Top Indirect Tax & Registration Barriers to Mergers or Sales

When companies plan a merger, sale, or even an orderly wind-down, financial statements aren’t the only things scrutinized. Tax and regulatory compliance play an equally critical role. In fact, unresolved indirect tax liabilities and registration accounts are some of the most common obstacles that derail or delay transactions. Buyers, investors, and even creditors want assurance that no hidden liabilities are lurking in the background.

Below we break down the biggest indirect tax and registration issues that can put a deal on ice.

Sales & Use Tax Registrations

Most businesses operate across multiple states or local jurisdictions, each with their own rules. If a company has failed to register properly, it may have years of uncollected and unpaid sales tax exposure. This is particularly risky in industries with nexus in many states (transportation, logistics, SaaS, manufacturing). During due diligence, buyers will flag:

• Missing or late registrations.
• Uncollected sales tax that may still be owed.
• Audit assessments that remain open.

Motor Fuel and Excise Tax Accounts

For transportation and fuel-related businesses, excise taxes are a top concern. Failure to maintain active excise tax registrations or remit accurately can result in substantial assessments. These accounts are often heavily regulated, and unresolved issues here can prevent license transfers, which in turn can delay or derail mergers and sales.

Payroll Tax Withholding and Unemployment Accounts

While payroll taxes may feel more “direct,” the withholding and unemployment tax registrations function as indirect accounts that impact state compliance. States won’t allow closure or transfer of these accounts until balances are settled. A mismatch in reported wages versus actual filings will often show up during due diligence and raise red flags for potential buyers.

Property Tax and Business License Accounts

Local property taxes and annual business license fees often fall under the radar, but they are indirect tax obligations that attach to the entity. A company cannot be fully liquidated, nor can licenses be transferred to a buyer, until all local accounts are up to date. Lingering property tax liens are particularly damaging because they attach directly to assets—meaning they transfer with the sale unless resolved.

International Indirect Tax (VAT, GST, HST)

For companies with cross-border operations, unresolved VAT/GST accounts create massive hurdles. Buyers often require confirmation that every jurisdiction has clean compliance. If a company lacks VAT registration where it should have been collecting and remitting, back assessments can not only stop a deal but also exceed the value of the transaction.

Environmental & Industry-Specific Fees

Certain industries (transportation, construction, waste management, telecommunications) carry additional indirect accounts like environmental fees, surcharges, and recycling taxes. These may seem small compared to income taxes, but regulators will not allow licenses to transfer with balances outstanding. Buyers will either demand escrow accounts to cover them or walk away.

Why These Accounts Matter in M&A and Liquidation

• Successor Liability: Most states hold buyers responsible for unpaid indirect taxes. No buyer wants to inherit those liabilities unknowingly.
• Regulatory Approval: Many industries require proof of tax compliance before approving license transfers.
• Transaction Delays: Even if a deal isn’t canceled, unresolved accounts slow down negotiations, inflate legal fees, and reduce the seller’s leverage.

How to Prepare a Company for Sale or Liquidation

1. Conduct a Compliance Audit – Review all state, local, and federal indirect accounts for balances or inactive registrations.
2. Resolve Open Balances – Pay down delinquent taxes and file missing returns before due diligence begins.
3. Voluntary Disclosure Agreements (VDAs) – Where exposure exists, consider negotiating with states to reduce penalties before a buyer discovers the issue.
4. Maintain Good Standing – Ensure annual registrations, licenses, and certificates of good standing are all current.

Bottom Line: The biggest barriers to selling, merging, or liquidating a company rarely come from the income tax side—they come from the indirect tax and registration accounts that quietly accumulate exposure over time. Companies that prepare early, clean up their accounts, and maintain compliance will always command higher valuations and close deals faster.