Massachusetts Sting Tax

Very often, tax consequences determine how successful the sale of a business ultimately is.  Owners often focus only on top line price, while structure and tax treatment can make a significant impact on how much of the purchase price the owner ultimately retains.  Asset sales, while attractive to buyers because they allow for a “step up” in the basis of the assets up to the amount of the purchase price (enabling the buyer to take increased depreciation and amortization deductions), often create problems for owners.  Because the seller in an asset sale is typically an entity, the sale proceeds have to pass into the entity and then out to the owners.  This makes the sale proceeds subject to a double tax where the seller is a C corporation, an S corporation with earnings and profits, or an S corporation subject to the built in gains tax.  In addition, certain state taxes, such as the Massachusetts “Sting Tax” may apply, further decreasing the net sale proceeds to the owners.
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