Business Owner’s Guide to New York Sales Tax

Sales tax in New York is a consumption-based tax imposed on the retail sale of tangible personal property and certain services. The state requires individuals and businesses to pay sales tax when purchasing taxable goods and services. For businesses operating in New York, understanding the fundamental aspects of sales tax is paramount to ensuring compliance with state regulations. Here’s everything you need to know about sales tax, including how it works, how to file and pay, and the consequences of failing to comply.

How Does Sales Tax Work?

Sales tax sounds fairly simple. You figure out the rate in your area. You sign up for a sales tax account. Then, you assess sales tax on all of your sales, and you file a report and pay every month. However, in practice, the process can be a lot more complicated. Here’s a breakdown of the details.

Registration

Businesses that sell taxable products or services in New York State are required to register with the Department of Taxation and Finance of New York State. Registration can be done online through the Online Permit Assistance and Licencing (OPAL) system. Then,  once you have a Certificate of Authority, you can start collecting sales tax from your customers.

Determining Taxable Sales

As a business, you will need to identify which products or services are subject to sales tax. Sales tax generally applies to tangible personal property. This covers the majority of products supplied to customers as well as electronics, furniture, and clothing over a certain value. Certain services are also subject to sales taxes, including hotel accommodations, certain event admission fees, and some entertainment services. It’s important for businesses to regularly consult the New York State Department of Taxation and Finance’s guidelines to stay informed about any updates or changes in tax laws. The guidelines provide detailed information on taxable and exempt items, helping businesses accurately determine their sales tax obligations and ensure compliance with state regulations.

NYS Sales Tax Rates

In New York State, the local rate that applies in the jurisdiction (city, county, or school district) where the sale, other transaction, or use takes place is added to the combined 4% state rate for sales and use taxes. This means that the total sales tax rate a business charges its customers is the sum of the state rate and the applicable local rates. In each county and city with sales taxes, the combined rates vary. For example, for taxable sales made inside the Metropolitan Commuter Transportation District (MCTD), there is an additional sales tax rate of 0.375%. On top of that, New York City charges sales tax at a rate of 4.5%, and the state has a 4% sales tax. Combined, that results in an 8.75% sales tax.

Collection and Record Keeping

Once registered, businesses are responsible for collecting sales tax on taxable transactions. This involves adding the appropriate sales tax to the sale price at the time of the transaction. Businesses must maintain accurate records of all sales, including the amount of sales tax collected, for auditing purposes.

Filing and Payment

Businesses are required to file regular sales tax returns, usually on a quarterly basis. However, if your total taxable sales are $300,000 or more per quarter, you may need to file monthly. Businesses with less than $3,000 in sales tax due during the year can file annually. The New York State Department of Taxation and Finance provides various filing options, including online filing. Along with the filed return, businesses must also submit the collected sales tax to the state. The return and payment are due 20 days after the end of the collection period. For instance, if you file monthly, your returns are due on the 20th of the next month.

How to Calculate the Rate in Your Area

Calculating the New York sales tax rate for your specific area involves considering both the state’s base rate and any additional local rates that may apply. Here’s a breakdown:

1. Identify the state sales tax rate: As of 2024, the base sales tax rate in New York State is 4%. This is the statewide rate that applies to all taxable transactions.
2. Determine local rates: Identify any additional local sales tax rates that may be imposed by the county, city, or special tax jurisdiction where your business is located. These rates can vary, so it’s crucial to check the specific rates applicable to your area. This can be done by using the Jurisdiction/Rate Lookup service online.
3. Combine state and local rates: Add the state sales tax rate to the local rate(s) to determine the total sales tax rate for your area. The formula is simple: Total Sales Tax Rate = State Rate + Local Rate(s).
4. Apply the total rate to transactions: Apply the total sales tax rate to the sales price of taxable products and services. By doing this, you can be sure that you are charging the appropriate sales tax on every transaction.
5. Use point-of-sale software to help: You shouldn’t figure out the tax by hand on every sale. Instead, invest in point-of-sale software that will calculate the tax and help you keep track of the numbers.

Remember that sales tax rates can change, so it’s essential to stay informed about any updates or adjustments. Regularly check for announcements from the New York State Department of Taxation and Finance or consult their resources to ensure that you are using the most current rates.

Who Needs to Collect Sales Tax?

In New York, businesses that sell tangible personal property, certain services, or digital products are generally required to collect sales tax. This obligation extends to both in-state and out-of-state sellers meeting specific economic thresholds. Retailers, wholesalers, and service providers are among those who need to collect sales tax on taxable transactions. Unsure if you need to collect sales tax? Consider the following:

• What connection do you have to New York?
• Are New Yorkers the target market for any taxable products or services you offer?
• Does sales tax need to be paid by your buyers?

If you answered yes to all three questions, the state requires you to register with the tax authority, collect the right amount of sales tax on each sale, file returns, and remit to the state.

How to Pay Sales Tax

So, you have started collecting sales tax and are registered with the Department of Taxation and Finance in New York. Remember, however, that those tax funds are not yours. Your job as a State of New York agent is to act as a middleman in transferring tax payments from taxpayers to the appropriate authorities.

Annual Filing

When you register for sales tax, you will be categorized as an annual filer automatically if you:

• Declare that you do not anticipate paying or collecting any sales or using tax. For example, you are registering to accept exemption certificates.
• Describe your main line of business as a wholesaler or manufacturer.

You must submit sales tax to the New York Department of Taxation and Finance. The annual return, Form ST-101, covers the period from March 1 to February 28/29. As sales tax returns are typically due within 20 days after the end of the reporting period, annual returns are due by March 20 each year.

Quarterly Filing

When you first register for sales tax purposes, you will be categorized as a quarterly filer if you are not eligible to file annually. Quarterly returns cover the following reporting periods: March 1 to May 31, June 1 to August 31, September 1 to November 30, and December 1 to February 28/29. The deadline for submitting quarterly returns is 20 days following the end of the quarter they apply to. For example, the deadline for the March 1 to May 31 quarter is June 20th or the following business day if it falls on a weekend or holiday.

How to File a Sales Tax Return

First, collect all relevant documentation, including records of total sales, taxable sales, and the sales tax collected during the filing period. Submissions can be done online through the New York State Department of Taxation and Finance’s website. Once you have logged in, navigate to the sales tax section to begin the filing process. Fill out the sales tax return form, providing details of your total sales, taxable sales, and any applicable deductions or exemptions (more below). Ensure that the information provided aligns with your business records. Before submitting, double-check all calculations to ensure accuracy – the system may prompt you to review the information before final submission. After submitting the return, ensure that you receive a receipt or confirmation number. This serves as proof of your timely submission. Once submitted, you can calculate the total sales tax due based on the information provided in the return. Use the payment options available in the online system to remit the collected sales tax.

Deductions and Exemptions

In New York, businesses can benefit from various sales tax deductions and exemptions, helping them manage their tax. Some common types of exemptions and deductions include:

• Resale exemption: For businesses purchasing goods for resale. To claim this exemption, the buyer must provide the seller with a valid New York State Resale Certificate (Form ST-120), certifying the intention to resell the purchased items.
• Manufacturing exemption: For businesses engaged in manufacturing. To claim this exemption, businesses need to provide the seller with a completed Form ST-121, Exempt Use Certificate.
• Clothing and footwear exemption: Clothing and footwear items priced under a specified threshold are often exempt from sales tax.

What Happens if You Don’t Pay Sales Tax?

In New York, there are a number of penalties for not paying sales tax, from monetary penalties to legal action. Businesses are expected to pay their taxes, and the New York State Department of Taxation and Finance treats non-compliance seriously. Here are potential repercussions for not paying sales tax in New York.

Penalties and Interest

Businesses that fail to remit sales tax on time may incur penalties and interest charges. These are typically calculated as a percentage of the unpaid tax and can accumulate over time. Penalties include:

• Late filing and payment: The state imposes a late filing penalty of 10% of the unpaid tax and an additional 1% per month for each month the tax remains unpaid, up to 30%.
• Civil penalties: Civil penalties may be imposed for various violations, such as failing to keep adequate records, knowingly providing false information, or engaging in activities that violate sales tax laws. Civil penalties are typically monetary fines imposed as a result of non-compliance.
• Criminal penalties: In cases of wilful evasion or intentional fraud related to sales tax obligations, criminal penalties may be pursued. This can lead to fines, restitution, and, in severe cases, imprisonment.

Revocation of Certificate of Authority

The Certificate of Authority, which grants a business the legal authority to collect sales tax, may be revoked for non-compliance. This could lead to the suspension of your business’s operations until the outstanding taxes are paid.

Collection Actions

The New York State Department of Taxation and Finance has the authority to take collection actions to recover unpaid sales tax. This may include issuing liens on business assets, bank levies, or other enforcement measures.

Loss of Business Licence

Non-payment of sales tax can jeopardize your business’s licenses and permits. Local authorities may suspend or revoke business licenses until the outstanding tax issues are resolved.

Legal Proceedings

The state may initiate legal proceedings against businesses that consistently fail to meet their sales tax obligations. Legal actions could result in court-ordered judgments and additional financial consequences.

Seizure of Assets

In extreme cases, the state may have the authority to seize your business’s assets to satisfy outstanding tax debts. This could include inventory, equipment, or other property owned by the business.

Negative Impact on Credit Rating

Unpaid sales tax debts may be reported to credit agencies, negatively impacting the business’s credit rating. This can make it challenging for your business to secure financing or engage in various financial transactions.

What You Can Do If You’re Behind

If you find yourself behind in paying your sales taxes, it’s essential to take proactive steps to address the situation and bring your business back into compliance. Here are some actions you can take.

Contact the New York State Department of Taxation and Finance

Reach out to the New York State Department of Taxation and Finance promptly. Inform them of your situation and inquire about available options for resolving the outstanding tax debt. The department may provide guidance and assistance based on your specific circumstances.

Payment Plans

If you get behind on your sales tax bill, you may be able to set up monthly payments. The New York State Department of Taxation and Finance provides flexibility in structuring these plans, recognizing that businesses may encounter financial difficulties. Typically, there are two types of payment plans available:

• Short-term plans for liabilities that can be resolved within a few months and;
• Long-term plans for larger debts

To request a payment plan, businesses should proactively contact the tax agency, either online through the Online Permit Assistance and Licensing (OPAL) system or by phone. During the request process, businesses need to provide relevant financial information, propose a realistic payment schedule, and demonstrate a commitment to resolving their tax liabilities.

Request a Penalty Abatement

If you incur penalties, you may be able to get them waived by requesting abatement. The New York State Department of Taxation and Finance may consider penalty abatements for reasons such as reasonable cause, first-time offenses, or situations beyond the control of the business. To request a penalty abatement, businesses must submit a written request to the department, explaining the circumstances leading to the non-compliance and providing any supporting documentation.

Consider a Voluntary Disclosure Agreement

If you have unreported sales tax liabilities, consider entering into a Voluntary Disclosure Agreement (VDA) with the New York State Department of Taxation and Finance. This program allows businesses to come forward, correct past non-compliance, and work towards compliance without the fear of criminal prosecution. To initiate a VDA, businesses typically contact the New York State Department of Taxation and Finance and express their intent to voluntarily disclose any unreported sales tax liabilities. The department then works with the business to assess the extent of the liabilities, establish a repayment plan, and potentially reduce certain penalties. Participating in a VDA demonstrates a commitment to rectifying past errors and aligning with state tax laws.

Get Help With NY Sales Tax Today

The state requires individuals and businesses to pay sales tax when purchasing taxable goods and services. Businesses that fail to remit sales tax on time may incur penalties and interest charges, along with risks of collection actions, loss of business licenses, and revocation of certificate of authority. That’s why compliance with sales tax is imperative. At Timothy S. Hart Law Group PC, we specialize in tax relief. If you are concerned about late sales tax or need clarification on whether you need to pay, we can help you find possible resolution options and walk you through the sales tax process. Need help? Contact us today at (917)382-5142 or (518) 213-3445.