State and Local Tax Due Diligence for SaaS Investments

This guide outlines the importance of state and local tax (SALT) due diligence for Software-as-a-Service (SaaS) investments. It highlights the unique challenges SaaS companies face regarding SALT compliance due to their virtual-first business models, which can obscure traditional tax presence indicators. The document details common pitfalls in SALT diligence, including revenue mischaracterization, economic nexus issues, and employee misclassification. It emphasizes that these issues can significantly impact transaction value if not addressed early. The guide also presents strategies for buyers to mitigate these risks, advocating for proactive SALT diligence to ensure risk containment and future-state readiness. Buyers are encouraged to assess legacy exposures, review workforce structures, and align legal entity footprints with apportionment strategies to avoid deal-altering surprises. The document concludes by stressing that effective SALT diligence can enhance valuations and provide stronger protections for investors.