Tax liability nightmares you want to avoid when expanding, selling, or IPO-ready (webinar)


Join us for this live webinar on Wednesday, September 30 at 10 a.m. Pacific, 1 p.m. Eastern. Register here for free. 

Malcolm Ellerbe sees it everyday: SaaS companies or cloud-based companies that are caught off-guard by tax liabilities they’ve been entirely unaware of. Ellerbe is a tax consultant at Armanino LLP and just about all of his clients are investor-backed cloud-based organizations. Once they reach what he calls an inflection-point — where they have 50 percent year-over-year revenue growth — big issues come up that could have been avoided.

“I’ve had so many CEO’s tell me, ‘Malcolm, you don’t understand, it’s software as a service, and services are not taxable,'” Ellerbe says. But just because ‘service’ is in the name, it doesn’t mean what you’re selling is exempt from tax.

“17 states currently tax what I’ll call SaaS /remote-access software,” Ellerbe explains. “Many of those tax that as constructive use of software. Others tax it as data processing. Others tax it as digital automated services — and others may tax it as just a taxable growth receipt.”

It can quickly become a nightmare with a host of issues, not least of which is leaving revenue on the table.

“With sales tax, it’s effectively coming off your margins,” Ellerbe says. “Whereas you could have been collecting this tax from your customers all along.”

Companies also frequently trip up on international tax exposure that could be avoided with the proper planning. “They don’t realize they have liabilities,” says Ellerbe, “or they haven’t structured themselves properly, or they have employees instead of contractors.”

But, of course, the biggest issues develop when a company is entertaining an offer to acquire the company, or getting ready for an IPO. In the case of selling, because taxes are such a common oversight, acquiring companies often want to escrow funds to cover contingent liabilities. “Sales tax is one of the highest profile of those,” says Ellerbe. “The prospective buyer surprises the owner of the company by saying ‘We want to escrow 2 million dollars to cover these taxes and other issues.'”

For an IPO, it’s much more focused on tax compliance. “It’s not just an escrow issue,” says Ellerbe. “In preparation for the S1 filing, auditors will require that control procedures be put into place to be stock compliant — there will be a lot more scrutiny. So it’s not just sales tax, and not just international tax, but true compliance issues around the tax provision.”

Ellerbe would love to see tech execs become far more educated about these issues early on — otherwise ignorance can be a harsh teacher, and the results may not be pretty. He’s seen it just too many times.

“I take the no surprises approach,” says Ellerbe. “The CFO should try and find out what the CFO doesn’t know, because someone on the board may be aware of these issues and catch them flat-footed, and say ‘What do you mean we’ve got this due diligence going on, or we’ve got this IPO coming up, and we’ve got all these tax issues? What’s going on? Weren’t you aware of this?'”

As Ellerbe explains, it’s just a matter of time in a tech company’s life cycle when they’re going to have to deal with these issues. Why not take an hour our of your day, join this stellar panel of tax pros who deal daily with companies like yours, and discover some of those things that are far better understood now than later?

Don’t miss out!

Register here for free.

In this webinar, you’ll:

  • Gain greater visibility to common sales tax loopholes that often snag hot tech startups and entrepreneurs
  • Determine whether sales tax is even an issue for your organization — you might be surprised.
  • Learn ways that international tax in growth stage companies can be the make or break point for that next IPO
  • Get a high level overview of other tax considerations like net operating losses, impact of stock compensation, and the states that are currently taxing cloud computing services.


Malcolm Ellerbe, Tax Partner, Armanino
David Sordello, CPA, Corporate Tax, Armanino
Jon Davies, Tax Partner, International Tax, Armanino

This webinar is sponsored by Avalara.