AGAIN, someone was arrested for not paying New York State sales tax.  The New York State Department of Taxation and Finance announced that the owner of two furniture stores in Rochester, NY was arrested for sales tax evasion on Thursday, February 19, 2015.  If convicted for the top charge of Grand Larceny, the maximum sentence could carry up to 15 years in jail.

Just a few weeks earlier on January 23, 2015, the New York State Department of Taxation and Finance announced that co-owners of three restaurants in the Bronx were also arrested for sales tax evasion and face up to 7 years in jail.

Sales tax evasion is a hot trend in white collar crime in New York State.  Business owners believe that if they conduct their business dealings in cash or under report their sales, their transactions will fly under the State radar.  High rates of sales tax in New York, 7% to 9% depending on the county, create temptation for businesses especially retailers that routinely engage in cash transactions to skimp on reporting their sales.

Aside from the potential for criminal liability, up to 14.5% interest is incurred for late payment of sales and use tax.  Some businesses are simply not prepared to pay the back taxes combined with exorbitant interest and penalties and therefore have no choice but to shut their doors.

According to the New York State Department of Taxation and Finance, New York State collects more than $25 billion in sales tax from their customers each year. For FY 2014, sales tax comprised 21% of total revenue received for New York State.  However, the State still loses billions in uncollected tax revenue each year.

Governor Cuomo announced on Thursday, February 19, 2015 that $14.7 million in grants will be issued to 28 district attorneys’ offices throughout the State to enhance their investigation of State tax evasion and fraud cases. Kenneth Adams, the incoming Commissioner of Taxation and Finance, fully supports the initiative and plans to work with the district attorneys to aid in prosecuting these tax crimes.

Thanks to advances in technology, the days of hiding your cash in the mattress may be coming to an end.  The State has new tools in its arsenal to detect unreported sales.  Utilizing electronic data collected from third parties such as wholesalers and distributors to compare against retailers helps the State to detect businesses under reporting on their cash sales.   The State takes averages of similar businesses and can determine sales based on inventory levels and other markers.

Mining the electronic data collected from debit and credit card purchases further aids the State in detecting retailers who fail to remit sales tax.   In New York State, every tax return filed is reviewed by its Case Identification and Selection System (CISS). By comparing the sales reported by credit card companies with those a retailer reports on State tax returns, CISS intends to create industry models to enhance fraud detection.

Rest assured, if you haven’t filed or paid your taxes, you still have a few options at your disposal.

Under New York State’s Voluntary Disclosure and Compliance Program, the State won’t impose penalties and won’t bring criminal charges against eligible taxpayers who “fess up” and pay.  If you meet the eligibility requirements, to participate, you need only inform the State about taxes owed, enter an agreement to pay what is owed and continue to pay taxes in the future.

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.

Unfortunately, overdue sales taxes are not dischargeable even in bankruptcy. The best bet is to stay compliant and pay your taxes!

Submitted by Jaime Linder on Wed, 03/04/2015