Let a Professional Handle Your Company’s New York Sales Tax Audit

The New York Department of Taxation and Finance (NYDTF) is the government agency responsible for verifying your company’s payment of business taxes, including the New York sales and use tax. In some cases, this verification is done through a sale and use tax audit. An audit is an intrusive, yet common NYDTF practice that consumes your time and almost always ends with a Notice of Determination for further assessment against your business.

The nature of a New York sales tax audit can make it a huge financial and administrative burden for businesses. Our team of sales tax professionals serve as a line of defense to help companies during all phases of the audit process and beyond. New York taxpayers have a right to representation during sales tax audits and appeals of unfair tax assessments. Learn more about the New York audit process below and why hiring a professional could be to your advantage.

To schedule a free consultation with our New York tax audit consultants, call (866) 458-7966 or send us a message.

What Our Sales Tax Professionals Could Do for Your New York Audit Defense

A tax auditor’s findings can lead to gross overassessment and overpayment of tax simply because the business owner or their CPA and bookkeeper weren’t aware of how the rules apply to their situation. Our NY sales tax professionals look to save businesses time and money through management of their New York audit defense. As part of that management, we help with the following:

• Review of your records and business practices to provide an objective analysis of your potential New York sales and use tax exposure.
• Act as a buffer and handle communications with the New York sales tax auditor on your behalf.
• Screen record requests from the auditor for appropriateness and risk to your business. We don’t blindly just turn over everything the auditor requests, but rather our team strives to balance what the New York auditor is entitled to without increasing the assessment
• Correct the auditor on miscalculations or misapplication of sales tax regulations in New York.
• Ensure records are not provided to show tax collected but not remitted, which can lead to criminal charges
• Check field audit testing and sampling methods for fairness to your business.
• Review your Statement of Proposed Audit Changes for inaccuracies and flaws.
• Protest results with the auditor and NYDTF to attempt resolution before pursuing more formal appeal options.

How Did My Business Get Chosen for a New York Sales and Use Tax Audit?

Aside from computer-generated, random selection, the NYDTF has access to a variety of third-party data that it uses to identify businesses suspected of underreporting sales tax in New York. For example:

• Federal income tax returns
• Data from credit card companies and other payment platforms (1099-k’s)
• Data from other NY government agencies like the DMV
• Beer and cigarette purchases, which allows NYDTF to estimate sales in applicable industries
• Information received from other audited businesses that you have a shared transaction history with (e.g., your suppliers, customers, and other related parties)
• Data from past sales and use tax reporting of your business and other companies in your industry that provide benchmarks of taxable sales

This data gives the NYDTF estimates and assumptions about what your New York sales tax liability might be. However, the data doesn’t always tell the full story of your taxable sales or purchases. This is where our professionals step in to correct the auditor, give proper context, and defend your tax position.

Call (866) 458-7966 to schedule a free consultation with a New York sales tax audit consultant or send us a message.

What Types of Business Have the Greatest Risk of a New York Sales Tax Audit?

The other consequence of the NYDTF’s reliance on third-party data is the reality that certain businesses and industries are more susceptible to an audit than others. We regularly get calls from clients in the following industries to help with their audit defense:

• Restaurants and bars
• Gas stations and convenience stores
• Car dealerships and automotive stores
• Construction-related businesses and real property contractors
• Aircraft, boat, and art dealers and purchasers

The New York Sales Tax Audit Process from Start to Finish

A New York sales tax audit can take anywhere from a few weeks to over a year to complete depending on the scope and type of audit (i.e., a desk audit versus a more intrusive field audit). The NYDTF can audit 3years of business activity from when you file the sales and use tax (SUT) return. For businesses that never filed a New York SUT return, the scope of your audit can be even greater, possibly going back to the inception of your business. We detail each step of the audit process below

1. Notice from the NYDTF and a Meeting Request to Create an Audit Plan

A New York sales tax audit begins with a notice from the New York Department of Tax & Finance. The letter will over inclusively request every financial document that you can imagine. While the records are requested, many are not required. It is critical to have a sales tax attorney, CPA, or other professional on your team to determine what to provide and what not to. From there, an initial meeting is set to discuss the nature of the business and develop and audit plan. Documents are provided and reviewed by the NY auditor or documents are not provided and the NYDTF estimates your sales tax assessment using various testing and statistical sampling methodologies.

2. Audit Examination

After an audit plan is developed, the NYDTF auditor will perform an examination by comparing the taxpayer’s books and records to the items reported on the New York sales tax return. In cases where the NYDTF auditor believes it has insufficient records to make a proper assessment, the auditor will make an estimate of your taxable sales and purchases using various testing and statistical sampling methodologies.

Upon completion of the examination, the NYDTF sales tax auditor will issue a report detailing any sales and use tax adjustments. It is important to know that you have the right to have a sales tax consultant, sales tax attorney, or other sales tax professional represent you during your audit by completing a power of attorney form.

2.1 Examining Your Sales During a New York Sales and Use Tax Audit

Unlike a federal tax audit, a New York sales tax audit is a tedious and exhausting process, to say the least. The New York sales tax auditor’s goal is to find your business’s skeletons in the closet. There will be disagreements with the auditor as to whether they are entitled to documentation or not, whether certain transactions are taxable, where the audit takes place, and how long the auditor has at that location to do the audit.

While many business owners, sales tax attorneys, and CPAs believe that the NYDTF can do as they please and push your business around, they cannot. A competent and experienced sales tax professional knows when and how to push back and when to tell the state no. During a sales tax audit, the auditor will request a wide range of documents. It is critical to have a New York sales tax professional on your team to determine which documents the auditor is entitled to and which they are not.

For example, the auditor will first determine whether all sales or gross sales were reported on your sales tax return. Often, the auditor will compare your sales tax return to a control document like bank statements or your federal tax return. This will allow them to make sure all sales were reported. The tax auditor will also make sure you can provide proof on your exempt sales. In general, the auditor can review the last 3-4 years during the tax audit.

2.2 Examining Your Purchases During a New York Sales and Use Tax Audit

Most people are surprised to learn that a New York sales and use tax audit will include an examination of your business’s purchases as well. On the use tax side, the auditor generally checks to make sure you properly paid tax on items used or consumed by the business. Despite publications and tax lawyers’ advice to the contrary, if a business buys an item online without paying New York sales tax, the business has an obligation to remit use tax. Along with untaxed purchases of equipment, this can result in shocking results for the unsuspecting taxpayer.

3. Post Audit and Exit Conference Process

Upon completion of the examination, the NYDTF sales tax auditor will issue a Statement of Proposed Audit Change detailing any sales and use tax adjustments. The auditor may hold an exit conference to review the audit report with you and your representative. This conference is an opportunity to address initial concerns with the audit report by providing supplemental documentation or explaining problems with the auditor’s methods.

Next, the NYDTF will issue a Notice of Determination that states any deficiency in tax you may owe, which could include attached penalties or interest for late payment.

Taxpayers can protest the notice, but you must do so within the timeframe stated on your notice, often 90 days in New York. After filing, the NYDTF will review and either:

• Withdraw the assessment,
• Request additional information, or
• Schedule for an informal conference.

If you do not agree with NYDTF’s subsequent decision, you can further file for reconsideration with the agency or appeal the tax assessment or administrative court. While not required, it is often advisable to have an attorney handle your case in administrative court.

Call (866) 458-7966 to schedule a free consultation or send us a message.

Understanding Your Rights During a New York Sales Tax Audit

When facing a New York sales tax audit, it's important to understand your rights as a business owner. The audit process can be complex and overwhelming, but having a knowledgeable and experienced sales tax attorney on your side can make a significant difference in the outcome of the audit.

Here are some of the rights you have during a New York sales tax audit:

• The right to be represented by a qualified sales tax attorney
• The right to appeal any decisions made by the New York Department of Taxation and Finance
• The right to request a postponement of the audit if you need more time to gather documentation
• The right to confidentiality of your business records and information

Our team of sales tax professionals at Sales Tax Helper LLC is dedicated to protecting your rights and providing a strong defense during a New York sales tax audit. Contact us today to learn more about how we can help you navigate the audit process and protect your business.

When Should I Call a New York Sales Tax Professional for Audit Defense?

Meeting with a sales tax professional at some point during an audit is key for obtaining an objective opinion on your sales tax exposure. At the very least, we tell you when the NYDTF’s assessment is fair, so you don’t waste time and money challenging issues that are unlikely to succeed.

In many cases, though, we find problems with the audit that could lead to a sales tax refund or decreased tax liability. Businesses worried about their ability to pay their sales tax liability can also meet with us for guidance on available options. If any of the following apply to your business, we especially recommend scheduling a consultation with our office about audit defense:

• You have never filed a New York sale and use tax return.
• You are unsure of your New York sale and use tax exposure.
• You are concerned about criminal liability for collecting but not remitting New York sales and use tax.
• You lack the business records necessary to defend your sales tax position.
• You are an online retailer located in another state and lack familiarity with New York’s sales tax rules.
• Your business operates in multiple states, potentially making only a portion of transactions subject to sale and use tax.
• Your business purchases property in other states but consumes them in New York, creating potential use tax exposure.
• The auditor wants to make a physical visit to your place of business.
• The auditor wants to conduct a field audit that incorporates one or more testing or sampling methods.

Schedule a free consultation, or call (866) 458-7966 or send us a message.