Business owners have unique obligations when it comes to paying taxes. Unfortunately, these obligations can get complicated, especially when you have to understand both federal and state tax laws.

Have you missed paying sales tax when you should have been? In New York, it’s important to stay on top of sales tax to avoid penalties and trouble with the state. Learn what to do next when you should have been paying NY sales tax.

It’s always a good idea to work with a tax expert when you’re not sure about your tax obligations as a business owner. Contact us today to get started with tax compliance.

Key Takeaways

• New York businesses must collect and remit sales tax on qualifying transactions. The state rate is 4%, plus applicable local rates.
• Failing to file or pay sales tax can result in steep penalties, daily compounding interest, and even criminal charges.
• Business owners could face personal liability for unpaid sales taxes, meaning their own assets are at risk.
• Act quickly by filing past-due returns and participating in the state’s voluntary disclosure program to reduce penalties.
• Work with a tax attorney to ensure accurate filings, negotiate with the Department of Taxation and Finance, and stay in compliance moving forward.

How Sales and Use Tax Works in New York

New York is one of many states that requires businesses to collect and pay sales tax when selling qualifying products and services. You’re required to collect these taxes for each transaction and then send them to the NY Department of Taxation and Finance.

The state sales and use tax rate in New York is 4% statewide, on top of local tax rates, as applicable. Eligible sales made within the Metropolitan Commuter Transportation District (MCTD) have an additional 0.375% sales tax rate.

Sales tax returns must be filed with the state quarterly, monthly, or annually, and businesses can use the Sales Tax Web File system to streamline filing. If your taxable receipts are over $500,000, or you have over $5 million in liability for prepaid sales tax on motor fuel and diesel motor fuel, you have to be part of New York’s PromptTax program, which is an electronic filing system.

You must have a valid Certificate of Authority in New York to make sales and collect sales tax. This requires registering as a sales tax vendor through the New York Business Express system.

Why You Shouldn’t Ignore NY Sales Tax Obligations

New York requires sales tax to bring in a big portion of the state’s revenue. If you fail to pay when you’re required to, you’ll have to deal with certain consequences. Here’s what you can expect:

Sales Tax Penalties

• Penalties for not filing a sales tax return:
  • If you don’t file a sales tax return but you don’t owe any tax, the penalty is $50.
  • If your return is late and within 60 days, the penalty is 10% of the taxes owed for month one, plus 1% for each additional month, not to exceed 30%. This minimum penalty is $50.
  • For returns more than 60 days overdue, the penalty is the greater of 10% of the tax due for month one, plus 1% per additional month, up to 30%; $100 or 100% of the tax amount required on the tax return, whichever is less; or $50.
• Penalties for failing to pay sales tax:
  • If you file on time but don’t pay what’s owed, the penalty is 10% of the amount due for month one, plus 1% per additional month, up to 30%.
  • If you leave off over 25% of what’s owed, the penalty is 10% of the amount you didn’t report.
  • If you don’t pay and commit tax fraud, the penalty is equal to double your unpaid taxes, plus interest.
• If you willfully fail to send sales taxes or commit tax evasion, you could face additional steep fines and even jail time.

Building Interest

On top of penalties, you have to worry about accruing interest when you don’t pay sales and use tax. Interest is compounded daily, so it adds up quickly.

Collection Actions

The state may pursue more serious actions if you continue to fail to pay sales tax, including filing a tax warrant against you, which creates a lien against your property, or pursuing tax levies to seize your property. An income execution is a levy against your wages.

Business Closure

If you willfully fail to pay sales and use taxes, the state may revoke or suspend your Certificate of Authority. If that happens, you won’t be able to legally conduct business in the state.

Personal Liability for Unpaid Taxes

Note that you could be held personally liable for sales and use tax payments in New York if you’re an owner, officer, director, employee, manager, partner, or member of the business. This means the state could seize your personal assets to cover the business’s tax debt.

What to Do If You Haven’t Been Paying NY Sales Tax

If you haven’t been paying sales tax in New York but you’re required to, what should you do first? Follow these steps to get back in good standing and protect your business:

• Register With the State: If you haven’t already, you need to register with the Department of Taxation and Finance as a sales vendor and get a Certificate of Authority. This allows you to make sales and collect sales tax. If you’re a remote seller who hasn’t registered in multiple states, you may be able to use the Streamlined Sales Tax Registration System (SSTRS) to register in multiple states at the same time.
• File Past-Due Returns: Next, file all your past-due sales tax returns. This is important even if you’re worried you can’t pay what you owe immediately. Review the state’s detailed instructions in Tax Bulletin ST-275 to figure out whether you need to file quarterly, monthly, or annually. In general, most new vendors will file quarterly. You can file your returns online using the Sales Tax Web File system using your Business Online Services account.
• Participate in Voluntary Disclosure: New York has a voluntary disclosure and compliance program that rewards taxpayers for filing voluntarily instead of waiting for the state to contact them about enforcement. You can avoid certain penalties and criminal charges and get a shorter look-back period if you are honest with the department about what you owe, pay what you owe, and enter into an agreement that commits to paying all taxes in the future.
• Report with Accuracy: You’ll face additional penalties if you don’t report and send what you actually owe. Gather all your tax records, including receipts and point-of-sale information, to ensure you have everything you need for reporting. You never want to risk underreporting and thus underpaying your sales tax liability.
• Maintain Tax Compliance: After you get registered and pay what you owe, set up a system so you stay in compliance moving forward. This may require working with a bookkeeper or CPA, ensuring organized records, reviewing state tax laws, and creating a calendar with important deadlines. Also, be sure you’re always calculating amounts correctly and using the right state tax forms – that can be a lifesaver if you’re selected for a sales tax audit.

Payment Options for NY Sales Tax

The NY Department of Taxation and Finance makes it easy to pay the sales and use tax you owe. Here are your options when you’re ready to make a payment:

• Pay your balance in full using the Web File system: You can easily make your payment by going into your Business Online Services account and selecting “Make a payment.”
• Request an installment payment agreement (IPA): You can request an IPA through the online system if you want to make monthly payments instead of paying in full. But you must meet application criteria such as owing under a certain threshold or being able to pay off the balance within a certain time frame.
• Apply for an offer in compromise: An offer in compromise allows you to pay only part of your tax debt when you’re going through financial challenges. You may qualify if you’re insolvent or discharged in bankruptcy or if paying your taxes would create undue economic hardship. Typically, this isn’t an option for an in-operation business.
• Pursue penalty abatement: The state may agree to waive a late payment penalty if you can show you had reasonable cause that led to your late payment.

Remember that you have the right to dispute tax bills if you don’t agree with the information provided on a notice. If this is the case, talk to the attorney at IRS Tax Pros about how to dispute a sales tax bill.

Work With a Tax Expert to Avoid Sales Tax Problems

Paying sales tax in New York is just part of running a business in the state. Failing to pay could mean serious collection actions against you and your business, like levies, and even business closure through Certificate of Authority revocation. When you haven’t paid sales tax, act quickly to avoid building penalties and interest.

Never try to get out of a complex sales tax situation on your own. Work with a tax attorney who can help you negotiate terms, protect your assets, and reduce risks for you and your business. An expert can also help you ensure you stay compliant moving forward so your business remains in good standing.

When you’re ready to understand more about sales and use tax in New York or apply for a relief option, contact the team at IRS Tax Pros. Our attorney, Tim Hart, is experienced in helping taxpayers and businesses get back on track to good compliance.

Schedule a free consultation with Tim Hart Law Group today.