Smithco is considering acquiring the assets of Jonesco. It had considered buying Jonesco stock, but Smithco is concerned about unknown or contingent liabilities. Smithco is a New Jersey company, which because it does mail-order sales, has no nexus in other states. Jonesco is a California mail-order company, also with no nexus in other states. Jonesco has substantially appreciated assets.

Would you recommend a taxable or tax-free acquisition from a state income tax perspective? Why? What other tax issues should be considered?