The acquisition of a telecommunications service provider or a cloud-based service provider raises unique state and local tax issues that do not arise in connection with the acquisition of other businesses. Telecom and cloud-based providers typically have customers in many states, but often have little or no infrastructure or personnel in states in which their customers reside. This gives rise to difficult tax issues, including whether and to what extent a potential target is taxable in a particular jurisdiction. Furthermore, significant tax uncertainty often arises because many state tax laws have not changed to reflect new technologies commonly used in telecom and cloud-based services.

These uncertainties often are accompanied by aggressive state and local audit activity in the telecom area, which can compel a potential acquirer to engage in effective due diligence and to structure an acquisition to ensure that the acquirer does not unwittingly assume significant undisclosed tax liabilities.

The following presentation covers the unique state and local tax issues arising in connection with the acquisition of telecom providers (and similar cloud-based businesses) and offers strategies to minimize the tax risks.