Effective Tax Rates for M&A Sellers

February 26, 2024

by an intermediary from University of Florida in Nashville, TN, USA

I am trying to get a better sense of the overall range for the effective tax rate a seller will pay in an M&A deal. I understand the general differences in the tax treatment for an asset deal vs a stock deal but is it fair to say that for almost all M&A deals, the range of the effective total tax paid by the seller will be between 20-35%? I am under the impression it is usually in this range and typically closer to 20% for stock sales since it is long term capital gains and closer to 30% for asset deals depending on the amount of goodwill, inventory, etc. Is it possible however to be like 40% becuase you have to add state tax as well? What is the top of the range?

Reply by a professional
from Villanova University in West Chester, PA, USA

Hi ^redacted‌ This is highly individualized advice that each seller will need to work with a lawyer and accountant to determine as it's dependent on a number of factors. One is the taxable income they expect to have in a year (ie: if they defer parts of the purchase price through a seller note or earn out, they can better plan for their tax liabilities and minimize their tax consequences). Another is what types and amounts of deduction, losses, etc. they can utilize to offset the income. In addition, it depends on the state they're located in and the various tax rates of that state for different types of income and what exclusions they may fall under. Let me know if you'd like to connect further.

Reply by an intermediary
from University of Florida in Nashville, TN, USA

Thank you. Have you ever seen anything over a 45% effective rate though?

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