New York Sales Tax Defense Lawyers

New York Sales Tax Defense: Understanding Your Rights and Obligations

Overview of Sales and Use Tax Laws in New York

Sales and use tax laws are very confusing in New York. Failure to comply with sales and tax use rules can lead to tax assessments, interest, and even penalties. Corporate officers and owners can be held liable for the amount due.

Raiser & Kenniff Law Group can help with a wide array of sales and tax law issues. Our goal is to help business owners, accountants, attorneys, etc, understand the sales and use tax laws. We handle sales tax audits, criminal investigations, frozen bank accounts, tax warrants, cases where you haven’t filed a return, and more.

Why Businesses Face Sales Tax Audits

Certain businesses that have lots of cash transactions have a higher chance of sales tax audits and problems. As such, delis, restaurants, bars, autobody shops, have a higher incidence of sales tax audits and sales tax collection problems. All NY businesses that collect, and remit, NY sales tax are at risk.

If your business was notified of a NY Sales Tax Audit, or if you’re being pursued for past due sales tax, there are a number of things you MUST be aware of in order to limit the exposure of your business and personal finances.

Four Common Reasons for Sales Tax Audits

Failure to Report Sales Tax

If you’re making sales which are subject to sales tax, you have to be registered with the Department of Tax to find a certificate of authority. This gives you the right to collect tax on sales. If you have a Certificate of Authority, NYS may review your filings to determine whether sales tax returns are being filed timely. If NYS determines you are failing to report sales tax, an audit can be triggered.

Constantly Filing Late

Two of the most common reasons for a sales tax audit is either because you failed to file sales tax, or constantly file sales tax returns late. If you’re registered for sales tax in NY, then the state requires you file sales and use tax returns quarterly, monthly, or annually, by a required due date. This applies even if your business didn’t make any sales during the period.

If you have a history of failing to file timely sales tax returns, or pay them on schedule, then NYS will audit you to vet the accuracy of your accounting.

History of Past NYS Sales Tax Audits

It’s very common for NY to audit businesses again and again, if the current audit showed your bookkeeping isn’t done properly. Failure to have a point of sale system, or proper bookkeeping shows the auditor there’s a high likelihood of a recurring issue. The chances of another audit increases if the existing audit resulted in your business owing a large assessment.

Industry Classification

Your business can be guilty by association. Certain industries have a higher incidence of noncompliance. Typical targets of NY sales tax audits are restaurants, delis, contractors, and other businesses that have a lot of cash sales.

Why NYS Takes Sales Tax Seriously

The NYS Department of Tax and Finance is responsible for collecting and enforcing sales tax. It’s the job of the auditor to decide whether your business has paid the correct amount or not. NYS takes sales tax very seriously, because sales tax is considered trust fund taxes. Your business is collecting this money on behalf of New York State. It’s NYS property, not yours. By routinely auditing small businesses, NYS is ensuring that businesses are complying with sales tax laws. Larger sales tax audits increase NYS revenue due to the large penalties that businesses have to pay if they commit fraud or incorrectly report sales tax.

Duration of NY Sales Tax Audits

The length of time of an audit depends on the complexity of the sales tax, as well as the scope. For example, what period of time of the business is covered, what records are requested, etc. They can take anywhere from 3 months to 12 months. It’s likely you’ll continue to get audited again and again.

Sales Tax Audit Defense Tips

These can be confusing and complex events. If you get a notice of a New York sales tax audit, you are probably scared. It’s important you reach out to a NY sales tax lawyer to create a strategy to protect your business.

• The auditor isn’t your friend. Be professional, but don’t forget this
• Hire a tax lawyer to help you create a strategy
• Prepare your books and records for review, so there are no questions
• Only provide what’s requested
• Do not volunteer extra information
• Be calm, but don’t act with anger towards the auditor
• Do not sign any documents

Negligence and Tax Evasion

If NY determines you attempted to evade payment, reporting, or assessing NY sales tax, you could be investigated for NY Sales Tax fraud. NY has a criminal investigation department, which conducts an investigation to determine if you engaged in a deliberate scheme to avoid payment of sales tax. If they discover this, then it could be referred to a local district attorney in the county in which you conduct business for further prosecution.

Attorney-Client Privilege

Any communication between you and your accountant are not attorney-client privilege. As a result, you should speak to your sales tax attorney, so that attorney-client privilege is maintained.

Personal Liability

Because sales tax is a trust fund tax, you could be held personally responsible for the sales tax liability of the business. You are deemed a responsible person if you were an owner, or were someone responsible for collecting and paying the sales tax.

How to Avoid and Survive a NY Sales Tax Audit

Cross Check Tax Returns

One of the ways businesses are selected for an audit is based on cross-checking between sales tax reporting and your 1099-K’s from the IRS. If your deli/bar/etc takes debit or credit cards, then you have a merchant account. This processing is reported to the IRS on Form 1099-K. You should compare sales reported on federal returns with the state returns to make sure they are aligned.

Record Keeping and Employee Relations

Keeping good records and keeping happy employees are also important in avoiding a sales tax audit.

Statute of Limitations for Sales Tax Audits

The statute for a NY sales tax audit is 3 years, unless the Tax Department gets your consent to extend the contract. This doesn’t apply if you have removed sales tax returns, or filed a false/fraud return.

NYS Sales Tax Enforcement Stages

When a business fails to comply with sales tax obligations, NYS enforces payment through multiple stages:

• You get a collection notice with penalties and interest
• It’s assigned to an agent for enforcement
• Tax warrant is issued
• Levy of receivables of the business
• Revoking certificate of authority
• Your business is shut down
• Business assets are seized and sold
• You are held personally for liability
• Your driver’s license could be suspended
• Your personal assets could be seized

Once your business is issued a tax warrant, it could result in your business receivables and assets being seized. In addition, a tax warrant becomes a matter of public record and can be enforced for 20 years.

Penalties and Interest

Failing to file sales tax on a timely basis is a serious offense, since sales tax are considered a trust fund tax. Failure to file, is considered a crime. Penalties and interest can be up to 14.5% of the liability.

How a NYS Sales Tax Attorney Can Help

We defend your rights at a sales tax audit. Business owners often talk too much, and provide information they shouldn’t. Our goal as your NY sales tax attorney is to defend against possible overpayments of sales tax.

Negotiating Payment Plans

We work to negotiate a payment plan with the NYS agent. If you truly owe back sales tax, we’ll work with you and the department. We’ll determine what is an acceptable down payment plan, and make a payment arrangement. Depending on the installment agreement, NYS may require disclosure of the asset, incomes, and expenses, of the business.

Before beginning the negotiation process, it’s important that a sales tax attorney review your business and help you understand the terms of the payment plan. One of the mistakes we see business owners make is they negotiate terms that aren’t favorable to the business. You should also be aware that the NYS agent will note your conversations.

Reducing Criminal Exposure

Another thing we do is reduce your potential criminal exposure. One of our primary goals is to reduce criminal exposure. Most sales tax matters involve the payment of back taxes and penalties. It’s important that you are represented by a NYC sales tax lawyer.

Offer in Compromise

Another thing our NY sales tax lawyer can do is offer in compromise. If your business is assessed a large sales tax liability you cannot afford then rather than close the business there might be a solution. The solution is the offer in compromise program. If it’s accepted by the department of taxation and finance, your liabilities could be lowered. The criteria for evaluation involves a review and analysis of your assets, income, and expenses of the business.

One of the reasons an offer will fail is that the offer was not based in NYS tax law. One of the biggest mistakes we see business owners make is simply throwing out a number they think the department will accept. This is a very complicated calculation, and you want an experienced sales tax attorney so your offer is accepted.

Penalty Abatement

Another thing we can do is help with NYS sales tax penalty abatement. Penalties can be abated if our attorneys can help prove you had reasonable cause under NYS tax law. Our tax attorneys can help you understand whether you have reasonable cause, and create a possible penalty abatement.

Voluntary Disclosure Program

Another thing we can do is remove penalties by proper disclosure. There could be instances where a business owner understated the sales tax of the business. Failing to file, or intentionally understating sales tax return, can be considered a crime in NYS. Filing a past due sales tax or amended return doesn’t eliminate criminal exposure. NY has a voluntary disclosure program which can eliminate exposure and penalties.