Filing NYS sales tax returns and paying the sales tax that is due is a necessary part of remaining compliant with the New York tax laws.
Whether you own a restaurant, construction business, auto repair shop, or any other business that is subject to sales tax in New York State, this article will address some of the more common issues surrounding filing NYS sales tax returns and paying the sales tax obligations of your business.
IRS or NYS Tax Problem? 7 [ Must Know ] FAQs
Experienced IRS & NY tax attorney Charles Rosselli gives you valuable tips and strategies so that you do not get taxing advantage of by the IRS, NY Tax Department or a so-called tax resolution firm.
What is NYS Sales Tax
New York State administers a tax on certain goods and services sold within New York State.
The collection of sales tax is administered through the New York State Department of Taxation and Finance.
For example, if your business sells tangible personal property ( ex. clothing) , performs taxable services ex. (automobile repair), or sells prepared food ( ex. restaurants) or sells drinks ( ex. bars), you will be subject to sales tax unless there is an exemption or exception that applies.
The types of businesses that are subject to sales tax in New York are extensive and as such, if you have any questions regarding whether your business should be paying NYS sales tax, you should contact the NY Tax Department.
The sales tax you must collect and remit is computed using the combined state and local rate in effect in the county in which you deliver the taxable product or service.
New York Certificate of Authority
If your business sells goods or services that are subject to New York sales tax, you must register with the NYS Tax Department.
The New York State Department of Taxation will issue your business a Certificate of Authority that you must display at your place of business.
The Certificate of Authority legally permits the business to collect and remit sales tax. You must have a Certificate of Authority before you begin operating.
The Certificate of Authority is the lifeblood of your business.
If it ever gets revoked by NYS, you must close your business or risk severe monetary and possible criminal penalties.
For example, the penalty for operating your business without a valid Certificate of Authority is $500 for the first day, plus $200 per day for each thereafter.
As you can see, the tax penalties can add up very quickly.
Filing NYS Sales Tax FAQs
Once you receive your Certificate of Authority, you are responsible for collecting and turning over the New York State and local tax to the NY Department of Taxation and Finance.
You are a trustee of NYS which means that you are holding money that belongs to New York State, not you nor your business.
You are required to file sales tax returns on time even if you did not collect sales tax during the period.
You are required to keep detailed records of every transaction.
In a restaurant, bar, or other small business, a point of sale system is helping in keeping your business organized for the purposes of filing NYS sales tax returns.
Also, if your business is ever audited for sales tax, the point of sale system and/or records will be the cornerstone of the sales tax audit so it is important that you maintain adequate records.
Under the NY tax laws, the burden of proof when it comes to the requirements of filing NYS sales tax as well as remitting it is always on the business owner, not New York State.
When you register for filing NYS sales tax, you will likely be classified as quarterly filer.
The periods are as follows:
March 1 to May 31 ( due June 20th)
June 1 to August 31 ( due September 20th)
September 1 to November 30 ( due December 20th)
December 1 through February 28 ( due March 20th )
Denial of a Certificate of Authority
The New York Tax Department may deny your request for a Certificate of Authority.
One of the most common reasons that we see for a denial of a Certificate of Authority is that a business owes past due sales, withholding, or income tax to the Tax Department.
If you do not have a Certificate of Authority, you are legally not allowed to make taxable sales or collect sales tax.
In other words, you should not be open for business ( see above).
NYS Sales Tax Record Keeping
You must maintain your sales tax records for a minimum of three (3) years.
You must make those records available to the Tax Department, if requested.
If you maintain the records of your business in an electronic format, you may need to give the NYS Tax Department access to your computer equipment.
If you fail to keep detailed records of the transactions of the business, you could be liable for substantial tax, penalties, and interest.
Here are two (2) examples of the steep fines you may incur for failing to maintain adequate sales tax records:
A penalty of $1000 for the first quarter or part of a quarter if you fail to maintain adequate records that increases up to $5000 for each subsequent quarter
A penalty of $5000 for each quarter of part of a quarter, if you maintain records if an electronic format and fail to make those records available to the Tax Department
NYS Sales Tax Non-filers & Non-payers
The failure to file and remit sales tax is considered a crime in New York State.
The Tax Department aggressively pursues the owners of businesses from a monetary standpoint, and in certain cases, from a criminal standpoint.
As a starting point, you will face interest and penalties as discussed above.
You will received a Demand for Payment.
If you ignore the notices from NYS, an agent will be assigned to collect the back tax liability and to advise you of your compliance requirements.
It is common that NYS to assign an agent for enforcement of your sales tax matter.
The assigned agent will conduct a field visit.
That is , the agent will come to your home and/or business to speak to you about the sales tax problem; the consequences of your failure to file and/ or remit sales tax; and the next step.
Two of the most common mistakes that we see business owners makes when dealing with the NYS sales tax agent:
The business owner attempts to handle the sales tax matter himself
Failure to adhere to deadlines established by the NYS agent
If the NYS agent grants the business owner a hold on collection activity for a certain period of time, there is nothing more important to the lifeblood of your business than adhering to those deadlines.
If you failure to adhere said deadlines, your business will be subject to further collection activity and possibly eventually seized.
NYS Sales And Use Tax Penalties
There are numerous sales tax penalties, such as failure to file, understatement of taxes due, etc.
However, sales tax penalties are just one part of the sales tax liability equation.
Under NY Tax Law Section 1145, the interest rate New York charges on sales tax liabilities is at least 10% of the sales tax due with daily compounding.
These are the four most common sales tax penalties that we see:
Filing Your NYS Sales Tax Return Late
If you file a sales tax return late by 60 days or less, the penalty is 10% of the tax due for the first month plus 1% for each additional month or part of a month not to exceed 30% of the sales tax due.
Failure to Remit NYS Sales Tax Due
If you file a sales tax return on time but do not remit the tax due, your civil penalty will be 10% of the tax due for the first month plus 1% for each month or part of a month, not to exceed 30%.
Failure to Maintain Sales Tax Records
If you fail to maintain records or make them available to the NYS Tax Department, your penalty is up to $1000 for each quarter or part of the quarter of failure plus up to $5000 for each additional quarter of part of the quarter that the failure occurs.
Failure to Make Records Available
If you are undergoing a sales tax audit and you fail to make your records available in auditable form, the penalty is up to $1000 for each quarter or part of the quarter of failure.
You Will Likely Be Personally Liable
Many business owners mistakenly believe that incorporating their business or other business structure will insulate them from personal responsibility for the sales tax obligations of the business.
This is false in New York State.
If you are a partner, owner, officer, director, or someone with financial responsibility of the business, you can be held personally liable for the sales tax as you are considered a trustee of New York State when you register the business for the collection of sales tax in NY.
What does personal responsibility mean ?
If the NY Tax Department is unable to collect the sales tax from the business, your personal assets and income are fair game to satisfy the sales tax, interest, and penalties that the business accumulated.
It does not matter if your business is no longer operating.
You will likely be on the hook for the sales tax obligations.
Filing NYS Sales Tax & Closing Your Business
There may come a point in time when you are no longer doing business in New York or perhaps your business is no longer viable so you just stop filing the legally required New York sales tax returns.
Shockingly, you begin receiving notices from the New York Department that you owe sales taxes and you don’t know why since your business is supposedly closed.
Here’s one of the potential culprits : you did not file your last sales tax return as FINAL.
New York State requires that if you sell, discontinue, or change the status of your business, you must file a final sales tax return within 20 days of the last day of business or change in status of your business.
The final sales tax return should include the tax due from business operations to the last day of business, as well as any tax collected on assets that you sell.
As such, you may be getting hit with failure to pay penalties from New York State.
Since you have, at a minimum, a quarterly sales tax filing requirements, your failure to file penalties (which accrues interest) can be quite substantial.
NYS Sales Tax Defense
Filing NYS sales tax requirements are aggressively enforced from both a monetary and criminal standpoint.
The consequences are severe.
From a monetary standpoint, the penalties are serere. If your business ignores the collection process, your business can eventually be shut down.
Further, you can be held personally responsible for the past due sales tax.
From a criminal standpoint, there are even criminal issues that you need to be aware of when it comes to NYS sales tax.
For example the failure to file NYS sales tax and remit said taxes to the taxing authority is a crime and as such, you could be subject to criminal prosecution.
It is in your best interests to understand how filing NYS sales tax is a necessary component of keeping you and your business out of hot water as ignorance of the law is unfortunately not an excuse with the New York State comes knocking on your door.
There are four (4) specific situations, where you would need to consult with a New York sales tax attorney as each of these circumstances involve severe penalties as well as possible criminal exposure:
- You have not filed your sales tax returns
- You are behind on your sales tax payments to the NYS Department of Taxation and Finance
- You are under investigation
- You owe a substantial amount of sales tax to NYS
If you are facing one of these NY sales tax problems, New York sales tax attorney Charles Rosselli of the Tax Problem Law Center can help you solve your sales tax problem and protect you throughout the process.
We have successful in assisting many business owners successfully lower their sales tax assessments.
