New York sales tax audits can be challenging and stressful for many business owners. You may worry about owing extra tax, incurring penalties, or even facing legal action. Understanding how to avoid and manage a New York sales tax audit is key, especially if you want to protect your business and maintain peace of mind.
Speaking with a knowledgeable New York Sales tax attorney early in the process can help you navigate tax issues. An experienced lawyer can review your sales tax procedures, identify potential issues before they become problems, and represent your interests if you’re selected for an audit. Taking this proactive step could save you considerable time, money, and worry in the long run.
What Is a New York Sales Tax Audit?
A New York sales tax audit is a review of your business’s records by the New York State Department of Taxation and Finance. The goal of this audit is to make sure you are collecting and paying over the correct amount of sales tax. The state looks at your sales records, receipts, tax returns, and other financial statements to see if everything matches up. The state may sometimes obtain and review third-party records to confirm the correct numbers.
Sales tax audits can happen for several reasons. Sometimes, the state picks businesses at random to check. Other times, the state may have noticed a red flag or discrepancy in your tax returns. No matter the reason, it is important to know how these audits work and how to respond if you get a notice.
Why Does New York State Conduct Sales Tax Audits?
New York State collects taxes in order to fund public services and programs, such as schools, transportation, and healthcare. Since businesses serve as tax collectors for the state—collecting sales tax from customers—it is important that businesses collect, report, and pay over sales tax properly.
Here are a few of the most common reasons you might face a sales tax audit:
- Unusually Low Reported Sales: If your reported sales look much smaller than those of similar businesses, you might get flagged for an audit.
- Past Mistakes: If your business has had problems or mistakes with taxes in the past, the state may decide to conduct a follow-up audit.
- Late or Missing Returns: Failing to file returns on time is a signal that you might not be staying on top of your tax obligations.
- Frequent Adjustments: If your returns show large adjustments, refunds, or credits, this may spark additional interest from the tax authorities.
In any of these situations, an audit notice might arrive in your mailbox. Whether or not you saw it coming, the steps you take afterward are key to protecting your interests.
How Can You Avoid a New York Sales Tax Audit?
Proactive measures help reduce the risk of an audit. Keep these tips in mind:
- Maintain Detailed Records: Save invoices, receipts, and financial statements that prove your total sales, taxable sales, and the amount of tax you collect and pay.
- Use a Reliable POS System: Make sure your point-of-sale (POS) system accurately tracks all sales and taxes.
- Report All Sales Truthfully: Do not underestimate or hide sales.
- Stay Current on Tax Laws: New York’s tax laws can change, so keep yourself or your staff informed.
- Validate Exemptions: If you sell goods or services that are tax-exempt, make sure you have proper documentation to prove your exemptions.
By following these tips, you create a strong foundation that helps prevent a tax audit. Even if you do receive a notice, being organized and prepared can make the process smoother.
What Records Should You Keep to Protect Your Business?
Keeping organized financial records is one of the most important things you can do to protect yourself from a challenging audit. While every business is different, there are certain records that nearly everyone should keep:
- Sales Records: Keep copies of your sales invoices, receipts, and records from your POS system. These documents help prove your reported sales.
- Purchase Records: Save all purchase invoices and receipts. This information is important for verifying expenses or exemptions.
- Sales Tax Returns: Always keep copies of the sales tax returns you file with the state.
- Financial Statements: Have profit and loss statements, balance sheets, and general ledgers on file.
- Exemption Certificates: If you sell goods that are not subject to sales tax, make sure you maintain valid exemption certificates.
The more complete your documents are, the easier it will be to show that you paid (and collected) the correct amount of tax.
What Happens Once You Receive an Audit Notice?
If you do receive a sales tax audit notice, stay calm and follow the instructions. The notice will usually provide you with a specific date by which you must respond. It will also list what records the auditor needs to see. You will likely have a phone or in-person meeting with the auditor, depending on your case.
Remember, you have options when it comes to dealing with the auditor. You do not have to go through the process alone. Asking for help from a New York tax attorney can ease your stress and improve your chances of a fair result.
How Should You Prepare for a Sales Tax Audit?
After you get an audit notice, the very first thing to do is gather all the documents the state has requested. As you put these records together, try to keep everything neat and well-organized. Clear documentation can help control the scope of the audit, because the auditor may not need to search further if they see that your records are consistent and complete.
Once you have your records ready, look them over carefully. If you spot any errors, it can be wise to let the auditor know at the start. This honesty may help establish trust and possibly reduce penalties.
During the audit, you have the right to ask questions. You may want to confirm the timeline for the audit, how many years of documents the auditor needs, and what your rights are if you disagree with the auditor’s findings.
What Are Your Rights During a New York Sales Tax Audit?
A sales tax audit can feel intimidating, but keep in mind that you have certain rights. You have the right to:
- Professional Treatment: The state’s auditors should treat you with courtesy and respect.
- Representation: You can have someone represent you—such as a CPA or a New York tax attorney—throughout the audit.
- Appeal: If you disagree with the outcome of the audit, you have the right to appeal the decision.
Many business owners do not realize that they have these rights and may feel that they have to handle everything alone. By partnering with the right professionals and knowing your rights, you protect yourself and your business throughout the audit process.
When Should You Consult a New York Tax Attorney?
You can consult a New York tax attorney at any point during the sales tax process. For instance, a lawyer can assist you by reviewing your bookkeeping system to make sure you are collecting the correct amount of tax. Many business owners also hire a tax attorney as soon as they receive an audit notice so they do not have to guess how to answer the auditor’s requests.
In some cases, an audit can uncover what the state believes to be a serious error or even fraud. A tax attorney can explain your legal rights, negotiate on your behalf, or, if needed, fight the assessment. By consulting a New York tax lawyer early, you may resolve potential problems quickly and reduce the damage from penalties and fees.
Criminal Prosecutions for unpaid Sales Tax
In certain cases, New York State may elect to criminally prosecute the failure to timely pay over sales tax as a felony. These cases are handled by the Office of the Attorney General of the State of New York. If a case unfortunately gets to this point, you need an experienced New York Tax Attorney to assist you through the process.
What Mistakes Should You Avoid During the Audit?
During a sales tax audit, it is easy to make mistakes that can cost you money or expand the scope of the auditor’s review. One common pitfall is providing the auditor with more information than they request. While you should always give them the records they need, volunteering extra information can sometimes lead to more inquiries.
Another mistake is ignoring the deadlines in the audit notice. Failing to respond on time or asking for an extension without a valid reason can cause the auditor to make decisions that are not in your favor. Finally, never submit false documents or attempt to hide information. Doing so could lead to even bigger legal troubles.
How Can Thorgood Law Firm Help With a Sales Tax Audit?
At Thorgood Law Firm in New York, we have worked with clients on a wide range of tax issues for over 25 years. Our team understands the stress and worry that can come with a sales tax audit.
When you choose our firm, you benefit from:
- Decades of Experience: Our New York tax attorneys have handled all kinds of audits and know what strategies work best for different situations.
- Personalized Attention: We do not offer one-size-fits-all solutions. We take the time to understand your business and tailor our approach to fit your specific needs.
- Proactive Representation: If you hire us before the audit even starts, we can help you prepare your records and reduce the chance of surprise findings.
- Strong Defense: If a problem arises during the audit, we can argue on your behalf and, if necessary, challenge any unfair assessments.
We know that tax issues can hurt both your personal finances and your business. Our aim is to reduce your stress and help you find the fastest, most cost-effective resolution.
Ready To Free Yourself From IRS Problems and New York State Tax Problems?
If you are facing a New York sales tax audit or you want to avoid one altogether, you do not have to go through it alone. At Thorgood Law Firm in New York, we are here to help. Our attorneys are dedicated to bringing legal counsel to taxpayers across the US.
Let us put our decades of experience to work for you. Call us today at (212) 490-0704 or contact us online to set up a consultation with a New York tax attorney.
