7 Tips to Help You Avoid a New York Sales Tax Audit

If you own a business that collects sales tax in New York, it is important to take proactive steps to avoid a New York sales tax audit. Any audit is stressful but sales tax audits can be particularly onerous if you don’t have an excellent recordkeeping system. Even then, it is best to consult a tax lawyer for assistance. Here are some tips to help you minimize your risk of an audit:

1. Report all sales.

   You are responsible for ensuring that you are reporting your sales accurately on your tax return. If you try to hide sales, the state has ways of finding out, including using technology and statistical tools to identify fraudulent tax returns.

2. Keep detailed and accurate records of all sales and purchases.

   You are required to retain certain information including receipts, invoices, and other financial documentation to substantiate your total sales, taxable sales, taxable purchases, tax collected, credits, and tax due. This is not only a legal requirement but is also necessary to defend yourself if you are audited.

3. Consider using a Point-of-Sale (POS) System.

   A POS System that is properly set up allows for easy reconciliation of receipts with entries in your books and records. However, you must ensure that your system’s audit trail is always activated and operational. This allows an auditor to trace any transaction back to its original source or forward to a final total.

4. Safely store and make readily accessible all records in the event of an audit.

   These include both hard copies and electronic records. If you have a POS System, you must also keep documentation describing the automated data processing.

5. Verify and retain sales tax exemption certificates.

   Before issuing or accepting exemption certificates, make certain they are complete, signed, and dated and are being used under the correct circumstances. They also must be kept in case of an audit.

6. Familiarize yourself with the sales tax laws in New York.

   Sales tax rules are complicated. If you are unsure whether and/or when you should be collecting sales tax, consult a tax professional for advice.

7. Contact a tax attorney if you are notified of an audit.

   A tax lawyer can help advocate for your best interests and either challenge the audit or negotiate a resolution of your tax problem.

Failing to pay sales tax can have serious consequences, including significant penalties and interest, seizure of your business, and other problems. By following these tips, you can help your business avoid a New York sales tax audit or ensure you are properly prepared if an audit does occur.

If you have been notified of an audit or are behind in paying your sales tax, contact us for assistance. Our tax law firm has extensive experience with sales tax matters.

For more information on New York sales tax, check out our free eBook – Your Guide to Understanding the Legal Process of New York State Sales and Use Tax.