Assume the same facts as in Problem 7.2, except that a taxable versus tax-free stock acquisition is being considered.

Problem 7.2

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?