Valuing a Retail Business: Beyond Revenue Multiples

An Idaho boutique owner asks what her store is worth and gets quoted a revenue multiple of 0.4x by a broker who spent 20 minutes looking at the top-line numbers. That figure is almost certainly wrong. Retail valuation is more nuanced than a single revenue multiple: it turns on owner comp, inventory quality, lease terms, and the channel mix between physical and online sales.

For a Twin Falls specialty grocer, a Salt Lake fashion boutique, or a Boise outdoor retailer, understanding the actual valuation math is the difference between accepting a lowball offer and holding out for a fair price.

Why Revenue Multiples Alone Mislead in Retail

Revenue multiples are a rough shortcut that ignores margin, cost structure, and cash generation. Two retailers with identical $2 million in annual revenue can be worth wildly different numbers: one running at 45 percent gross margin with tight overhead generates real cash; the other at 25 percent margin with high store rent may be a break-even operation.

A serious retail valuation uses earnings-based methods (SDE or EBITDA) with asset-based adjustments layered on top. Revenue multiples serve as a sanity check, not the primary tool.

SDE for Owner-Operated Retail

Seller’s Discretionary Earnings (SDE) is the standard metric for small owner-operated businesses. SDE equals net income plus owner’s salary and benefits, plus interest and taxes, plus depreciation and amortization, plus any documented one-time or personal expenses run through the business.

SDE captures the total economic benefit an owner-operator extracts from the business. For retailers under $5 million in revenue, SDE multiples typically run 1.5x to 3.0x, depending on business quality, growth trajectory, and dependence on the owner.

An SDE of $250,000 at a 2.5x multiple produces a $625,000 valuation. That is the honest range for a well-run independent retailer with clean books.

EBITDA Multiples for Multi-Store Operations

Once a retailer scales beyond single-store, owner-operated economics, valuation shifts from SDE to EBITDA. Multi-store retailers and larger e-commerce brands typically trade at 3.0x to 6.0x EBITDA, with higher multiples going to:

  • Growing e-commerce brands with strong direct-to-consumer margins
  • Multi-store operations with proven site selection and management systems
  • Retailers with proprietary product lines (private label, exclusive vendors)
  • Businesses with recurring or subscription revenue streams

The multiple assumes the buyer takes on professional-level management infrastructure. For a family owner who has been running things personally, that means the buyer will normalize an outside manager’s salary into the EBITDA calculation before applying the multiple.

Inventory Age and Quality Adjustments

Inventory is the retailer’s largest current asset and the single biggest source of valuation adjustments. Buyers will look for:

  • Aged inventory beyond 12 to 18 months, which typically gets marked down 30 to 70 percent
  • Seasonal inventory carried past its selling window
  • Discontinued items and end-of-life SKUs
  • Inventory carried at retail rather than at cost (a common misclassification)

A seller with $500,000 of reported inventory that reserves down to $350,000 in diligence loses $150,000 in delivered working capital at close. Cleaning up inventory 12 months before a sale is one of the highest-return preparation moves a retailer can make.

Lease Value and Location Premium

The lease is a major hidden asset or liability in a retail valuation. A retailer with 5 years remaining on a below-market lease in a strong location has real transferable value. A retailer with 12 months left on a market-rate lease has almost none.

Two lease elements matter most:

  • Remaining term and renewal options: buyers want at least 3 to 5 years of remaining term or clear renewal rights
  • Rent as a percentage of sales: if occupancy cost exceeds 10 to 12 percent of revenue for most retail categories, the location is a drag on value

Renegotiating the lease before a sale, or extending options at favorable terms, can move a valuation up meaningfully.

Online-to-Offline Channel Mix and Its Impact

Retailers with strong e-commerce channels alongside physical stores now command a valuation premium over pure brick-and-mortar. E-commerce operations typically have higher gross margins (no store labor, fewer geographic constraints), scalable growth without linear cost increases, and inventory efficiency.

A retailer with 40 percent of revenue online generally values higher than a similar retailer at 90 percent brick-and-mortar. The online business also opens up strategic buyer pools that would not buy a pure physical retailer.

Retail valuation is more art than manufacturing valuation because so much value sits in inventory quality, lease terms, and channel mix. The retail advisory team at Cooper Norman works with Idaho and Utah retailers 12 to 24 months ahead of a planned sale to clean up the balance sheet and position the business for the top of its multiple range. Our business valuation group can produce a specific market read on your business before any broker conversation.

This overview is general information, not legal or tax advice for your specific situation. Talk with a Cooper Norman advisor about how these factors apply to your retail operation.

Post-Wayfair Sales Tax Compliance for E-Commerce Retailers

South Dakota v. Wayfair changed sales tax overnight in 2018. For seven years since, e-commerce retailers have been catching up with the reality that selling into a state can create a filing obligation without ever setting foot there. For a Boise apparel brand shipping to 40 states or a Salt Lake City DTC food seller doing volume through Shopify and Amazon, the compliance surface can quietly outgrow the accounting team.

The mechanics are not complicated. The trap is knowing when a threshold is crossed, which states have dropped their transaction count, and how marketplace facilitator laws change what the seller still owes. Getting registration timing wrong is expensive, both in back tax and in state penalty layers.

Wayfair in One Paragraph and Why It Still Matters

The Supreme Court ruled that a state can require sales tax collection from a remote seller without physical presence, as long as the state’s nexus threshold is not unduly burdensome. South Dakota’s original standard was $100,000 in sales or 200 separate transactions into the state in the current or prior calendar year. Almost every state with a sales tax adopted a version of that standard within two years. The threshold you crossed three states ago last quarter may have created a registration obligation you have not addressed.

The 45-State Threshold Map

Forty-five states plus the District of Columbia now enforce economic nexus. The remaining five (Alaska, Delaware, Montana, New Hampshire, Oregon) have no statewide sales tax, though Alaska has local jurisdictions that collect. Thresholds vary in three ways:

  • Sales-only states: California and Texas ($500,000), New York ($500,000 plus 100 transactions), Tennessee ($100,000). Transaction counts do not apply.
  • Dollar-or-transaction states: Utah keeps the original $100,000 or 200 transaction test. Idaho enforces $100,000 in sales alone (transactions removed).
  • No-threshold jurisdictions: Some states impose nexus on the first dollar for specific product categories, notably digital goods and marketplace sales.

State thresholds change. A retailer who mapped nexus in 2022 should re-run the analysis annually against current sales data.

Marketplace Facilitator Laws vs. Direct Sellers

Marketplace facilitator laws shift the collection duty from the seller to the platform. If a Utah retailer sells $200,000 through Amazon and $60,000 through their own Shopify site into California, Amazon collects and remits on the $200,000; the retailer still owes on their direct sales if they cross the state’s threshold on those alone. States differ on whether marketplace sales count toward the seller’s threshold at all.

Some sellers register unnecessarily because they include marketplace-facilitated sales in their nexus math. Others miss registration because they exclude them from a state that requires the combined count. The state-by-state coordination table is worth a serious look before filing anything.

When Registration Actually Becomes Required

Registration is triggered on the day the threshold is crossed, not the year-end. Most states allow a grace period of 30 to 60 days from crossing to register and begin collecting. Late registration exposes the seller to back tax on transactions after the trigger date, plus penalties and interest.

A common mistake: waiting for the annual tax return to discover a state was crossed. By then, the exposure window may span 8 to 10 months, and the seller owes tax the customer was never charged.

Software Options: Avalara, TaxJar, Sovos

Three platforms dominate the mid-market compliance stack. Avalara is the deepest for complex product taxability and multi-jurisdiction filing. TaxJar (owned by Stripe) works well for retailers already on Stripe or Shopify with straightforward taxability. Sovos is common for larger sellers or those with strong ERP integration needs.

All three handle registration, calculation, filing, and remittance. Cost scales with transaction volume and jurisdiction count. For a retailer active in 20 or fewer states, monthly cost typically runs a few hundred dollars. For a seller in all 45, expect a monthly SaaS bill in the low four figures plus filing fees.

Idaho and Utah Rules for In-State Sellers

Idaho’s economic nexus threshold is $100,000 in gross sales into Idaho in the current or prior calendar year. Idaho does not require a transaction count. Utah maintains $100,000 in gross sales or 200 transactions. Both states are Streamlined Sales Tax members, which simplifies registration through the SST Registration System for sellers that qualify.

Multi-state sales tax was one of the largest hidden compliance loads to hit small e-commerce retailers in the last decade. The retail advisory team at Cooper Norman works with clients across Idaho and Utah to run a nexus study, prioritize registrations, and set up a filing cadence that does not overload the bookkeeping team. If you would like a review of your state footprint or software stack, our tax planning group is a good place to start.

This overview is general information, not tax advice for your specific business. Talk with a Cooper Norman advisor about how these rules apply to your operation.

Weather-Related Livestock Sale Deferrals: What Idaho and Utah Ranchers Need to Know

Drought forced you to sell cattle earlier than planned. Or a wet spring collapsed pasture and you moved animals off the ranch to protect the ones you kept. Either way, more livestock left the operation than you intended, and now the sale proceeds are sitting on the tax return.

The Internal Revenue Code has two separate rules that can help. They work differently, they cover different animals, and they are frequently confused with one another. Getting them right can defer a real tax bite on a hard year.

Here is what each one does, who qualifies, and how not to conflate them.

The two deferrals, side by side

Both rules address the same problem, a forced sale of livestock due to weather. That is where the similarity ends.

  • Section 451(g) is a one-year income deferral. It allows a cash-basis farmer to defer income from an excess sale of livestock to the next tax year, if the sale was forced by weather in an area designated as a disaster.
  • Section 1033(e) is a replacement-property deferral. It allows a rancher to defer the gain on the forced sale of breeding, draft, or dairy livestock, so long as the animals are replaced within a set window.

Section 451(g) covers all livestock, including animals held for sale. Section 1033(e) is narrower and covers only breeding, draft, and dairy stock. A rancher forced to sell both classes in the same year can use one rule on one class of animals and the other rule on the other class, but never both rules on the same animals.

Section 451(g): the one-year income deferral

Section 451(g) is the simpler tool. A cash-basis farmer principally engaged in farming can defer the income on the excess portion of a weather-forced livestock sale into the following tax year. Three requirements to keep straight.

First, the sale must exceed what the rancher would normally have sold in a typical year. The deferral only applies to the excess.

Second, the sale must be caused by drought, flood, or other weather-related conditions. That weather event must trigger a federal disaster designation somewhere in the operation’s area. USDA county-level disaster designations are the usual proof.

Third, the operation must be principally farming, and the taxpayer must be on the cash method. Accrual-basis operations do not use this rule.

The mechanics are handled with a statement attached to the return, and the deferred income shows up on the following year’s Schedule F.

Section 1033(e): the replacement livestock deferral

Section 1033(e) applies specifically to breeding, draft, or dairy animals sold because of drought, flood, or other weather-related conditions. It allows the gain on those sales to be deferred if the animals are replaced with functionally similar livestock within a set window.

The standard replacement window is two years from the end of the tax year in which the gain was realized. In a persistent drought area with an ongoing federal disaster designation, that window can extend to four years or longer. Idaho and Utah counties have qualified for extended windows in recent drought years, so a rancher who sold cows in a bad year may still have time to replace and defer.

Section 1033(e) defers gain, not proceeds. The rancher must invest an amount equal to the gain into qualifying replacement livestock. Underspending means the shortfall becomes taxable in the year of the sale.

Slaughter cattle and market steers do not qualify. Only breeding, draft, and dairy animals count.

How to elect each one

Both rules require documentation, and neither is automatic.

For Section 451(g), attach a statement to the return that identifies the weather event, the county’s disaster designation, the number and class of animals sold, the number normally sold in a comparable year, and the excess income being deferred.

For Section 1033(e), attach a statement identifying the sale, the gain, the intent to replace, and the applicable replacement period. When replacement livestock are purchased, keep records tying the replacement purchases to the deferred gain.

For both, hold on to the USDA disaster designation for the county and the year. That designation is the linchpin.

Common mistakes

Three that show up regularly.

1. Trying to use both rules on the same animals. A single sale of cattle picks one rule or the other, not both. 2. Treating slaughter animals as breeding stock. Section 1033(e) is limited to breeding, draft, and dairy. Market steers do not qualify no matter how the sale was structured. 3. Forgetting the replacement window. The clock runs from the end of the tax year of the sale. Two years passes fast, especially when the market for replacement heifers has moved.

These deferrals also interact with basis and future depreciation on the replacement animals. The article does not walk through those adjustments. That is what the CPA is for.

This overview is general information, not tax advice for your specific operation. Talk with Cooper Norman’s ag CPAs about which rule fits your situation, and how farm tax planning coordinates with the operating side of the ranch. Talk to a Cooper Norman advisor before the return is filed, not after.

When to Outsource Medical Billing: A Financial Breakeven

Every year, another vendor pitches an Idaho or Utah practice on outsourcing its billing. Every year, another practice considers switching and decides against it, or switches and later regrets it. The reason both experiences are common is that the underlying question is almost always framed as “which is better” when the real question is “at what volume does one beat the other.”

The math is unforgiving. Outsourcing that saves money at one practice loses money at another. In-house billing that works cleanly at one practice hemorrhages cash at another. This piece walks through the real cost stack for in-house billing, how outsourced billing actually prices, the breakeven formula every owner should run, quality signals worth more than price, and the contract terms that matter most.

The Real In-House Cost Stack

The all-in cost of in-house billing includes more than the biller’s salary. The full stack:

  • Billing staff salaries plus employer-paid benefits and payroll taxes (typically 20 to 30 percent above base wage)
  • Practice management or billing software (license, support, upgrades)
  • Clearinghouse fees per claim
  • Denial rework time (measured in hours per month at loaded staff cost)
  • Physical space and equipment allocated to billing
  • Manager time spent supervising billing
  • Cost of collection on aged AR that never gets worked

Practices consistently underestimate the last two categories. Manager time and uncollected old AR are the invisible portion of in-house cost, and they can equal or exceed the visible portion.

How Outsourced Billing Actually Prices

Outsourced billing services price in two main structures:

Percentage of collections. Typically 4 to 9 percent of what the vendor collects, with the range depending on specialty, complexity, and volume. Aligned incentives (vendor earns more when they collect more), but the percentage compounds on the practice’s largest revenue category.

Flat fee per claim or per encounter. Predictable cost, but does not scale with claim value or complexity. Sometimes attractive for high-volume, low-value practices.

Hybrid arrangements exist. Some vendors charge a base fee plus a smaller percentage; others charge a percentage of net collections above a floor.

The published rate is not the total cost. Add clearinghouse fees (sometimes included, sometimes not), implementation fees, EHR integration fees, and monthly minimums to build the full comparison.

The Breakeven Formula Every Owner Should Run

The core calculation is straightforward. Add up the true in-house annual cost. Divide by projected annual net collections. Compare that percentage to the vendor’s all-in effective rate. If in-house is materially higher, outsourcing may save money. If materially lower, in-house is more efficient.

Two adjustments matter:

Denial performance. If the vendor’s clean claim rate and denial resolution rate are materially better than the practice’s current numbers, the additional collections change the math. A vendor collecting 3% more of allowed amount can justify a higher percentage fee.

Owner time. If in-house billing consumes several hours of owner or manager attention every week, that time has a value. Reclaiming it for clinical work or growth is a real benefit that does not show up in the direct cost comparison.

Quality Signals Worth More Than Price

Price is the easiest thing to compare and rarely the most important. Four quality signals are worth more:

  • Denial resolution turn-around (how quickly denied claims are worked and resubmitted)
  • Net collection rate the vendor delivers, not just gross collections
  • Client references from practices of similar size and specialty
  • Reporting transparency (does the practice see denial reason codes, aging reports, and productivity data, or just monthly summaries)

A cheaper vendor that delivers slower denial resolution and worse net collections is not cheaper. It is a lower headline fee attached to a lower revenue outcome, which is a net loss.

The Contract Terms That Matter Most

Six contract terms deserve careful attention before signing:

  • What triggers a fee increase (annual escalators, volume tier changes, service adds)
  • Which fees are included and which are pass-through (clearinghouse, integrations, printing)
  • Ownership of data at termination (the practice’s claims, payment posting history, and reports)
  • Termination notice period and any exit fees
  • Business Associate Agreement terms consistent with HIPAA obligations
  • Performance guarantees, if any, and what happens when they are missed

Data ownership is the most commonly overlooked. A practice that outsources billing for five years and then decides to switch (or bring back in-house) can find itself facing a large data export fee or a limited-history handoff that damages future collections. This is worth negotiating at signing, not at termination.

Cooper Norman’s healthcare accounting team runs breakeven analyses for practices across Idaho and Utah weighing in-house versus outsourced billing, with real cost stacks and vendor-independent comparisons. To run the numbers on your own practice, talk with a Cooper Norman advisor.

Working Capital Adjustments in Manufacturing M&A Deals

Two Idaho manufacturers sign LOIs at the same $12 million enterprise value in the same month. Ninety days after closing, one seller receives an additional $400,000 in the working capital true-up. The other seller writes a check to the buyer for $600,000. The difference is not fraud or bad faith. It is the mechanics of the working capital peg and what happens when the seller does not understand how the buyer will calculate the delivered balance at close.

Working capital adjustments are the most commonly misunderstood mechanic in a manufacturing M&A deal. For a family owner used to running the balance sheet the way it has always been run, the calculation feels arbitrary. The buyer’s math is not arbitrary at all.

What a Working Capital Peg Actually Is

Enterprise value in an M&A deal typically assumes a “normalized” level of working capital delivered at close. That normalized level is called the peg. If the seller delivers more working capital than the peg (higher net current assets), the seller gets a payment upward. If the seller delivers less, the buyer gets a reduction to purchase price.

Working capital for peg purposes is generally defined as current assets excluding cash minus current liabilities excluding debt. The exclusions matter: cash is treated separately, and debt is treated separately, because both are already accounted for in the enterprise value to equity value bridge.

How Buyers and Sellers Calculate the Peg Differently

The peg is negotiated in the LOI or purchase agreement, but the underlying calculation almost always comes from a trailing 12-month average of the target’s working capital. That sounds neutral. It is not.

Buyers typically want the peg calculated on GAAP-adjusted working capital, which strips out any inventory overstatements, AR aging that has not been reserved, or other classification issues that inflate reported working capital. Sellers typically want the peg calculated on the reported balance sheet, unadjusted. The difference can be seven figures on a mid-market manufacturer.

Where the peg is set determines whether a seller who has been running normal operations delivers a “surplus” or a “shortfall” at close.

The Inventory Scrub: Where Value Disappears

Inventory is the single largest source of working capital adjustments in a manufacturing deal. A buyer’s diligence team will look for:

  • Aged inventory beyond a defined threshold (typically 12 to 18 months)
  • Raw material or work-in-progress with no clear finished-product path
  • Finished goods without recent order activity
  • Inventory carried at standard cost when actual cost is lower
  • Consigned or customer-owned inventory that should not be on the books

Any of these gets reserved down for the peg calculation. A $2 million reported inventory that reserves to $1.4 million after diligence takes $600,000 of working capital out of the seller’s deliverable.

AR Aging and Bad Debt Reserves at Close

Similar mechanics apply to accounts receivable. Buyer diligence will apply a reserve to any AR aged beyond a defined threshold (typically 90 days), any receivable from a customer with a payment history problem, and any receivable that lacks documentation of the underlying order.

Sellers who have been aggressive about reporting gross AR without reserving realistically for uncollectibles will see the peg calculation strip down the delivered AR at close.

The 90-Day Post-Close True-Up

The typical purchase agreement provides for a working capital true-up 60 to 90 days after close. The buyer prepares a final calculation of working capital delivered at close, compares it to the peg, and the difference is paid one way or the other.

Disputes on the true-up are resolved either through a defined dispute mechanism (an independent accountant chosen in advance) or through litigation. Well-drafted purchase agreements name the accountant and cap the dispute time, which usually holds down the litigation risk.

Negotiation Levers Before the LOI

Sellers who understand the working capital mechanic negotiate three things before signing the LOI:

  • The peg definition: GAAP-adjusted or reported? Which specific accounts count?
  • The calculation window: trailing 12 months, trailing 6 months, or the average of the last two year-end balance sheets? Recent quarterly performance can move the answer meaningfully.
  • The inventory and AR reserve methodology: which aging categories get reserved, at what percentage, and by whom?

Every one of these is negotiable pre-LOI. After the LOI is signed, the peg is essentially locked in, and only the amount delivered at close is up for interpretation.

The best time to prepare for the working capital adjustment is 12 to 18 months before going to market. Cleaning up inventory reserves, aging AR, and getting the balance sheet to look like the buyer will want to see it takes time. The manufacturing team at Cooper Norman has walked Idaho and Utah manufacturers through the diligence and true-up process, and our business transition planning group starts working with owners well ahead of a planned sale to protect the peg before the negotiation ever starts.

This overview is general information, not legal or accounting advice for your specific transaction. Talk with a Cooper Norman advisor about how these mechanics apply to your deal.

Build a stronger manufacturing workforce in a tight labor market

Machinists, maintenance technicians, engineers, production workers. For manufacturers across Idaho and Utah, the hardest positions to fill are usually the ones the floor cannot run without, and competition for experienced candidates is not easing.

A workforce strategy worth the name treats recruiting, retention and development as one problem rather than three. Pairing competitive pay with flexibility and training builds a pipeline that holds up better than any single lever.

Look beyond base pay

Wages matter, but they are the part every competitor can match. Signing bonuses, retention bonuses and performance-based incentives can move a candidate weighing two similar offers, or hold someone who is being recruited away.

Traditional benefits still carry weight. Health insurance and a 401(k) match are what most candidates check first, and those costs are more negotiable than employers assume. Go back to your existing providers with competitor quotes in hand.

Voluntary benefits are worth a look as well. Consumer goods purchasing programs, life insurance and disability coverage are usually paid by the employee, often through payroll deduction, and an employer can frequently secure terms an individual could not get alone.

Review your employee value proposition

Pay is one part of why someone joins and stays. The rest is your employee value proposition: the financial and nonfinancial reasons people choose your floor over another.

The fastest way to find out what yours is worth is to ask. Workers often rank a respectful workplace, a supervisor who backs them, recognition for good work, the chance to learn something new and a visible path forward above small differences in pay. Where two employers offer the same wage, culture is the tiebreaker.

Scheduling belongs in the same conversation. Remote work is not realistic for most production roles, but flexible start and end times, compressed weeks and alternative shifts are. Seasonal and part-time arrangements can cover needs a full-time posting never fills.

Develop the talent you already have

When experienced candidates are scarce, the people already on your payroll become the pipeline.

Cross-training widens what each person can do and gives you room to move when someone is out, demand shifts or a key role opens up. It also signals that you will invest in people, which is its own retention argument. Workers who can see the next skill in front of them are less likely to take a recruiter’s call.

Apprenticeships go further. Instead of competing for finished candidates, you recruit for aptitude and build the skills yourself, pairing structured on-the-job instruction with technical education. Over time you get people whose training matches how your plant actually runs.

Make advancement visible

You do not need layers of management to give people somewhere to go. Mastering another machine, earning a certification, leading a team, training coworkers or moving into more technical work are all real advancement.

What matters is that the path is stated rather than assumed. If an employee can describe how to increase their skills, responsibility and pay where they are, that is one more reason to stay.

Match the strategy to your workforce

No single compensation or recruiting approach solves a labor shortage on its own. What people value varies by age, role, location and circumstance. The manufacturers who do best combine pay with flexibility, training, a visible career path and a culture people mention to their friends, then keep adjusting as their workforce changes.

Cooper Norman works with manufacturers and retailers across Idaho and Utah on the decisions behind those tradeoffs, including what a compensation change does to your numbers before you commit to it. Bring us the decision and we will bring the figures.

Multi-State Tax Liability: What’s your manufacturing business’s exposure?

As manufacturers expand into new markets, state and local tax obligations can become more complicated than many businesses expect. Activities that once seemed routine, such as selling into a new state, storing inventory, sending employees across state lines, or providing post-sale support, may now create a taxable connection known as nexus. That can trigger new requirements for sales and use tax, income tax, payroll tax, registration, and reporting.

Recent changes in how states evaluate economic activity have made it increasingly important for manufacturers to understand where they may be creating tax exposure before problems surface. Growth into new markets can create opportunity, but it can also create compliance obligations that need to be anticipated and managed carefully.

Read the full article below to learn what activities may trigger multistate tax obligations, how nexus rules are evolving, and what manufacturers can do to stay ahead of potential compliance risks.

Multistate tax liability: What’s your manufacturing business’s exposure?

As your manufacturing business expands into new markets, its state and local tax obligations become increasingly complex, spinning a web of different rules and obligations. Common business activities may produce a taxable connection, or “nexus,” that exposes your organization to sales and use tax, state income tax, and other state tax obligations. Here’s what you need to know to stay on the right side of the state tax authorities.

The long arm of state tax laws

Not so long ago, manufacturers didn’t have to worry about tax liability in states where they lacked a physical presence, such as a plant or corporate offices. That changed in 2018, when the U.S. Supreme Court ruled in Wayfair, Inc. v. South Dakota that states can impose sales and use taxes on a business based solely on its “economic activity” within the state, regardless of whether the organization has offices or permanent employees there. As a result, many states began imposing such taxes on out-of-state businesses that exceed certain annual thresholds in revenue or number of transactions within their boundaries. (States are increasingly dropping the transactions threshold, focusing instead on revenue.)

The Wayfair ruling doesn’t apply to income taxes. A federal law known as Public Law (P.L.) 86-272 has long protected certain out-of-state businesses from state net income taxes when their only in-state activities are the solicitation of orders for sales of tangible personal property, as long as the orders are sent out of state for approval and, if accepted, are fulfilled from outside the state.

But that protection has eroded in recent years. In 2021, the Multistate Tax Commission (MTC), in recognition of the dramatic increase in online business activities, issued a statement identifying certain activities as protected or unprotected under P.L. 86-272. The list of unprotected activities includes many potentially relevant to manufacturers, including:

  • Repair or maintenance activities on sold property,
  • Providing technical or service assistance,
  • Owning, leasing, using or maintaining a warehouse or inventory,
  • Installation,
  • Training,
  • Carrying samples for sale or distribution,
  • Collections and credit check activities, and
  • Having a remote employee in a state who performs work other than soliciting orders for tangible personal property (that employee could trigger state payroll tax obligations, too).

The MTC guidance also addresses certain activities conducted online. According to the MTC, for example, providing post-sale assistance to customers in a state through electronic chat or email, with the communication initiated by the customer clicking on an icon on your website, could subject you to income taxes in that state. Even using internet cookies could put you outside the protection of P.L. 86-272 under the MTC’s model.

If your manufacturing business has nexus with a state for purposes of sales and use tax, income tax, or other types of taxes, you could be subject to tax obligations such as registering with the state tax authority and reporting, collecting and remitting taxes. Keeping up with those obligations is no small task.

Note: Currently, California, New York, New Jersey and Massachusetts have adopted the MTC’s guidance to some degree; adoption across other states varies.

Compliance steps

Adoption of the MTC guidance isn’t the only matter where states have taken different stances toward the taxation of out-of-state businesses. If you think your manufacturing business may have nexus with a state, you need to know its rules and requirements regarding, among other things, the nexus standards, sourcing of sales, apportioning of income and the availability of exemptions.

You also must implement the necessary controls to ensure you don’t overlook “economic activities” that could subject you to taxation. For instance, how will your tax team know if an employee crosses state lines to perform an installation, make a service call or train a customer on how to use your product?

And you should take potential state tax liability into account when developing plans to grow your business. Increased revenue, inventory storage, leasing or deliveries into a state could mean tax obligations that you want to know about in advance so you can properly prepare.

Act now

States are increasingly using data and analytical tools to identify out-of-state businesses that may have filing or tax obligations within their jurisdiction. We can help you evaluate your business’s multistate tax exposure so you can uncover compliance gaps, avoid costly assessments and penalties, and take advantage of all applicable tax credits and other incentives. Contact us to learn more.

Exit Planning for Contractors: Consider the QSB Stock Exclusion

For construction business owners, exit planning deserves the same level of attention as any major project. One tax strategy worth understanding is the qualified small business, or QSB, stock exclusion, which may allow eligible shareholders to exclude a significant portion of the gain from the sale of qualifying stock. Recent changes under the One Big Beautiful Bill Act expanded the potential benefit, making this an increasingly important consideration for contractors thinking about succession, a future sale, or long-term ownership strategy.

The opportunity can be substantial, but the rules are complex and timing matters. Business structure, asset levels, operating activities, holding periods, and the way a future transaction is structured can all affect eligibility. For contractors, that means the best time to evaluate the QSB exclusion is well before an exit is on the horizon.

Read the full article below to learn how the QSB stock exclusion works, which construction businesses may qualify, and what to consider as part of your long-term exit planning.

When you’re ready to create yours, be sure to take a close look at the qualified small business (QSB) stock exclusion. Since the 1990s, this tax break has given eligible taxpayers the opportunity to gain substantial tax benefits from selling QSB stock. And last year’s One Big Beautiful Bill Act (OBBBA) further enhanced the exclusion. Let’s take a closer look at how it can apply to exit planning.

C corporation requirement

To qualify for the exclusion, business owners must be shareholders in a QSB corporation, which is a special type of C corporation that meets specific requirements. At the entity level, QSB corporations are generally treated the same as regular C corporations for legal and federal income tax purposes. So, most of the standard advantages and disadvantages of C corporation status apply.

On the plus side, these companies are subject to the flat 21% federal corporate income tax rate. On the minus side, C corporations pay taxes once at the entity level, and then shareholders may face additional tax when they receive dividends, compensation or other taxable distributions, or sell their shares. These two levels of tax obligation are commonly referred to as “double taxation.”

However, individual taxpayers who own QSB stock can potentially enjoy a significant tax advantage. A special gain exclusion rule may allow them to avoid federal income tax on up to 100% of the gain from selling their QSB stock. That’s right; when you’re ready to exit your construction company, you may be able to sell your shares in that QSB corporation and pay substantially reduced, or even zero, income tax on the gain!

Eligibility requirements

To be eligible for any gain exclusion, various requirements apply. You must acquire the shares in question after August 10, 1993, and upon original issuance by the corporation (or by gift or inheritance). Also, your company must be a QSB corporation on the date the stock is issued and for substantially all the time you own the shares.

In addition, the corporation must satisfy the QSB gross-assets test when the stock is issued. This means its aggregate gross assets can’t have exceeded $75 million at any time before the issuance and must not exceed that amount immediately afterward. A $50 million threshold applies to stock issued on or before July 4, 2025. The $75 million limit will be indexed for inflation after 2026.

Another stipulation: Your company must actively conduct a qualified trade or business. Service businesses and certain others don’t qualify. (We’ll discuss this further below.)

Timing is critical, too. To take advantage of the 100% gain exclusion for sales of QSB stock, you must have acquired the shares after September 27, 2010, and held them for at least five years. In addition, for qualifying stock acquired after July 4, 2025, the OBBBA allows the following partial exclusions for shares held for less than five years:

  • 50% gain exclusion for QSB stock held for at least three years, and
  • 75% gain exclusion for QSB stock held for at least four years.

Any gain not excluded under these partial exclusions is generally taxed at a special 28% federal rate, plus the 3.8% net investment income tax, if applicable. The OBBBA increased the per-issuer dollar limitation on eligible gain from $10 million to $15 million for qualifying stock. (Other limitations may apply.)

Finer points to consider

There are additional requirements and finer points to consider. For example, during substantially all of the holding period, at least 80% of the QSB corporation’s assets generally must be used in the active conduct of one or more qualified businesses. And only “reasonable” amounts of working capital apply toward this requirement. So, if your company holds significant cash, real estate or investments not related to your construction operations, you could have trouble qualifying.

Also, as mentioned, your construction company must be a “qualified trade or business.” The tax code lists a variety of ineligible fields. Construction isn’t among them, but engineering and architecture are. So, eligibility could become more complicated if a substantial part of your company’s operations or assets is attributable to providing engineering or architectural services rather than performing construction activities. Contractors offering design-build or similar integrated services should analyze this issue carefully.

In addition, businesses whose main asset is the reputation or skill of one or more employees also aren’t eligible. This shouldn’t be an issue for many construction companies, but it could present a barrier for very small businesses or one-person operations who, for example, position themselves as master artisans in custom carpentry or another niche. (The application of this limitation is highly fact-specific; your tax advisor can provide further information.)

The entity question

As noted, only stock issued by a QSB corporation qualifies for the exclusion. However, many construction businesses are structured as pass-through entities. These include partnerships, S corporations and limited liability companies treated as partnerships for tax purposes. If you run your business under one of these structures, you have a critical decision to make: Should you convert to a C corporation with the goal of having newly issued shares qualify as QSB stock?

There’s no simple answer. By converting, you’ll forfeit eligibility for the qualified business income (QBI) deduction, which can allow you to deduct up to 20% of QBI. But, then again, the federal income tax rate for C corporations is currently 21%. So, the trade-off may prove worth it if you expect to incur substantial gains on your exit.

If you’re leaning toward converting to a QSB corporation, advanced planning is vital. You must carefully structure the transaction so the newly issued stock satisfies the original-issuance and other requirements. The qualifying holding period generally begins when that stock is issued, so you’ll need to hold the shares for at least three years to qualify for the 50% exclusion. If you can hold out longer, you may be able to exclude more or even all of your gain.

Important: The exclusion generally applies only to an eligible shareholder’s sale of QSB stock. It doesn’t shield gain recognized by the corporation if the business’s assets are sold instead, making the anticipated form of a future transaction an important planning consideration.

Powerful tool

The QSB exclusion can be a powerful exit-planning tool, but it isn’t a last-minute strategy. Determining whether it fits your construction business requires careful analysis of your entity structure, long-term goals and anticipated departure date. We can help you weigh the potential savings against the costs and trade-offs of qualifying for this tax break.

Utah Pass-Through Entity Tax Election: Who Should Opt In and Who Should Not

The Utah pass-through entity tax, often shortened to PTET, lets S corporations and partnerships pay Utah state income tax at the business level instead of leaving that tax on the owners’ personal returns. Paying at the entity level turns a capped personal deduction into a fully deductible business expense on the federal return, which can save owners thousands of dollars in federal tax each year. The election is optional, it is made year by year, and it is not right for every business, so the decision deserves a fresh look annually.

This guide explains how the election works, who tends to benefit, and who should think twice before opting in.

What Is the Utah Pass-Through Entity Tax?

The Utah pass-through entity tax is a voluntary, entity-level state income tax that S corporations, partnerships, and LLCs taxed as either can elect to pay on behalf of their owners. Utah adopted it in 2022, joining the majority of states that created similar workarounds after federal law capped the state and local tax (SALT) deduction on personal returns.

Here is the core idea. Normally, a pass-through business pays no state income tax itself. Profits flow through to the owners, who pay Utah tax on their personal returns. Those state taxes are only deductible on the federal return as an itemized deduction, and that deduction is capped. When the entity elects to pay the tax instead, the payment becomes an ordinary business expense. It reduces the federal taxable income that flows through to each owner with no cap applied, and the owners claim a credit on their Utah returns for the tax the entity already paid.

The IRS confirmed in Notice 2020-75 that entity-level state taxes like Utah’s are deductible by the business, which is why nearly every state now offers some version of this election.

Why the Election Exists: The Federal SALT Cap

The PTET election exists because the federal SALT deduction is capped, and business owners in profitable years routinely pay far more state and local tax than the cap allows them to deduct. The 2017 tax law limited the personal SALT deduction to $10,000. The 2025 federal tax law raised that cap to $40,000 for 2025, with small increases each year through 2029, before it is scheduled to fall back to $10,000 in 2030.

There is an important catch for successful business owners. The higher cap phases down once modified adjusted gross income passes roughly $500,000, though it never drops below $10,000. Many owners of profitable Utah companies sit above that threshold, which means they get little or no benefit from the larger cap. For them, the PTET election remains one of the most reliable federal deductions available, because tax paid by the entity is never subject to the cap at all.

How the Election Works in Utah

Utah’s election is annual, is made by the entity, and is paid at the same flat rate as Utah’s individual income tax, which is 4.5 percent for the 2025 tax year. The entity reports and pays the tax to the Utah State Tax Commission, and each owner then claims a corresponding nonrefundable credit on their Utah individual return so the same income is not taxed twice by the state.

In practice, the process looks like this:

  1. Model the benefit. Compare the federal tax saved by the entity-level deduction against any cost or complexity the election creates for each owner.
  2. Make the election and pay. The entity pays Utah tax on the electing owners’ share of business income for the year.
  3. Deduct the payment federally. The tax paid reduces the ordinary income reported on the owners’ federal K-1s.
  4. Claim the Utah credit. Each owner claims the credit on their Utah return for the tax paid on their behalf.

Timing matters more than most owners expect. For the deduction to land in the current federal year, the payment generally needs to be made before the entity’s year closes, which for most calendar-year businesses means paying by December 31. Waiting until the return is filed in spring can push the federal benefit into the following year. This is exactly the kind of decision that belongs in a proactive tax planning engagement rather than a scramble the last week of December.

Who Should Make the Election

The election tends to pay off for profitable Utah businesses whose owners lose part of their SALT deduction to the federal cap. The strongest candidates share a few traits:

  • Owners with income above the phase-down threshold. If your modified AGI is above roughly $500,000, the higher SALT cap shrinks back toward $10,000 and the PTET deduction becomes valuable again in full.
  • Consistently profitable S corporations and partnerships. The bigger the Utah tax bill on business income, the bigger the uncapped federal deduction.
  • Utah resident owners. Residents claim the Utah credit cleanly, so the state-level math usually nets to zero while the federal deduction remains.
  • Businesses already paying large state estimates. If the owners are writing big quarterly checks to Utah anyway, routing that same money through the entity changes the federal treatment without changing total state tax.

For a business clearing several hundred thousand dollars of profit, the federal savings from deducting a five-figure Utah tax payment can be substantial, year after year. It is one of the few planning tools that requires no change to operations, compensation, or ownership, only a change in who writes the check. Reviewing the election alongside broader strategy is a natural fit for a business advisory relationship rather than a one-off calculation.

Who Should Think Twice

The election is not automatic, and for some owners it can be neutral or even harmful. Slow down and model carefully if any of these apply:

  • Owners who still get full value from the personal SALT cap. If household income is under the phase-down threshold and total state and local taxes fit under the cap, the election may add complexity without adding savings.
  • Loss years or thin-profit years. There is little benefit to prepaying entity-level tax on income that may not materialize, and a nonrefundable credit is worth less when the owner’s Utah liability is small.
  • Nonresident owners. An owner who lives in another state must confirm their home state will credit tax paid to Utah through the entity. Some states do not, which can create true double taxation at the state level.
  • Entities with trusts, retirement plans, or entity owners in the ownership group. Mixed ownership structures complicate who benefits from the election and who merely bears the cost.
  • Cash-flow constrained businesses. The tax must actually be paid, often before year end, so the entity needs the liquidity to fund it.

One more consideration: because the election is made annually, a business can elect in a strong year and skip a weak one. That flexibility is a feature, but it only helps if someone is actually running the numbers each fall.

Frequently Asked Questions

What is the Utah pass-through entity tax rate?

The rate matches Utah’s flat individual income tax rate, which is 4.5 percent for the 2025 tax year. Because the entity pays the same rate the owners would have paid personally, the election is designed to change federal treatment, not the total amount of Utah tax owed.

Is the PTET election still worth it now that the SALT cap went up?

For high-income owners, yes. The higher federal cap phases down once modified AGI exceeds roughly $500,000, so many successful business owners still cannot deduct most of their state taxes personally. The entity-level deduction is not capped, which keeps the election valuable for exactly the owners most likely to benefit from it. The cap is also scheduled to return to $10,000 in 2030.

How do owners avoid being taxed twice on the same income?

Each owner claims a nonrefundable credit on their Utah individual return for the tax the entity paid on their behalf. The credit offsets the Utah tax the owner would otherwise owe on that pass-through income, so the state collects the tax once, just from the entity instead of the individual.

Can a single-member LLC make the Utah PTET election?

No. A single-member LLC taxed as a sole proprietorship reports its income directly on the owner’s personal return, so there is no separate entity to make the election. The election is available to businesses taxed as partnerships or S corporations, and a single-member LLC that elects S corporation status can qualify.

When does the entity have to pay for the deduction to count?

For most calendar-year, cash-basis businesses, the Utah tax should be paid by December 31 for the federal deduction to land in that tax year. Paying with the return the following spring generally pushes the deduction into the next year, which is why the PTET decision belongs in fourth-quarter planning.

Run the Numbers Before Year End

The Utah pass-through entity tax election is a genuine federal savings opportunity for many profitable businesses along the Wasatch Front, but it rewards owners who plan ahead and punishes guesswork. The right answer depends on your profit, your ownership mix, your residency, and your cash flow, and it can change from one year to the next.

If you own an S corporation or partnership in Utah County and no one has modeled the election for you, that is worth fixing before December. Our Pleasant Grove CPA team works with closely held businesses across Utah on exactly this kind of decision. Schedule a consultation and we will run the numbers with you.

Reviewed by the Cooper Norman tax team. Rules current as of July 2026; see the Utah State Tax Commission for official guidance.

This article is general information, not tax advice for your specific situation. Consult a CPA before making or skipping the election.

What contractors should know about Davis-Bacon Act compliance

Publicly funded construction projects can create meaningful growth opportunities, but they also bring wage and compliance requirements that contractors cannot afford to overlook. Federal rules under the Davis-Bacon Act, along with similar state prevailing wage laws, may require specific hourly wages, fringe benefits, worker classifications, payroll procedures, and record keeping practices. Misunderstanding those obligations before bidding can quickly turn a promising project into a costly problem.

Recent regulatory changes have added another layer of complexity, particularly around how prevailing wages are calculated, how fringe benefits are credited, and which workers or off-site activities may be covered. In the article below, we break down the key rules contractors should understand, the risks of noncompliance, and why Davis-Bacon requirements should be built into the bidding process from the start.

The federal Davis-Bacon Act (DBA), along with similar state laws often called “little DBAs,” generally requires contractors on covered projects to pay laborers and mechanics locally prevailing wages and fringe benefits. Federal regulations that took effect in 2023 changed several important rules, though a later court order temporarily blocked certain provisions. Let’s review the essentials.

Prevailing wage calculations

The U.S. Department of Labor (DOL) determines prevailing wage rates for worker classifications in particular geographic areas and types of construction. For applicable jobs, you must identify the wage determination incorporated into the contract, properly classify workers, and pay at least the applicable wage and fringe benefit rates.

Under the methodology generally used before the 2023 regulations, the DOL first determined whether more than 50% of workers in a classification received the same wage rate. If they did, that rate was considered prevailing. Otherwise, the DOL generally used a weighted average.

For wage determinations issued or revised under the 2023 regulations, the DOL reinstated a method used before 1982. That is, it still begins by determining whether most workers receive the same rate. If not, the DOL now uses a rate received by at least 30% of workers in the classification. If no rate meets that threshold, it uses a weighted average. This methodology may produce higher prevailing wages for some classifications and locations.

Fringe benefit accounting

A prevailing wage generally consists of a basic hourly rate and a fringe benefit amount. You may satisfy the fringe benefit requirement by paying cash, providing qualifying benefits or using a combination of the two. Creditable benefits may include:

  • Health, long-term disability or life insurance,
  • A retirement plan, and
  • Certain paid leave.

In some cases, providing benefits can be more cost-effective than paying the entire fringe amount in cash.

The 2023 regulations also codified the DOL’s long-standing annualization principle. Subject to limited exceptions, the hourly credit for benefit plan contributions is calculated based on all hours an employee works during the year, including hours on both DBA-covered and noncovered projects.

As a result, you could receive less credit than expected for benefits provided to an employee who divides time between public and private work. And you may need to make up the difference through additional benefits or cash wages.

Covered projects and workers

The regulations address DBA coverage beyond work performed at a project’s primary construction site. Depending on the circumstances, coverage may extend to certain secondary sites, including locations where prefabricated or modular components are produced specifically for a covered job.

The rules also address energy infrastructure projects, work involving portions of buildings, and certain demolition, remediation and removal activities. In addition, the DBA rules may apply to some flaggers, survey crew members and other employees working away from the primary site if their duties are sufficiently connected to a covered job.

Bottom line: Don’t assume that an employee falls outside the DBA rules merely because the person’s work takes place off-site or involves transportation, surveying or support services. Transportation work requires a particularly careful, fact-specific analysis.

Important regulatory update

In June 2024, a federal district court issued a nationwide preliminary injunction preventing the DOL from implementing or enforcing three portions of the 2023 regulations. The affected provisions address:

  1. The distinction between materials suppliers and contractors or subcontractors,
  2. DBA coverage of contractor-employed delivery truck drivers who spend more than minimal time at a covered worksite, and
  3. The automatic application of DBA requirements to covered contracts when the government contracting agency mistakenly omits the required clauses.

The remaining provisions continue to apply. Although the injunction remains in effect as of this writing, consult current DOL guidance and, if necessary, legal counsel when evaluating suppliers, delivery drivers or contracts that don’t expressly include DBA requirements.

Potential cost of noncompliance

The consequences of noncompliance may include liability for unpaid wages and fringe benefits, withholding of contract payments, contract termination, and debarment from future federal contracts. Additional penalties may apply under related laws or in cases involving falsified certified payrolls, false statements or other misconduct.

The regulations also prohibit retaliation against workers who report possible violations or participate in an investigation. When pursuing state- or locally funded work, you should separately determine whether the project is subject to another prevailing-wage law. State and local requirements may differ significantly from federal rules.

Build compliance into the bid

Keep DBA compliance in mind when considering federally funded construction projects. Evaluating the requirements early can help you prepare more reliable bids, establish appropriate payroll and recordkeeping procedures, and reduce costly surprises. Contact us for help evaluating all the financial details.