It is very easy for businesses to sell goods and services online to anyone anywhere.
Unfortunately many companies don’t realize that they could be obligated to collect and remit sales tax to one or more states. Failing to collect and/or remit sales tax can lead to serious consequences. The New York State Department of Taxation and Finance has been aggressively enforcing tax laws, including pursuing criminal prosecution. Last year, $14.7 million in grants was issued to 28 district attorneys’ offices throughout the State to enhance their investigation of State tax evasion and fraud cases. The State has also added to its arsenal by using various technology tools to identify retailers who fail to remit sales tax.
To avoid tax problems, online retailers must know the rules:
- Determine whether you have to collect New York State sales tax
E-commerce sellers are generally required to collect sales tax on taxable sales in states where they have physical presence significant enough to have established “nexus.” Businesses can qualify as New York sales tax vendors even if they are out-of-state sellers (remote affiliates) of taxable items that are affiliated with businesses in New York. For example, Amazon.com has offices in New York State thereby establishing nexus in New York State and creating a sales tax obligation for Amazon and many sellers who utilize Amazon’s Seller Central and Fulfillment by Amazon (FBA) platforms.
For more detailed guidance on nexus and the definition of vendor under New York State law, consult New York State Department of Taxation and Finance, Publication 750: A Guide to Sales Tax in New York State.
- Register for a sales tax permit in New York State before making any taxable sales
Before legally making any taxable sales in New York, a vendor must apply for and receive a Certificate of Authority from the New York State Tax Department. Vendors can apply online by visiting the NYS License Center. Generally, the vendor must register with the Tax Department in New York at least twenty days before conducting business in the State.
- Use the right sales tax rate
New York is a destination-based state and point of delivery generally determines the applicable sales tax rate. In computing the sales tax due, the rate to be charged is the total of the New York State tax rate in effect in the jurisdiction where the delivery occurs, plus the local rate in effect in that jurisdiction, plus the school/transportation/district rate if applicable. There is no requirement to collect sales tax on certain exempt purchases or from a purchaser who provides a properly completed exemption certificate within 90 days of the sale.
- File on time and online
Vendors are typically classified as a quarterly filer unless certain limited conditions for monthly or annual filing are met. Sales tax returns and payment are due on or before the 20th of the month following the reporting period. All sales tax filing and payment remittance must be made online at the New York Department of Taxation and Finance website. Remember no-filers and late payments face stiff penalties.
- Keep detailed records
Vendors are required to keep detailed records of all sales for a minimum of three years from the due date of the return or the date the return is filed, whichever is later. The State may impose significant penalties for insufficient records.
- Avoid penalties
The consequences for sales tax evasion are severe. I Interest as high as 14.5 percent and penalties may be imposed. The vendor could have its Certificate of Authority revoked or face criminal prosecution. In some cases, certain owners, officers, directors, employees, partners or members (responsible persons) of a business can be held personally liable for the tax the business owes. The State may pursue collection and use any combination of enforcement methods such as warrants, levies, income execution and seizures to collect what is owed.
New York State does offer a silver lining in the form of the Voluntary Disclosure and Compliance Program. The State will not impose penalties or bring criminal charges against eligible taxpayers with a history of noncompliance who come forward and pay their outstanding tax liabilities. As an added incentive, qualified taxpayers are also eligible for a limited look-back period.
If you filed a return, but didn’t pay in full, you may be eligible to set up an Installment Payment Agreement to pay your bill over time or to submit an Offer in Compromise whereby the State will consider reducing your bill to something more affordable.
If you owe sales tax to New York, contact us for help.