Free calculator
Purchase price allocation and NY tax modeller
- Class VII goodwill (residual)
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- Allocation check
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- NY sales tax at closing
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- Class V annual depreciation
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- Class VI + VII annual amortisation
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- Deductions in the first 5 years
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- Effect of moving $50k into Class V
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A simplified model, not a tax computation. Depreciation is illustrated straight-line over an assumed life; real depreciation depends on asset class lives, available elections and your own tax position. Sales tax treatment of specific assets varies and inventory is excluded by default on a resale-certificate assumption. It does not model the seller's recapture, real property, or section 1031. Confirm everything with your accountant.
The trade nobody models
Every national article on purchase price allocation explains the federal side: value in Class V depreciates over a few years, value in Class VI and VII amortises over fifteen, so a buyer generally wants more in Class V. [2] That is correct and it is half the picture.
In New York, sales tax applies to tangible personal property transferred in a bulk sale. [4] Class V is that property. So the allocation you win on the federal argument is the allocation you pay state tax on, and the payment is due around closing while the depreciation benefit arrives over years.
On a $200,000 equipment allocation in Suffolk County at 8.75%, that is $17,500 payable now. Whether it is worth it depends on your tax position, your discount rate and how badly you need deductions in the years you are servicing acquisition debt — which is a real calculation, not an assumption. This tool gives you the two numbers to put in front of your accountant.
Inventory is treated differently
Class IV inventory bought for resale is generally not subject to sales tax where a resale certificate is properly given — which is what the certificate is for. The model therefore leaves inventory out of the taxable base by default, with an override if your circumstances differ.
This is worth understanding before you negotiate, because it means the inventory line is comparatively neutral: it does not carry a multiple, it turns into cost of goods sold quickly, and it generally does not attract the tax. The argument is really about equipment versus goodwill.
Why the seller pushes the other way
The conflict is genuine rather than positional. Value in equipment can trigger depreciation recapture on the seller's side, taxed as ordinary income; value in goodwill is generally capital gain. So the seller wants exactly what you do not, and both of you are right about your own returns.
Which is why it should be traded rather than conceded — and why it has to be in writing. Section 1060(a) provides that where the transferee and transferor agree in writing as to the allocation, that agreement binds both, unless the Secretary determines it is not appropriate. [1] An understanding does nothing.
What the depreciation column is and is not
It is a straight-line illustration of a timing difference, not a tax computation. Real depreciation depends on the class life of each asset, the elections available in your year of purchase, and your own position. Section 197 intangibles — Class VI and Class VII alike — amortise over fifteen years, which is the part that does not vary.
Use the model to see the shape of the trade and its rough magnitude. Then buy an hour of a good accountant's time, which on this question reliably pays for itself.
Where the rates come from
The jurisdiction selector runs on the combined state and local rates published in NYS Publication 718, parsed once into a dataset you can also read on the sales tax rates page [3] . Rates change; confirm the current figure for your jurisdiction before you rely on a number in a negotiation.
Frequently asked questions
Why does the Class V allocation create a tax bill?
Because New York sales tax applies to tangible personal property transferred in a bulk sale, and Class V is that property — equipment, furniture, fixtures and vehicles. So the number you negotiate for federal depreciation purposes is also the base a state tax is computed on, payable around closing. National guidance on allocation almost never mentions it.
Is inventory taxed too?
Generally not, where it is bought for resale and a resale certificate is properly given — that is the point of the certificate. This model therefore excludes Class IV inventory from the taxable base by default and lets you override it. Confirm the treatment for the specific goods with your accountant, because it is not universal.
Should I want more or less in Class V?
It depends which tax you are optimising, which is the whole point. More in Class V accelerates your federal depreciation, which is worth real money in the years you are servicing acquisition debt. It also raises the New York sales tax you pay at closing. The model shows both so the trade is visible rather than assumed.
Why does the seller want the opposite?
Because the same dollar is taxed differently on their side. Value in equipment can trigger depreciation recapture taxed as ordinary income; value in goodwill is generally capital gain. That is a real economic conflict, which is why allocation should be negotiated and priced rather than conceded. Section 1060(a) makes a written agreement binding on both parties.
Does the allocation have to add up to the price?
Yes. The residual method fills the classes in order and whatever is left lands in Class VII goodwill. The model flags any mismatch, and treats the unallocated balance as goodwill so you can see the effect of allocating less to the earlier classes.
Are the depreciation figures a tax calculation?
No. They are a simplified straight-line illustration of the timing difference between short-lived tangible property and fifteen-year section 197 intangibles. Real depreciation depends on asset class lives, elections available in the year of purchase, and your own tax position. Use this to see the shape of the trade, then get an accountant to price it.
Sources cited on this page
Every mutable number on this page — program caps, tax rules, thresholds, filing deadlines — traces to one of these primary sources. Rules change; check the source before you act on the number.
- 1 Cornell Law School, Legal Information Institute. 26 U.S. Code § 1060 — Special allocation rules for certain asset acquisitions. https://www.law.cornell.edu/uscode/text/26/1060
- 2 Internal Revenue Service. Instructions for Form 8594, Asset Acquisition Statement Under Section 1060. https://www.irs.gov/pub/irs-pdf/i8594.pdf
- 3 NYS Department of Taxation and Finance. Publication 718: New York State Sales and Use Tax Rates by Jurisdiction. https://www.tax.ny.gov/pdf/publications/sales/pub718.pdf
- 4 NYS Department of Taxation and Finance. Tax Bulletin ST-360: Purchasers' Obligations to Pay Sales Taxes (Bulk Sales). https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/purchasers_obligations_to_pay_sales_taxes.htm
Educational only — not a valuation, a loan pre-approval, or a lender's number. Confirm specific rules, rates, and forms with the relevant New York State agency, attorney, CPA, lender, or insurer before acting. The formulas behind this tool are documented on the methodology page.