New York Sales Tax Audit Defense

Let a Professional Handle Your Company’s 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. Sometimes, this verification is done through a sales 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 substantial financial and administrative burden for businesses. Our team of sales tax professionals serves 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 sales tax audit attorney in New York could benefit you.

Understanding a sales tax audit's financial and operational impact is crucial for any New York business. These audits can lead to unforeseen expenses, disrupt standard business operations, and strain your financial resources. Businesses can minimize these disruptions by engaging a sales tax audit attorney in New York. Professionals can thoroughly review current compliance processes and make recommendations to strengthen future audit defenses. 

Have questions about your New York tax obligations? Call Sales Tax Helper LLC today at (866) 458-7966 or contact us online to discuss your case!

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 by managing their New York audit defense. As part of that management, we help with the following:

• Review Your Records: We will review your records and business practices to objectively analyze your potential New York sales and use tax exposure.
• Handle Communications: Act as a buffer and handle communications with the New York sales tax auditor on your behalf.
• Screen Record Requests: 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 Miscalculations: Correct the auditor on miscalculations or misapplication of sales tax regulations in New York.
• Protect Against Criminal Charges: Ensure records are not provided to show tax collected but not remitted, which can lead to criminal charges.
• Check Fairness: Check field audit testing and sampling methods for fairness to your business.
• Review Statements: Review your Statement of Proposed Audit Changes for inaccuracies and flaws.
• Protest Results: Protest results with the auditor and NYDTF to attempt resolution before pursuing more formal appeal options.

Our professionals also provide ongoing support and can offer regular updates about your audit status. This proactive approach ensures that potential issues are addressed promptly, reducing the chance of further complications.

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

Aside from computer-generated, random selection, the NYDTF has access to various third-party data 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-Ks)
• Data from other NY government agencies like the DMV
• Beer and cigarette purchases, which allow NYDTF to estimate sales in applicable industries
• Information received from other audited businesses that you have a shared transaction history (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 your New York sales tax liability. However, the data doesn’t always tell the whole 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 during the audit.

Additionally, specific audit indicators make businesses more susceptible to selection. If a company shows unusual fluctuations in reported sales figures, consistently high sales exemptions, or discrepancies between state reporting and federal tax data, it could be flagged for auditing. Recognizing these triggers can enable business owners to take preemptive actions to correctly align their documentation and processes before an audit is announced.

Understanding New York Sales Tax Laws & Regulations

New York's sales tax laws are intricate and subject to frequent updates. Businesses operating in the state must comply with state and local sales tax regulations, which can differ significantly. For instance, the base state sales tax rate is 4%, but local municipalities can levy additional sales taxes on top of this rate. Therefore, businesses must ascertain the total sales tax rate applicable to their transactions, considering the location of their sales activity.

Staying updated on changes in sales tax law is crucial for maintaining compliance. Sales tax laws can change annually based on legislative updates. Subscribe to New York Department of Taxation and Finance updates or work with a sales tax audit attorney who stays current on all legislative shifts. This helps businesses comply with current laws, plan for taxes due, and prevent unforeseen liabilities.

Tips for Sales Tax Audit Preparation

Proactively preparing for a sales tax audit can significantly ease the process. The first step is maintaining precise and organized records. Businesses should ensure all sales, exemptions, and receipts are accurately documented. Digitizing these records via secure online platforms can simplify retrieval during an audit and safeguard them against loss or damage.

It is also recommended that businesses set up regular internal audits. These audits help businesses identify potential discrepancies before the New York Department of Taxation and Finance conducts its review. Additionally, training staff on sales tax procedures and compliance is vital, ensuring all team members understand the importance of accurate reporting and documentation. Lastly, consider consulting with sales tax professionals who can provide insights specific to your industry and geographical area to fortify your audit readiness strategy further.

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

Another consequence of the NYDTF’s reliance on third-party data is 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

These businesses often deal with high-volume transactions and cash flows that are sometimes inadequately documented or reported, making them easy targets for audits. Understanding the typical concerns these sectors face during audits, such as misclassifying goods or underreported cash sales, is crucial. Our role is to assist these businesses in implementing more robust reporting mechanisms to avoid potential pitfalls during an audit.

Need help resolving your sales tax issues? Contact a trusted New York sales tax attorney now for personalized guidance.

The New York Sales Tax Audit Process from Start to Finish

A New York sales tax audit can take 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 3 years 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 more significant, possibly going back to the inception of your business. We detail each step of the audit process below:

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

A New York sales tax audit begins with a New York Department of Tax & Finance notice. The letter will include over-inclusive requests for every financial document you can imagine. While the records are requested, many are not required. Having a sales tax audit attorney, CPA, or other professional on your team is critical to determining what to provide and what not to do. From there, an initial meeting is set to discuss the nature of the business and develop an 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.

Handling these early stages meticulously is vital. Proper preparation and understanding of required documentation can prevent unnecessary complications later. Maintaining an open line of communication with the auditor is crucial to ensuring that all proceedings are clear and transparent during the audit.

2. Audit Examination

After an audit plan is developed, the NYDTF auditor will examine 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 estimate 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. You must know that you have the right to have a sales tax consultant, sales tax audit lawyer, or other sales tax professional represent you during your audit by completing a power of attorney form.

Understanding the methodologies auditors use can empower businesses to challenge unjust estimates effectively. Testing and sampling techniques may not always accurately reflect the nature of transactions. Thus, engaging a knowledgeable representative ensures that the methodologies are scrutinized and, if necessary, contested for accuracy.

2.1 Examining Your Sales During a New York Sales & 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 aims to find your business’s skeletons in the closet. There will be disagreements with the auditor as to whether they are entitled to documentation, whether certain transactions are taxable, where the audit takes place, and how long the auditor has to do the audit at that location.

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 various documents. Having a New York sales tax professional on your team is critical 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 are reported. The tax auditor will also ensure you can prove your exempt sales. Generally, the auditor can review the last 3-4 years during the tax audit.

Educating business staff involved in sales reporting about the details and implications of exemptions and taxable transactions can lead to better record-keeping and fewer discrepancies. This internal training helps ensure that when the auditor reviews the documentation, it reflects accurately reported sales and minimizes discrepancies that can lead to further probing.

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

Most people are surprised to learn that a New York sales and use tax audit will also examine the business’s purchases. On the use tax side, the auditor generally checks to ensure you adequately paid tax on items used or consumed by the business. Despite publications and tax lawyers’ advice, if a business buys an item online without paying New York sales tax, the business must remit use tax. Along with untaxed equipment purchases, this can result in shocking findings for the unsuspecting taxpayer.

Thorough preparation can mitigate the risks of auditing surprises. One practical approach is conducting an internal audit to verify that all taxable purchases made by the business are accounted for. This practice ensures compliance and identifies areas where inaccuracies could result in significant financial liabilities when audited.

3. Post Audit & 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 tax deficiency you may owe. This could include 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 an informal conference.

If you disagree with the NYDTF’s subsequent decision, you can further file for reconsideration with the agency or appeal the tax assessment or administrative court. While not required, having a sales tax audit appeal attorney handle your case in administrative court is often advisable.

Understanding the appeal process is crucial for businesses facing substantial deductions or penalties. Being aware of procedural timelines and evidence submission requirements can help businesses contest unfavorable audit findings. Additionally, businesses should familiarize themselves with common reasons appeals are approved or denied so they can tailor their arguments accordingly.

Understanding Your Rights During a New York Sales Tax Audit

When facing a New York sales tax audit, it's essential 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 significantly affect the audit's outcome.

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 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 in another state and unfamiliar 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 it 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.

Frequently Asked Questions about New York Sales Tax Audits

What Should I Do If I Receive a Notice of a Sales Tax Audit?

Receiving a notice of a sales tax audit can be daunting, but taking proactive steps can mitigate stress. First, reviewing the notice carefully to grasp its scope and deadlines is crucial. Next, assembling your records is vital. Ensure that your sales documents, exemption certificates, and receipts are well-organized. Accurate records can prevent overestimations of tax liability. Consulting a sales tax professional early in the process ensures you receive guidance tailored to your specific situation and prevents costly errors from misinterpreting tax requirements.

How Can I Ensure Compliance with New York Sales Tax Regulations?

Ensuring compliance with New York's sales tax regulations involves a multifaceted approach. Begin by understanding the differences between state and local tax rates and how they apply to your sales. Regular training sessions for staff responsible for sales tax collection can enhance compliance. Additionally, digital solutions can simplify sales tax calculations and reporting processes. Engage with sales tax consultants who can offer insights into frequent compliance failures and strategies to avoid them, ensuring your business always remains on the right side of regulations. 

What Happens If Discrepancies Are Found During an Audit?

If discrepancies are identified during a sales tax audit, you will typically receive a Statement of Audit Findings outlining the issues. It is essential to address these discrepancies quickly by clarifying misunderstandings through documentation or negotiating a resolution plan with the NYDTF. Sometimes, it might involve making back payments or entering into a payment plan if significant liabilities are identified. A structured approach through a qualified sales tax audit attorney will help you understand your options and possibly mitigate penalties or interest on past dues.

Why Is it Important to Work with a Sales Tax Professional?

Working with a sales tax professional is beneficial because these experts have a nuanced understanding of New York's tax regulations and audit procedures. They can help bridge gaps in compliance and prepare you for audits by reviewing your records proactively. Moreover, professionals handle negotiations and communications with auditors, reducing the risk of missteps that could lead to more significant financial liabilities. They also provide peace of mind by ensuring that your business adheres to evolving tax laws and efficiently manages any disputes that arise from audits.

Can I Appeal a Sales Tax Audit Decision?

Yes, if you disagree with the findings of a sales tax audit, you have the right to appeal. The appeal must be filed within a specific period, usually 90 days from receiving the Notice of Determination in New York. During the appeal process, you must provide sufficient evidence to support your claims against overstated liabilities or incorrect interpretations of your sales transactions. Sales tax audit appeal lawyers can guide you throughout the appeal process, helping you build a robust case and improve the potential for a favorable outcome.

Connect with a skilled New York sales tax lawyer for the support you need!