How to Prevent NYS Sales Tax Audits

June 7, 2019

Sales taxes are one of the most common forms of transactional taxes. Almost all the states in these United States impose statewide sales taxes on business transactions. There are some notable exceptions, however. Oregon, for instance, famously does not impose a statewide sales tax. If you walk into a hardware store in Portland, Oregon, and purchase a hammer for $10, you’ll owe a total of only $10 at the cash register. In almost all other states, though, including New York State, this isn’t the case. Complying with sales tax rates and requirements may be daunting for businesses, but doing so is imperative. Sales taxes contribute heavily toward the state pocketbook, and this pocketbook goes to fund public projects. So, NYS sales tax audits are the means by which the State ensures taxpayer funding for the public good.

In this post, we will discuss the basics of New York State sales tax audits. If the NYS Department of Taxation and Finance (NYSDTF) believes you failed to pay the correct sales tax, you’ll likely be audited. We will cover the essentials of the sales tax audit process. We’ll also also provide tips on how to prevent them from happening. If, though, you receive a sales audit notice, reaching out to an experienced tax attorney is almost always excellent advice.

Basic Overview of NYS Sales Tax Audits

In the State of New York, businesses are required to remit a transactional tax on sales made in the course of business. This sales tax is paid by consumers and sent to the State by sales tax vendors. That is, consumers bear the burden of paying this tax, while businesses bear the burden of correctly reporting and remitting it to the State. If for some reason the NYSDTF believes that you’ve failed to perform these duties, the NYSDTF issues an audit notice.

NYS sales tax audits are investigations in which the NYSDTF checks to determine whether you or the State made a mistake. This means that the NYSDTF will require you to submit documentation to support your sales tax reporting and remittance. If a determination is made that you’ve made a mistake, you will be required to satisfy any deficiencies. You may also be required to pay interest and penalties. 

Possible Criminal Sanctions

If there is evidence of willful falsification or evasion, then there may be criminal charges. Honest mistakes, though, will not carry any possibility of criminal prosecution, however.

What to Expect if You Receive a Sales Tax Audit Notice 

If the NYSDTF selects you for a sales tax audit, you can expect several things to happen. For one, the NYSDTF will usually try to prove that you owe extra money. That’s why it’s imperative that you have all of your documentation. The NYSDTF will require that you submit records for all of your sales transactions during the audit period. You’ll need to provide proof that you paid the correct amount of sales tax for all of your taxable transactions. You also need to be aware that the NYSDTF can impose fines and penalties on the “responsible person,” or “persons” of your business. Responsible persons are those formally in charge of ensuring compliance with NYS sales tax requirements. They include a company’s officers, directors, managers, and those with check signing authority. Specific fines can be imposed if the NYSDTF finds that the person was in error.

How to Prevent a Sales Tax Audit Notice 

As of right now, there are 47 different sales tax localities in the State of New York. This means that complying with New York State sales tax rates and schedules can be extremely difficult. To assist with sales tax compliance, perhaps the best strategy is to hire a competent Certified public accountant (CPA). A New York State CPA can help businesses stay on top of sales tax reporting and remittance. This is an excellent preventative measure to combat a sales tax audit. 

If, on the other hand, this route isn’t ideal for you, the next best way to prevent audits are to diligently record and timely remit your correct sales tax. If you timely report and remit the correct amount of sales tax, then the NYSDTF likely won’t issue an audit notice. And, even if it does, the audit will end as soon as the NTSDTF realizes that the error was all theirs. This means that you need to carefully keep track of all of your transactions. Anything subject to sales tax needs documentation in order to substantiate your transactional history.

You Should Reach Out to a Qualified Tax Attorney for Assistance 

If you follow this advice, there’s a good chance that you’ll avoid NYS sales tax audits altogether. But if you do business in New York State, there’s always a possibility that such an audit may occur. If this happens, in nearly all cases, the best course of action is to hire a qualified tax attorney. A qualified tax attorney can help you understand precisely what will happen throughout the various stages of an audit. The tax attorney can assist you with the NYSDTF and help resolve the situation more quickly. An attorney can also help you understand your rights and responsibilities accorded by law. 

NYC Tax Attorneys for NYS Sales Tax Audits

At Mackay, Caswell & Callahan, P.C., we understand that complying with New York State sales tax requirements is not an easy task. Our goal is to provide stellar representation and also educate our clients. That way, they can solve whatever tax issue they have. We focus on tax debt resolution, Section 1031 exchanges, and other tax related matters. If you’re grappling with a NYS sales tax audit or owe back taxes, give us a call right away. Contact one of our top New York City tax attorneys. We can start on your case right away!

Image credit: Marco Verch 

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