income/franchise taxes, sales and use taxes, property taxes, employment taxes, as well as unclaimed property should be considered in connection with an acquisition.

• BDO’s experienced tax team can assist with all tax aspects of an acquisition, including planning, structuring, due diligence (buy-side and sell-side), and post-acquisition integration and tax exposure remediation.

• These services can help to minimize taxes arising from the acquisition itself and post-acquisition exposure to taxes before the buyer or seller are “stuck” with the consequences.


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QUESTIONS

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SPEAKER BIOGRAPHIES

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JOSEPH CARR, J.D.State and Local Tax [email protected]: +315 6161 3946

With 18 years of combined experience in state and local taxation, financial statement auditing, and operational auditing, Joe has worked with a broad range of the Firms’ largest clients including manufacturing, retail, distribution, financial institutions, investment companies, and business services. He specializes in state and local tax issues with an emphasis on income/franchise taxation and unclaimed property compliance and consulting.

Joe leads BDO’s National State and Local Tax Business Development and Marketing function. In this role, Joe touches many folks in the corporate community through dedicated BDO Knows Webinar Series on various topics, Alerts, pressing notices and other educational outreach efforts. Joe also maintains a standing column with State Tax Notes entitled “A View from the Windy City” where he along with his colleagues discuss various state and local topics important to the taxing community at large. Recent articles have included: (a) State and Local Tax Due Diligence Exposures and Procedures, (b) Extension of Delaware’s Friendlier Voluntary Disclosure Program, (c) Chicago Taxes Cloud-Based Services and Amusements and (d) Unclaimed Property Concerns for the Healthcare Industry. Mr. Carr is a frequent speaker at firm and organizational events on unclaimed property and other state and local topics.

In addition, Joe manages the SALT practice for the Firm’s Chicago office and heads-up the firms National Unclaimed Property practice. He has had success in mitigating client escheat exposures in VDA and audit settlements before many state escheat divisions. Joe, in concert with his colleagues, works closely with clients to enhance their accounting practices, systems and ongoing efforts for operational efficiency through Accounting Assessment Reviews. This success is largely attributable to his deep understanding of accounting principles, transaction flow, and unclaimed property law. Having evaluated financial and operational corporate risks, Joe offers clients facing escheat issues valuable accounting experience and an unique perspective in dealing with unclaimed property matters.

Prior to joining the Chicago office of BDO USA, LLP, Joe worked with KPMG LLP and Deloitte & Touche LLP in state and local tax and audit divisions, respectively. In addition, Joe also managed the Internal Audit Division of a middle market food cooperative.


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BIOGRAPHY

RICHARD W. SPENGLER, CPA State and Local Tax Senior [email protected]: +616 776 3687

Richard’s focus is in the areas of state income/franchise taxes and sales/use taxes – covering both tax consulting and tax restructuring. He also has significant experience in the design and implementation of legal entity structures that are more tax efficient. As a result of Richard’s unique background, he has had success in designing structures that both minimize the impact on his client’s operations while maximizing the tax savings received by the client.

In addition to restructuring work, Richard also has significant experience with the analysis of tax return positions. He has had a great deal of success with securing significant refunds for clients related to gray and misunderstood areas of the tax law. As a result of the numerous refunds that Richard has assisted clients with pursuing he has gained a significant amount of experience with the state appeals process including providing litigation support on claims that he originated.

Prior to joining BDO Richard worked within the SALT practices of Arthur Andersen and Ernst & Young.

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BIOGRAPHY

STEVE OLDROYD, CPAState and Local Tax Senior [email protected]: +408 352 1994

Steve has more than 25 years of experience in state and local taxation and leads the Western Region’s sales and use tax and property tax consulting practices.

Prior to joining BDO, Steve worked for the California State Board of Equalization for 10 years as a Senior Tax Auditor in Silicon Valley. During Steve’s tenure with the Board, he was responsible for conducting sales and use tax audits on a wide variety of industries including but not limited to retailers, wholesalers, construction, life science and Fortune 500 manufacturers. Steve was also an instructor for the Board’s audit staff sales tax continuing education training and update classes.

After leaving the Board, Steve worked several years in industry and public accounting, holding positions equivalent to Director of State and Local Taxes. Steve’s management experience includes a large specialty retailer, a Fortune 100 computer manufacturer, and a Big Four accounting firm.

Steve has been involved with many M&A due diligence projects and has provided valuable consulting advice to his multi-state clients. He has also been able to identify, document, and secure millions of dollars worth of sales/use tax refunds through a variety of reverse audit techniques and has extensive experience in successfully defending multi-state sales and use tax audits. Steve has spoken before numerous industry, professional and taxpayer groups.


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BIOGRAPHY

PAUL CHEUNG, CPAState and Local Tax Senior [email protected]: +773 490 3597

Paul is a Senior Director in BDO Chicago’s State and Local Tax Practice with over 20 years of experience in employment tax and payroll management consulting services, and leads the national employment tax practice at BDO. He has extensive experience in audit defense, penalty resolution, mergers & acquisitions, tax planning, and employment tax compliance. He has a network of contacts at the various state agencies and the Internal Revenue Service.

Prior to joining BDO, Paul was the national leader of the employment tax practice at Grant Thornton. Before that, he worked for “Big Four” accounting firms and other national tax consulting firms specializing in providing employment tax services to clients in a variety of industries. In addition, Paul was a payroll manager for a large media and publishing company for 2 years and a national telecommunications company for 5 years.

His specific experience includes:

Assisting clients in identifying employment tax refund and planning opportunities

Advising and assisting clients regarding employment tax issues in connection with mergers, acquisitions and restructuring

Dealing with employment tax issues related to multistate non-resident withholding, executive compensation, and employee fringe benefits

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BIOGRAPHY

THOMAS J. ALBERTE, CPAState and Local Tax Senior [email protected]: +414 615 6775

Tom works out of BDO’s Milwaukee office. He has over 29 years of experience with federal and multi-state tax, and state and local credits and incentives.

He specializes in assisting businesses in procuring government incentives packages that result from changes to their operations. Tom also assists businesses in minimizing federal and state income and franchise tax liabilities for businesses across the financial, insurance, high technology, retail, manufacturing and other industries. He also assists businesses with audit defense, due diligence reviews, state nexus reviews, voluntary disclosure requests, employment taxes, and with multi-state planning for and the implications arising from mergers, acquisitions, consolidations and dispositions.

Prior to joining BDO, Tom was a partner with Reinhart Consulting Services, LLC. Prior to that, Tom was a member of Andersen’s and Deloitte’s multi-state tax practices. Earlier in his career he was the head of tax at the Wisconsin Blue Cross & Blue Shield Plan and its public subsidiaries.

Tom has given many presentations on federal and state taxation and incentives to professional organizations including the Wisconsin Bar Association, the Milwaukee Bar Association, the Wisconsin Institute of Certified Public Accountants (WICPA), the Blue Cross and Blue Shield Association, the Financial Executives International (FEI), and the Tax Executives Institute (TEI). He has also authored many articles on state and local taxation and incentives.


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BIOGRAPHY

ARDIST CONNER, CMIState and Local Tax Senior [email protected]: +713 548 0820

Ardist is a Senior Director with BDO USA, LLP’s STS-SALT practice. He is a Certified Member of the Institute (CMI) for Professionals in Taxation and a licensed property tax consultant in multiple states.

During his thirteen years working in the property tax area, Ardist has honed and continually developed his professional expertise. Ardist is a property tax specialist in complex properties including manufacturing, oil & gas, energy, industrial services, utilities, real estate, and other complex properties. He is experienced with national standards and protocols as he has performed property tax advisory, consulting, and compliance services in all 50 states.

Ardist also brings to bear his energy industry experience with the internal workings of an industry property tax team. Prior to BDO, Ardist worked in the property tax department of a major oil & gas company. His duties included the property tax management of a portfolio of commercial, chemical manufacturing, pipeline, and oil & gas assets with a total value in excess of $1.3 Billion.

Ardist is a veteran who spent almost 9 years on active duty with the U.S. Army where he honed and developed his leadership skills as a Finance Officer. Four of those active duty years were spent as a cadet at the United States Military Academy at West Point.

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ELIZABETH FOLEYState and Local Tax Senior [email protected]: +617 422 7582

Elizabeth has over 9 years of experience working on abandoned and unclaimed property (AUP) matters and has extensive knowledge of AUP rules and regulations. Her experience also includes work in a consulting role assisting clients in all areas of AUP needs. Additionally, Elizabeth has managed unclaimed property examinations for the country’s leading contract AUP auditing firm.

As BDO’s Boston and Mid-Atlantic Regional Unclaimed Property Practice Leader, Elizabeth helps clients with all of their unclaimed property needs, specializing in audit defense and voluntary disclosure agreement (VDA) assistance. She also assists clients with unclaimed property risk assessments, general consulting and the development of policies and procedures. Elizabeth works with clients across a variety of industries, including energy and utility, oil and gas, food and beverage, manufacturing, retail, technology, and insurance.

Prior to joining BDO, Elizabeth worked with Ryan, LLC in their unclaimed property consulting practice and Kelmar Associates, LLC as a manager of unclaimed property audits contracted on behalf of numerous states.


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BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 63 offices and more than 450 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multinational clients through a global network of 1,408 offices in 154 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.

Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.

© 2016 BDO USA, LLP. All rights reserved.

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