Unremitted sales tax and payroll tax on misclassified workers sit outside the trial balance, outside the disclosure schedule, and outside what the bank underwrote. A share deal takes the seller's entity and everything it owes. An asset deal leaves the liability behind, until successor liability reaches through to the buyer. Neither structure removes the exposure. How The Exposure Builds - Unregistered Economic Nexus: Since the Supreme Court's 2018 Wayfair decision, states can require an out-of-state seller to register and collect sales tax, even with no physical presence. Thresholds vary by state and commonly start around $100,000 of in-state sales. Owner-operated distributors, e-commerce sellers, and equipment dealers often exceed the threshold without registering, and without charging their customers. - Missing Exemption Certificates: Resale and manufacturing exemptions depend on documentation. On audit, an exempt sale without a valid certificate on file is assessed as taxable. A target with 60% exempt sales and 40% certificate coverage owes tax on the gap. - Contractor Classification: Contractorredactedarrangements are common in trades, logistics, staffing, and field services. Where the working relationship is really employment, the target owes back payroll taxes on prior periods and carries a higher cost base going forward. The first is a liability, the second reduces EBITDA, and each has to be priced separately. - Open Assessment Periods: The limitation period starts when a return is filed. A target that never registered has no filings, so the clock never started. The state can assess back to the first year the threshold was exceeded, not three years. Where The Liability Lands - Share Purchase: The entity is the taxpayer, so the buyer acquires the liability along with everything else. There is no notice to file, no clearance to obtain, and no statutory cap at the purchase price. Protection comes only from the purchase agreement. - Asset Purchase, Successor Liability by Statute: Many US states impose liability on the purchaser of a business or substantially all of its assets for the seller's unpaid sales and use tax, often capped at the purchase price. - Asset Purchase, Bulk Sale Notice and Clearance: Several states provide a notification or clearance process that limits or releases the purchaser if followed within a defined pre-closing window. - The Canadian Position Differs: Ontario repealed its Bulk Sales Act, so Ontario asset deals rely on indemnity, holdback, and clearance mechanics rather than a statutory notice regime. Provincial treatment is not uniform. Turning A Tax Finding Into A Deal Number - Nexus Mapping: Revenue is broken down by ship-to state across three to four years and set against the actual registration footprint. The gap is the revenue that should have been taxed. - Certificate Coverage Testing: Exempt sales are sampled against certificates on file, and the failure rate is applied to exempt revenue. - 1099 Reconciliation: Contractor spend is reconciled to headcount and to the roles those people actually perform. Long-tenured, full-time, single-client contractors are the ones that reclassify. - The Two-Number Rule: A historic liability reduces proceeds dollar for dollar. A forward compliance cost is a QoE adjustment, and EBITDA adjustments get multiplied. Illustrative Deal Example An Illinois-registered commercial relocation and transition management firm with $9M of revenue and $1.4M of adjusted EBITDA goes to market at 5x, a headline price of $7M. The company runs projects across several states in the Northeast and Midwest. - Contractor Classification: Field staff are carried on 1099s, but work full time, on the company's schedule, using its equipment. Payroll tax, workers compensation, and benefit load add $100k per year, reducing the normalized EBITDA. - The Tax Exposure: Projects are billed as a single management fee. Inside it sit decommissioning, furniture installation, and post-move cleaning, several of which are taxable services in the project states. Crews and equipment on site put the company physically in each state, which creates the obligation without any sales threshold to exceed. The company has been running those projects for four years without registering. Uncollected tax on the taxable components, with penalties and interest, comes to $75k in total. No returns were filed, so none of it is time-barred. Run both through the deal. Adjusted EBITDA falls to $1.3M. At 5x, enterprise value drops to $6.5M, so a $100k annual cost took $500k off the price. The $75k tax liability comes out of proceeds once, through escrow or a further reduction. Total impact is $575k on a $7M price. Structuring The Response - Seller-Run Voluntary Disclosure: Most states offer voluntary disclosure agreements that limit the lookback and abate penalties for taxpayers coming forward before contact. Run by the seller pre-close, with filed agreements as a closing condition. - Standalone Indemnity: Tax successor liability needs a standalone indemnity with survival tied to the statutory period, not to a negotiated 12 or 18 months, backed by an adequate escrow. - Tell the Lender Early: Quantify at the term sheet stage. Discovered late, it reads to a credit committee as a control failure across the business. Share Your Perspective: Nexus exposure is surfacing more often as targets sell into states where they were never registered. When did this surface in your deal and how was it handled?