Many taxpayers don’t realize that in their capacity as an officer, director or employee of a corporation, or employee or manager of a partnership or LLC, certain liability may arise related to the payment of New York sales taxes. This means that if a taxpayer possesses a duty to act on behalf of the business entity, and such duty includes compliance with the payment of sales taxes, they may be held personally liable for a failure to pay sales tax collected or required to be collected by the business enterprise.
If a business conducts sales of property or services that are subject to sales tax, it must register for sales tax purposes and obtain a Certificate of Authority. Relating to New York sales tax, businesses have several obligations, including:
- registering for sales tax purposes and displaying a Certificate of Authority (to collect sales tax);
- collecting the proper amount of sales tax from customers;
- issuing and accepting properly-completed sales tax exemption certificates;
- maintaining records of sales and purchases in an orderly and adequate manner;
- filing sales tax returns and remitting any sales tax due in a timely manner as a trustee for the state;
- assuming personal liability for the payment of sales tax by certain responsible persons of a business; and
- providing notice to the department twenty (20) days prior to purchasing or acquiring business assets from a sales tax vendor, other than in the ordinary course of business.
Once a business is registered for sales tax purposes, it is responsible for collecting and remitting both state and local sales taxes to the tax department, along with any use taxes which are due. As a registered sales tax vendor, business entities become trustees for the State of New York and must timely file sales and use tax returns. Such entities must remit any tax due, including any tax that has not yet been collected from purchasers on sales occurring during the filing period.
An enterprise’s sales and use tax return must be filed in a timely fashion even though no sales tax may be due during the filing period. Sales tax returns are generally due no later than twenty (20) days after the applicable tax period has ended. Failure to file a sales tax return on time will result in penalties and interest on the amount of tax due.
If a business is an entity such as a corporation or a partnership, the responsibility for collecting and remitting sales tax extends to the responsible persons of the business. Therefore, certain owners, officers, directors, employees, partners or members (responsible persons) of a business may be held personally liable for the sales tax owed by a business. As trustees for the state, a business and its responsible persons must remit any sales tax that is due with timely filed sales tax returns.
More than one person may be treated as a responsible person, who is jointly and severally liable for the sales tax owed, along with the business entity and any of the business’s other responsible persons. Whether such officer or employee is a responsible person is to be determined on a case-by-case basis examining the particular facts in each case. Generally, a person who is authorized to sign a corporation’s tax returns, or responsible for maintaining the corporate books, or responsible for the corporation’s management, is under a duty to act in this situation.
Personal liability attaches regardless of whether or not the sales tax was, in fact, collected. Also, personal liability applies despite the fact that the individual’s failure to collect and/or remit the sales tax was unintentional. Any penalties and interest on the unpaid sales tax also passes through to the responsible person.
All sales of property are considered taxable until proven otherwise. The burden of proving that a sale is not taxable rests upon the seller and the buyer. Parties to sale transactions must maintain records sufficient to verify all sales tax-related aspects of the transaction. This includes gross sales, taxable sales, purchases subject to sales or use tax, sales and use taxes due for the specific jurisdiction where the items or services were delivered to customers, additional special taxes due, and other pertinent information.
Recently, New York State officials have resorted to treating the failure to remit collected sales tax as felonious larceny. The business and its owners are thus prosecuted by the State’s Attorney General Office.
If you are a business owner in the New York or the Tri-State area and are facing a sales tax audit or have any questions about New York State sales taxes or any other tax-related issue, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
