Although businesses of any size can find themselves the subject of a sales and use tax audit, some are at a higher risk than others. Common targets often include large businesses or those with complicated tax filings. Understanding audit risk factors can help businesses better assess exposure and prepare accordingly.
What else can trigger a sales and use tax audit?
The New York Department of Taxation and Finance states that a failure to file a return, a failure to properly report sales, discrepancies when compared to federal filings, and a history of audits are common reasons that trigger a state audit. Many of these issues mirror broader enforcement priorities, making it helpful to understand what commonly triggers tax audits at both the state and federal levels.
It is also important to note that recent changes in the rules used to determine whether a nexus is present could trigger an increase in sales and use tax audits. This could lead to a surge in cases involving online marketplaces and remote sellers. As audit activity increases, businesses may find themselves facing scrutiny similar to other state tax examinations, including those seen in New York residency audits.
What happens if my business is the subject of a sales and use tax audit?
The New York Department of Taxation and Finance will likely request documentation to support your returns. In many cases, the process will involve a review of multiple years of returns.
The agency also notes that it often uses a computer-assisted audit process when auditing businesses. Before the agency begins the audit, it will likely provide your business with two questionnaires. The agency claims that the use of a computer-assisted process results in a more efficient audit, though it also allows auditors to identify discrepancies more quickly.
How long does the state have to conduct an audit?
New York State tax law generally applies a three-year statute of limitations. There are situations where the state could conduct an audit beyond this time limit, including cases involving a failure to file returns or fraudulent filings. Businesses facing extended review periods may benefit from understanding how audits typically proceed and conclude when additional issues arise.
What should I do if New York audits my business?
State law requires you to cooperate during the audit. State law also allows you to retain counsel to represent your interests. Early preparation can be critical, particularly when audits involve multiple tax years or complex records. Reviewing available post-audit options may also be helpful if disputes arise after the initial findings.
The attorneys at Goldburd McCone can provide experienced representation during a New York sales and use tax audit and help ensure your rights and financial interests are protected throughout the process.