At Crewe Capital, we’ve advised on dozens of successful transactions across the country, and one issue consistently shows up in diligence—sales tax compliance. For companies doing business in multiple states, it’s not just a box to check. Getting this wrong can cost real money at the closing table.
Why Sales Tax Matters More Than You Think
If you’re operating in more than one state, you’re likely subject to economic nexus rules, which means you may owe sales tax in states where you don’t have a physical presence. With each state setting its own thresholds and enforcement policies, it’s easy for companies to fall out of compliance without even realizing it.
The M&A Impact: Escrows, Deductions, and Deal Risk
From our experience at Crewe, roughly 80% of the companies we see that aren’t properly collecting or remitting sales tax run into problems during due diligence. Buyers—and especially their legal and accounting teams—flag this quickly. The result?
- Escrow holdbacks: A portion of the seller’s proceeds (sometimes 5–10% or more) is held in escrow to cover potential tax exposure.
- Purchase price adjustments: In more serious cases, buyers may reduce the purchase price to account for estimated liabilities.
- Delayed or disrupted closings: Uncertainty around unpaid sales tax can introduce risk, delay the deal, or even cause it to fall apart.
- Structural Change: We have also seen buyers force a change from a stock sale to an asset sale, which can have very serious tax consequences for a seller.
It’s Not Just M&A—Capital Raising Is Impacted Too
Investors—particularly institutional or growth equity funds—want clean financials and limited exposure to off-balance sheet liabilities. Sales tax noncompliance suggests a lack of financial rigor, and that can create hesitation or impact valuation. Even in earlier stage capital raises, this can be a red flag.
What Business Owners Should Do Now
If your business sells into multiple states—especially via e-commerce or digital services—get ahead of the issue:
- Conduct a sales tax nexus study: Understand where you have obligations.
- Register and remit appropriately: Automate where possible using tools like Avalara, TaxJar, or similar.
- Correct past mistakes proactively: In many states, voluntary disclosure programs can help limit penalties and interest if you act before getting audited.
The Bottom Line
Sales tax compliance isn’t just a finance team issue—it’s a strategic priority for any company thinking about selling, raising capital, or avoiding unnecessary headaches.
At Crewe Capital, we help our clients navigate every stage of the transaction process—from preparation to diligence to closing. Sales tax surprises are avoidable, but only if you know to look for them early.
