If you owe NYS sales, you as the owner or shareholder will be held personally responsible.
If you are personally responsible, that means that your income, bank accounts, retirement accounts, home, etc. are at stake for repayment of the sales tax.
Many business owners are shocked to receive a notice from the New York State Department of Taxation and Finance that they personally owe NYS sales tax.
NYS Sales Tax is a “Trust Fund’ Tax
The New York Department of Taxation and Finance takes the collection and remittance of sales tax very seriously. So much in fact, that sales tax is deemed a “ trust fund’ tax.
This article addresses why you may owe NYS sales tax for a business that you have may owned or operated.
If, after reading this you need help determining the best strategy to resolve your NYS sales tax liability, please reach out to us. We can assist you regardless of location.
What is a “trust fund’ tax?
You, as a shareholder or business owner, have the authority to sell goods and services in the State of New York per the Certificate of Authority that you were granted.
Per the NYS tax laws, the business is required to collect sales tax from the buyer and remit the sales tax to New York State.
The business under the NYS tax laws, is holding that money that belongs to NYS.
The business is holding that tax money “in trust” and is required to turn it over to New York State every month or quarter depending on the transactional volume of the business.
In fact, New York State takes sales tax so seriously that it attempts to make anyone who has any responsibility for the business responsible for the sales tax.
Many thoughts run through one’s mind like…”my accountant told me that being a corporation or LLC would protect me from the liabilities of the business ” or “ the business was closed 5 years ago, why now!”
The " I Didn't Know" Defense
The fact that the business may be having financial issues or perhaps you didn’t know that you had to file sales tax returns does not allow the business to forgo it’s responsibility to turn over money that belongs to NYS.
It also does not matter if the sales tax was not collected or if you did not know the NYS sales tax laws.
For example, let’s say your accountant advised you that your business was not responsible for collecting sales tax. The New York State Department of Taxation and Finance decides to audit your business for sales tax purposes for the last 5 years and now, the business has a large sales tax bill.
If the business can’t pay the sales tax bill, NYS will look to the responsible parties for the owed sales tax.
You cannot use as a defense that you were unaware that the business had a NYS sales tax obligation.
In this example, you will be held responsible for the owed NYS sales tax for the last 5 years plus the interest and penalties.
Being a Corporation or LLC Does Not Insulate You
Under Section 1133 of the NYS Tax Law, New York State imposes personal responsibility for the payment of sales tax on certain owners, officers, managers, and partners of a business that has outstanding sales tax liabilities.
Although having a limited liability company or corporation may protect you from personal liability when it comes to the exposure of the business, the above tax law creates personal liability and exposure for NYS sales tax regardless of the entity.
In other words, you may be personally liable for the NYS sales tax of your business.
Joint & Several Liability
Let’s say you were 50/50 partners in a business that got a $100,000 sales tax liability assessed against it.
The business shuts down and both you and your partner get hit with the tax bill that states that you both owe NYS sales tax.
Are you responsible just for 50% or $50,000?
Unfortunately not. NYS will collect the entire $100,000 sales tax liability from you if they can and it will be your responsibility to get your share from your former partner.
It’s not fair, I know but it’s the tax law.
Don’t Ignore the NYS Tax Notices
If you receive a notice from the New York State Department of Taxation and Finance that either you or your business owes sales tax, you have a sales tax problem that needs to be addressed right away.
I have clients that wait five (5), ten (10), or more years to address the problem and they soon realize that the penalties and interest have now dwarfed the sales tax liability.
Interest and penalties continue to accrue on the sales tax that you owe.
You can run, but you can’t hide.
If you decide to move, New York State will aggressively pursue you across state lines and will not relent in its efforts to collect money that it believes belongs to the State.
Owe NYS Sales Tax [ Get Help ]
If you have ignored the notices, it is likely that NYS has issued a tax warrant ( NYS tax lien) against you.
The tax warrant allows NYS to collect the sales tax liability from you without a court order.
Personal tax warrant enforcement methods include but are not limited to: bank levies, wage garnishment, a tax lien on your home; and the assignment of a NYS tax agent to your tax matter.
Even if you don't have any assets now, you will always being looking over your shoulder, even during retirement.
If your business is still operating, a NYS tax agent will visit you at the business and may eventually seize the business and auction any assets if an agreement is not reached pertaining to the sales tax liabilities.
The enforcement of sales tax liabilities is aggressively pursued by the New York State.
Please reach out to the New York sales tax attorneys of the Tax Problem Law Center for sales tax help.
