“A business owner focused on future income tax savings may not be too concerned with taking the necessary measures to save tax in the state where they already live,” McGrory added. “For example, while an asset sale may be an easier and sometimes more expedient option to sell, a sale of the business owner’s stock could possibly result in a better outcome.”
“There are pre-sale planning techniques that can move the sale out of the higher tax state and into a more desirable state. The proposed transaction must fit a specific fact pattern and must be recognized by the departing states,” Kazakewich said. “There are also gifting strategies and discounted sales, which in conjunction with trust strategies, can yield significant tax savings.”
Tax insurance can help manage this risk, Harger said, and can be acquired at the time of the relocation or down the road to protect a taxpayer from the economic loss arising from a future tax authority challenge.
“It’s designed to take the taxpayer back to the same position they would have been in if there had never been a tax authority challenge by covering additional assessed amounts, costs of a contest and so on,” she said.
An ill-conceived move can cause more than tax trouble: Selling a business also opens the door to more scrutiny of a company’s underlying tax profile by a prospective buyer.
“A seller must consider not only the tax impact of the sale itself, but potential tax risk associated with their historical positions, as well,” Harger said.