Thanks for the suggestions. I am still curious to know why the MERGE statement deadlocks though. Any ideas?

>>Use INSERT instead of MERGE in the second statement.

How would I then handle duplicates? I don't want to insert a duplicate record if there already is one that matches the...

I use the WITH (SERIALIZABLE) hint to avoid deadlocks...

The whole procecure is what you see above, except for the parameters, and the issue is intermittent.

SET XACT_ABORT ON should roll back the transaction on run-time errors.