Call Your Tax Provider Before the Deal Closes. Here's What Happens When You Don't.

A SaaS company lost $9 million of a $15 million deal to a state tax rule nobody checked in time. This article covers why tax is consistently the last advisor brought into a deal, what that timing costs sellers, and what CEOs, bankers, and PE investors should be doing differently before a deal closes.

What a $9 million tax bill looks like

A SaaS business went through a distressed sale. The common equity holders stood to recover nothing regardless of outcome, so nobody on the sell side had much incentive to catch problems before the deal closed.

The deal was structured as an asset sale, as many distressed sales are. Federally, the company had enough net operating losses to offset the gain. In one state, a temporary suspension on NOL usage between 2024 and 2026 meant they couldn’t use them there, and nobody checked whether that mattered until it was too late to plan around it. The result was a $9 million liability on a $15 million purchase price. That’s roughly 60 percent of the deal value lost to a state rule a tax advisor could have planned around months earlier, by amending prior returns, shifting income to other states, or capturing losses while they were still usable.

Why tax gets called last on most deals

Nobody on that deal had done anything wrong. A banker signs on before the teaser goes out. A lawyer gets pulled in early enough to shape the agreement itself. Tax, more often than not, waits. And the “eyes-glaze-over” reputation tax has earned itself doesn’t help. It’s easy to treat as a compliance checkbox until it turns into a seven-figure number with your name on it.

The buy side almost always brings in tax counsel and tax accountants before signing, because they have the money to spend on it and the leverage to demand it. The sell side usually doesn’t. So when exposure surfaces, it’s the buy side surfacing it, on their timeline, with their number attached. At that point the seller isn’t negotiating. They’re accepting whatever figure lands on the page from a Big Four provider, figures that run high because no one on the other side is pushing back on the assumptions behind them.

The cash impact is the same regardless of how the exposure shows up: a purchase price reduction, an escrow that holds back money the seller was expecting, or, in cases like a state-level NOL issue, a liability that eats directly into what they walk away with.

Where sales tax exposure hides

Sales tax exposure follows a similar shape, earlier in a company’s life. A business with a tech-enabled service and a SaaS fee attached to it will usually assume it’s taxed as a service. The buy side’s advisors look at the same contract and see something else: data processing, data intelligence, or SaaS, depending on the state. The reclassification can carry a multimillion-dollar exposure with almost no room to argue the number down afterward.

One company marketed its product as AI-powered: an avatar that interacted with customers in real time. In reality, a person was operating it behind the scenes, something customers were never told. A state tax authority classified the business as an AI company based on that marketing, and the company’s later argument that the product was human-operated didn’t change the outcome.

It matters more now than it used to. New York alone has been sending sales tax audits broadly and attaching $10,000 penalties to anyone who doesn’t respond within 30 days, and a fair number of the federal staff who left the IRS in recent rounds of cuts have landed in state tax departments, which is where the enforcement gap is closing.

The ROI of a pre-deal tax review 

The trade is not close. A light-touch tax review before a deal goes to market runs a small fraction of what a buy-side exposure haircut costs once it’s found for you. Paying tens of thousands upfront beats losing millions at the table. Almost nobody makes that call early enough to have the option.

It works a bit like WebMD: it tells you a symptom is worth a doctor’s visit while there’s still time to do something about it, instead of finding out in an emergency room.

Exbo's Group’s role before a deal closes

Exbo Group brings tax advisors into a deal early, while a company still has options. That includes reviewing sell-side positioning before a deal goes out, flagging state-specific exposure like NOL limitations or sales tax classification questions ahead of the buy side, and walking sellers through what’s defensible in their numbers before diligence starts.

If your company is heading toward a transaction, or you’re a PE firm with a portfolio company that’s never had a proper tax review, reach out to Exbo’s team and we’ll walk through where your exposure is.

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Frequently Asked Questions

Why does tax usually get called into a deal last?
Bankers and lawyers are standard on every deal from the start. Tax typically isn’t, and it’s usually the buy side that brings in tax counsel and accountants before signing, because they have the budget and the leverage to demand it. The sell side usually doesn’t make that same call until diligence is already underway.

What happens if tax issues surface late in a deal?
The seller loses the ability to plan around them. Exposure that could have been reduced through amended returns, income shifting, or documentation instead becomes a number the buyer presents, with a purchase price reduction or escrow attached, and little room left to negotiate once it reaches the table.

Isn’t tax exposure the buyer’s problem after close?
No. It shows up as less cash for the seller, whether through a reduced purchase price, an escrow holdback, or, in more severe cases, a liability that consumes a significant share of the deal value. In one case, a single state tax rule accounted for 60 percent of what a seller expected to walk away with.

How much can early tax engagement change the outcome?
It depends on the situation, but the gap can be substantial. In one case, a $9 million liability on a $15 million deal traced directly back to a state tax rule that could have been planned around with earlier engagement.

What’s the most commonly missed exposure for PE-backed companies?
Sales tax, particularly for SaaS and tech-enabled service businesses operating across multiple states. Income tax is usually already covered by a PE firm’s existing provider. Sales tax is where the gap tends to be unaddressed, and where state enforcement has been ramping up fastest.