As NYS sales tax audit or NYS sales tax collection action is the last thing that your business wants or needs.
If your business was either notified of a NYS Sales Tax Audit or you are being pursued for past due sales taxes, there are a number of issues that you must be aware of in order to limit the exposure of your business as well as your own personal exposure with the NY Department of Taxation and Finance.
After reviewing this article, contact experienced New York sales attorney Charles Rosselli for NYS sales tax audit help as a sales tax audit is not a “do it yourself” project. We can assist you regardless of location.
NYS Sales Tax Audit Triggers
There are 4 common reason why your business is likely the target of a NY sales tax audit:
1. Failure to Report Sales Tax
If you are making sales in New York State that are subject to NY sales tax, you should have registered with the Tax Department and obtained a Certificate of Authority.
The Certificate of Authority gives the business the right to collect tax on taxable sales and to issue and accept most New York State sales tax exemption certificates.
If you have obtained a Certificate of Authority, New York State may review your filings to determine whether the sales tax returns are being filed timely and correctly.
This is called New York sales tax compliance, which is a legal requirement for your business to operate in the State of New York.
If NYS determines that you are possibly failing to report sales and use tax, an audit may be triggered.
Also, your business may be flagged for an audit if either your vendor or customer was recently audited.
The paper trail of your customer or vendor may have flagged your business for a NY sales tax audit.
2. Pattern of Late Filings
Two of the most common reasons for a sales tax audit is: either the failure to file sales tax returns or consistently filing the sales tax returns late.
As you know, if you're registered for sales tax purposes in New York State, NYS requires that you file sales and use tax returns quarterly, part-quarterly (monthly), or annually with the department by the required due dates.
This applies even if your business did not make any sales during the reporting period.
If you have a history of failing to timely file your sales tax returns or pay your sales taxes on schedule, then New York State will have reason to question the diligence and accuracy of your accounting practices.
Also, the NYS Department of Taxation and Finance can likely infer that if you are not paying your sales taxes on time, then you may be more likely to underreport because it is likely that the business may be struggling to meet its financial obligations.
Therefore, your business becomes a more likely target for a NYS sales tax audit.
3. History of Past NYS Sales Tax Audits
It is common for New York State to audit businesses again if the present audit showed that your bookkeeping or reporting was not being performed properly for tax periods in question for the prior New York sales tax audit.
Failure to have point of sale systems or proper bookkeeping shows the sales tax auditor that there is a high likelihood of a recurring reporting problem for your business.
Also, your chance of another audit increases substantially if the audit resulted in your business owing a large assessment.
4. Your Industry [ Restaurant or Trades ]
Unfortunately, your business can be “guilty by association.” Certain industries have a higher incidence of noncompliance problems.
Typical targets of NY sales tax audits are restaurants, delis, construction contractors, and other businesses that have a higher than normal volume of cash sales that make up their daily transactions.
The New York State Department of Taxation and Finance is responsible for collecting and enforcing sales tax for New York State.
It is the job of the auditor to determine whether your business has paid the correct amount of sales tax to NYS.
The reason why New York State takes sales tax enforcement so seriously is because sales taxes are considered “trust fund” taxes.
That is, your business is supposed to collect the sales tax from the purchaser and remit it to New York State.
By routinely auditing such small businesses as restaurants, delis, and construction companies, the Tax Department ensures that businesses comply with the New York sales tax laws.
Also, sales tax audits increase NYS revenue by issuing large penalties to businesses that are incorrectly reporting sales tax or committing fraud.
The New York State Department of Taxation understands that some business owners may not be looking to report all of their “cash sales.”
It is common for an investigator from the Department to make a visit to the business to observe what the volume of cash vs. credit card transactions are on a given day.
NY Sales Tax Audit [ How Long]
The length of time of a New York sales tax audit depends upon the complexity of the sales tax of the business as well as the scope of the audit : quarters of the business that will be covered; records requested for review, etc.
A NY sales tax audit can take anywhere from three (3) months to in excess of twelve (12) months or more [ depending on the complexity of the audit and records ].
A sales tax audit is very time consuming, to say the least.
Also, if your business is audited for sales tax, it is very common that it will be audited again.
Therefore, keep meticulous records.
If there were any issues that were addressed pertaining to your record keeping or computations, you need to make sure that you address those issues because they will be reviewed at the follow up audit.
7 NYS Sales Tax Audit Defense Tips
A NYS sales tax audit can be confusing and complex.
If your business has received a notice of a sales tax audit, you may be feeling scared and overwhelmed.
Therefore, it is important that you and your NYS sales tax attorney devise the best possible strategy to protect you and your business.
Here are 7 NY sales tax audit tips:
Be professional but remember the auditor is not your friend. The auditor represents the interests of New York State, not yours. The auditor is not there to help you [ see number 2]
Hire experienced New York tax attorney Charles Rosselli to help you develop a strategy and represent your interests during the course of the sales tax audit.
Diligently prepare your books and records for review for the tax periods in question so that your sales tax attorney can properly represent you.
A sales tax audit may have possible criminal issues as well as monetary repercussions so do not talk to the sales tax auditor on your own as it may open you up to further investigation.
Be calm - work on your business and let a professional work on the sales tax audit
Do NOT sign any documents without understanding what you are signing and the repercussions of the documents
4 NYS Sales Tax Mistakes to Avoid
1. Poor Record or Bookkeeping
It is essential that your business maintain accurate records.
For example ,If you own a restaurant, deli, or other establishment that can utilize a point of sales (POS) system, you should seriously consider utilizing one to reconcile your sales.
Accurate records can help in the defense of your sales tax audit.
Otherwise, without accurate records, the NYS auditor will determine based upon an investigator’s field visit or other method what your sales were for the sales tax periods in question.
Since it is your responsibility to maintain accurate sales tax records, you then have the burden of proof to show that the auditor did not calculate the sales tax of the business correctly.
2. Not filing your NYS sales tax returns on a timely basis
If you fail to file your sales tax returns on a timely basis, you are putting New York State on alert that your business is not complying with the tax laws.
By not timely filing your sales tax returns, you may open your business up to a possible sales tax audit.
3. Procrastination with the NYS Collections
After the sales audit concludes and assuming you owe sales tax and or sales tax audit penalties and interest, It is common for a sales tax collection matter to be assigned to an agent for enforcement.
The agent will have a certain amount of time to resolve the NYS collection matter with the NYS tax agent.
If you keep stalling the resolution of your sales tax matter, the NYS agent will eventually revoke your sales tax license; close your business; and auction the remaining assets of the business.
4. Representing Yourself
At times, business owners attempt to represent their own interests in a sales tax audit or sales tax collection matter.
Proper representation involves the application of the tax laws to the specifics of your situation combined with zealous advocacy to obtain the best possible result.
Ask yourself, do you know the tax laws and how to apply them to your situation ?
If you do not, you are at a distinct disadvantage and at the mercy of an agent that represents the interest of the State, not yours.
How to Avoid or Survive a NY Sales Tax Audit
Cross Check Tax Returns
One of the ways that New York businesses are selected for audit is based upon the cross checking that the New York Tax Department does between the sales tax reporting ( for example, the ST-100) of your business with the 1099-K’s from the IRS.
If your business takes debit or credit cards ( what business doesn’t these days), then you have a merchant account.
The processing that is done by your business is reported to the IRS on Form 1099-K.
You should compare the sales reported on the federal returns with the state returns to ensure the numbers add up.
Do your reported sales from credit cards equal or exceed your total sales?
Keep Good Records
Whether you own a clothing store, restaurant, auto body shop, or any other type of business that collects sales tax, a point of sale system should be the foundation of your sales tax record keeping efforts.
By doing so, you are prepared if a sales tax audit comes your way.
Try to Keep Happy Employees
Employees know the inner workings of your business.
If you have disgruntled employees and perhaps they are aware of some “grey areas in your business,” there is a page on the NYS Department of Taxation and Finance website where they can report tax evasion or fraud.
Expect a Sales Tax Audit
In any scenario, hope for the best BUT prepare for the worst.
If you are being audited for NYS sales tax, it is highly likely that the Tax Department spotted something that didn’t add up properly between your reporting and your returns.
Also, if your business has been audited, it is highly likely that your business will be audited again.
Statute of Limitations on a NYS Sales Tax Audit
The Statute of Limitations on a New York sales tax audit is three (3) years unless the Tax Department has your written consent to the contrary.
The three (3) year rule does not apply if you have removed sales tax returns or filed a false or fraudulent return.
New York Sales Tax Attorney
Handling a NYS sales tax audit or past due sales tax is not something that should be handled on your own or by your accountant.
There are both monetary and criminal consequences to a New York sales tax matter.
Contact experienced New York sales tax attorney for further assistance with your New York sales tax audit defense or back tax sales tax matter. We can assist you regardless of location.
