Understanding the New York Sales Tax Audit Process
Here is a basic overview of the New York sales tax audit process. The audit process starts with a notification in the mail that your business has been selected for a sales tax audit. There are a variety of things that can flag a sales tax audit, from repeated late filings, to complaints from disgruntled workers, to the size of your business, and others. Whatever the reason, sales tax audits can be very expensive, time-consuming and disruptive, which is why it is wise to consult with a knowledgeable New York tax attorney right away. However, even if you don’t have an attorney and are farther along in the audit process, you have a legal right to request representation at any point.
Sales tax audits are disruptive and costly. Get assistance right away from a skilled sales tax audit attorney when the state is knocking on your door.
In the notification, tax authorities will request specific documents and records that they wish to review. You will usually be given 15 days between the notification of audit and scheduling of the audit so you can gather your records together. If you need more time, you can request an extension of up to 30 days. If you need even more time, you can ask for another 30 days, but you will have to provide a written explanation of why you need the additional time.
Specific methods of sales tax audits used include detailed audits, statistical sampling, and test period auditing. What method is used will depend on the availability of good records and the size and complexity of the business. Once a determination is made by auditors, a business will receive either a no-change letter or a notification that more sales tax is owed, or, in some cases, a refund if it was found that taxes were overpaid.
Sales Tax Audit Q&As
Facing a sales tax audit is often confusing and stressful. In the following section, Timothy S. Hart answers questions we commonly get about the process. For answers to questions regarding your individual situation, contact our sales tax audit attorney for a free consultation. You can reach our NYC office at (917) 382-5142 and our Albany office at (518) 213-3445.
The face-to-face audit day is here, but how does that day actually work? You and your sales tax audit attorney, if you have one, will meet the auditor at a predetermined location. That location may be your place of business or a neutral setting. The auditor will ask questions about your business, inform you about audit procedures and advise you of your rights, including the right to appeal the findings.
You also have the right to ask questions about the process and to receive fair, courteous and professional treatment, as described in New York tax department form 130-F. Likewise, honey works better than vinegar in dealing with auditors. By being polite and professional and showing you have made the effort to provide adequate records, a positive difference can often be had.
In addition to your attorney, it can be beneficial to have a CPA as well as your team of accountants and auditors present at the sales tax audit. Your in-house auditor can be a quick reference point for the state auditor. The accountants can help answer questions specific to your financial affairs, and your attorney will be there to see that your rights are protected and to try to manage the process in your favor. Our New York tax attorney is also a certified public accountant and can provide additional accounting knowledge in sales tax audits.
Auditors are looking to see whether you have collected and remitted the proper amount of sales taxes to the state. There are various things they may look for in a sales tax audit. Auditors may look to see whether you have documentation showing proof of tax-exempt sales, whether the correct sales tax rate was applied, and other items, depending on the case.
In general, under New York tax law section 1147(b), sales tax audits can go back as far as three years, unless the taxpayer has consented in writing to extend the time period. However, in cases where there is a “willfully false or fraudulent return with intent to evade the tax,” tax authorities can go as far back as they deem necessary. Contact our sales tax audit attorney Timothy S. Hart for help when you have been notified of an audit.
How long a NY state tax audit takes depends upon all the factors unique to the business and the issues being looked at. The complexity of the business, the availability of records to auditors, how many transactions they review, and other things can determine how long an audit takes. As a general guideline, sales tax audits usually take several months, although some can take a year or more.
The legal term “responsible party” is used to describe a person who may be held personally and jointly responsible with the company for NYS sales tax purposes when the tax obligation is not paid. Typically, a responsible party would either be an owner of the company or an officer/managing member of the company (or LLC). The logic is that since they make the financial decisions for the company, they should be liable when debts are not paid. Obviously, being a responsible party can mean financial trouble if there are unpaid sales taxes for the audit period.
In the case of a partnership or LLC, section 1131(1) of the NYS Tax Law provides that each partner or member is a responsible person, regardless of whether the partner or member is under a duty to act on behalf of the partnership or LLC entity. This means that these persons, in addition to the company, can be held responsible for 100% of the sales and use tax liability of a business. The New York State Tax Department recognizes that this situation can result in severe consequences for certain partners who have no involvement or control of the business’s financial issues. Accordingly, the NYS Tax Department developed a policy that gives some protection from per se personal liability for unpaid sales taxes for certain limited partners and members of the LLC.
Nevertheless, companies should consider alerting New York State of changes in identity of their responsible parties. If you have been held liable for the unpaid sales taxes of a company, contact our sales tax audit attorney to see if you are eligible for relief.
You’ll Work Directly with Our Sales Tax Lawyer
Timothy S. Hart delivers personalized attention to all his clients. When you choose our law firm to assist your business with your sales tax audit matter, you will get the direct benefit of his extensive knowledge of New York State tax laws. In addition to his background practicing exclusively in tax law, Tim is also a certified public accountant, which provides him a comprehensive understanding of state and federal tax issues. You can contact him at our Albany office at (518) 213-3445 or our NYC office at (917) 382-5142 to arrange a free consultation.
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Sales Tax Audit Checklist
Accurate and complete recordkeeping is key when it comes to having successful outcomes in sales tax audits. When your company is audited, the auditor will request all necessary paperwork and financial documents of the company relevant to your taxes. It can hurt your business if the auditor develops incorrect assumptions due to having insufficient information. You need to keep adequate records of your financial activity, especially your handling of tax liabilities.
Foresight is essential. Keep all necessary financial documents close at hand in case they are requested by auditors.
Prior to the audit, your in-house accountants can do some preliminary examination of your records to look for omissions and incongruent data. Here is a checklist of some of the items for your accountants to consider before an audit:
- Use of a point-of-sale system
- Compatibility of the point-of-sale system with accounting software
- Type of cash registers used
- Coordination of sales and sales tax reports
- Records based on deposits.
Our skillful attorney can help you understand the documentation you need for your sales tax audit and prepare for it. Reach out today.