Preventing And Solving Your Sales And Payroll Tax Issues
Your business’s future largely depends on you getting your sales and payroll tax right. When you miss a deadline, misclassify one of your employees or make a small calculation mistake, you can end up facing penalties, interest charges or even a full-blown audit that could affect your operations for weeks or months.
Tax law is complicated, which makes compliance difficult for business owners of any size. When you have to run day-to-day operations and don’t have time to take note of every regulatory change, the chances of errors snowballing into serious financial consequences are high, and once the state or IRS starts an audit, the stakes get even higher.
At Goldburd McCone, our Manhattan-based lawyers can help companies stay compliant with state and federal tax codes. We’re happy to discuss sales tax and payroll tax requirements to prevent problems for your business. If you’re already facing an audit, we can step in immediately to protect your interests.
What To Know About Sales Tax For Out-Of-State Sellers
You don’t need to own a physical storefront in New York to owe sales tax here. The Supreme Court’s decision in South Dakota v. Wayfair changed everything. Now, if your business exceeds $500,000 in New York sales and completes 100 or more transactions in a calendar year, you must collect and remit sales tax. Many online retailers and multistate sellers don’t realize they’ve triggered this threshold. When these sellers discover their obligation or when New York discovers it first, they face retroactive audits, penalties and interest on taxes they didn’t even know they owed.
What Triggers An Audit?
Audits are a normal part of operating a business. With that said, no one looks forward to them. There are some criteria that can increase your likelihood of being audited by the IRS. These include:
- Previous tax controversies
- Irregular patterns in filings
- Operating in a cash-based industry
- Terminating operations
- Filing bankruptcy
- Failure to register for sales tax when nexus exists
- Operating in a targeted industry like restaurants, construction or retail
In addition to representing you during an audit, we can put pre-audit measures in place to help you mitigate the chance of an audit. If you’ve discovered a compliance issue, voluntary disclosure is an option that allows you to come forward on your own terms before the state discovers it.
What Is New York’s Voluntary Disclosure Program, And Can It Help My Business?
New York’s Voluntary Disclosure and Compliance Program (VDCP) offers businesses a way to come forward before the state finds them. If you’ve discovered that your business has unfiled or under-reported sales tax obligations, either due to unregistered nexus or misclassified transactions, VDCP allows you to disclose those liabilities proactively. Businesses that qualify may avoid penalties and prevent criminal referral, although this does not apply to all cases.
The program’s eligibility requirements and lookback periods limit how far back the state can assess taxes, but not all businesses qualify. Timing is extremely important, too, because once the Department of Taxation and Finance (DTF) contacts you or begins an audit, you’re no longer eligible for voluntary disclosure. This is the reason why talking to a tax attorney ASAP is crucial. We can review whether VDCP makes sense for your situation, prepare your disclosure and negotiate terms that reduce legal risks.
What Happens In A New York Sales Tax Audit?
When you’re faced with a New York sales tax audit, it’s crucial to know what you’re up against. It starts when the New York State Department of Taxation and Finance decides to take a closer look at your sales tax filings. They’re checking to ensure you’ve collected the correct amount of sales tax and reported it accurately. Depending on the circumstances, you might face a desk audit or a field audit. The process varies for each.
During the audit, you’ll be asked to provide records and explain your tax practices. If the audit results in an adverse outcome, you will have the opportunity to challenge the decision. You can request a conciliation conference through New York’s Bureau of Conciliation and Mediation Services (BCMS) to resolve disputes informally. If that doesn’t work, you can pursue a formal hearing at the Division of Tax Appeals (DTA).
Audits are a meticulous process, and our lawyers can protect your interests at every step.
The Consequences Of Not Paying Your New York Sales Or Payroll Taxes
Failure to pay New York sales or payroll taxes can result in serious consequences. On top of paying overdue taxes, you may have to pay significant financial penalties and interest, which vary depending on the specific findings of the audit. In severe cases, such as when the state suspects willful evasion or fraud, you could face criminal prosecution. Worse, New York can hold business owners and responsible officers personally liable for unpaid trust fund taxes, meaning your personal assets are also at risk. In the worst-case scenario, you could even face a criminal investigation. A proactive approach toward addressing and rectifying any deficiencies is critical for avoiding these harsh penalties.
Can Business Owners Be Held Personally Liable For Unpaid Sales Or Payroll Taxes?
The short answer is yes. Many business owners think their corporate structure makes them immune to personal tax liability, but that’s not true. Under New York Tax Law §1133, members, officers and all other parties involved are personally liable for sales taxes the business withheld but did not remit. The business may be the named taxpayer on paper, but the state can still pursue your personal assets like your house, bank accounts and savings to settle the debt.
The same risk applies to payroll taxes. The IRS imposes a trust fund recovery penalty on individuals responsible for withholding and remitting employee taxes. New York has a similar provision. If your business withheld taxes from employee paychecks but failed to remit to the government, you may be personally responsible for 100% of the unpaid amount. The liability doesn’t stay with the business entity alone. This issue will follow you personally. So, if you received a notice of responsible person assessment or believe you may be at risk, make sure you have access to legal professionals who can protect your rights.
What Are The Interest Rates For Outstanding New York Sales Tax Liabilities?
If you have outstanding New York sales tax liabilities, be prepared for interest to accrue. Interest rates in New York can be significant. You’ll face daily compound interest at the applicable quarterly rate, and it starts accruing from the original due date, not from when the audit begins or ends. By the time an audit concludes, accumulated interest can substantially increase what you owe, sometimes adding thousands of dollars to your liability. The longer you wait, the more you’ll owe, which is why swift action is critical.
What Does A Payroll Tax Audit Look For?
A payroll tax audit isn’t just about numbers; it’s about compliance. Auditors will scrutinize your payroll records, looking to confirm that you’ve withheld the correct amounts for taxes and that you’ve filed all necessary returns on time. They’ll check your wage reports, employment records and other financial documents. Note that worker classification is a major focus in these audits. If you’ve treated workers as independent contractors rather than employees, auditors may reclassify them and hit you with retroactive payroll tax assessments, penalties and interest. This can go as far back as several years. Misclassification also triggers personal liability risks for business owners, which further highlights the importance of diligence and compliance.
Documentation That Can Assist With Your Sales Tax Or Payroll Audit
When preparing for a sales tax or payroll audit, having the right documents is key. Helpful documentation might include:
- Sales records and invoices
- Exemption certificates
- Bank statements for the audit period
- Payroll ledgers
- Employment records
- Federal and state tax returns
- Records of payments made to tax agencies
- Independent contractor agreements and 1099 records
Every document can play a role in painting a clear picture of your financial practices. With our firm, you have a dedicated legal ally to help you compile, review and present the appropriate records with confidence.
Ask Us About Our Proactive And Reactive Solutions
Don’t wait until the state contacts you. The sooner you address tax compliance issues, the more options you have. Work with a tax attorney to protect your communications through attorney-client privilege, something you don’t get with a Certified Public Accountant (CPA), accountant or tax preparer. Sensitive financial information could carry both civil and criminal implications, so you need to work with a professional who can protect it. Our tax attorneys help you through sales tax and payroll tax challenges with confidence and strategic legal counsel. Call 212-302-9400 or toll-free at 844-653-2873 or send us an email today. We serve clients nationwide.
