The New York State Department of Taxation and Finance will conduct sales tax audits in order to verify that business owners paid the correct tax. If audited, business owners will be required to provide records and verify all information filed on the return. The Department of Taxation and Finance may require documents to prove income, sales tax, and receipts.
New York State provides a three-year statute of limitation on most sales tax audits, and the Tax Department may not audit outside with window without written consent from the business owner. However, the three year civil statute of limitations does not apply to years in which a taxpayer failed to file a tax return, or filed a fraudulent tax return in order to evade taxes (i.e., criminal matters).
If you are registered for New York State’s sale tax, you are considered a trustee of the New York State tax system and have a legal responsibility to collect the proper amount of sales tax from your customers. The tax collected from customers must be submitted to New York State with the sales tax return on its due date.
Accurate and complete record keeping is essential to the proper preparation of the sales tax return. Records must be detailed enough to determine taxable status of each sale, the amount of tax due, as well as the amount of tax collected. You must keep all records for a minimum of three years from the due date of the return. However, it may be helpful to keep records for a longer amount of time, especially if the records were subject to an audit. It is easy to run afoul of these rules, and that’s where the trouble starts.
Records that you keep should include sales records, purchase records, and Point-of-Sale (POS) system records and Z-tapes. Purchase records and POS system sales records are important for preparation of tax returns and should be kept for accuracy and for the minimum three years. For Sales records, you need records of every sale (in detail), sale amount, and sales tax charged and collected. For a sales tax audit, this will be heavily reviewed. In order to preemptively be prepared, you should keep a detailed record of:
- Sales slips, invoices, receipts, statements or other memorandum of sale
- Guest check, receipt from admissions, receipts from dues
- Cash register tape and any other original sales documents
- Z-Tapes
If your business sells both taxable and nontaxable goods or services, your records must identify which items are subject to sales tax and which are not. This should be located on the invoice or receipt.
If you face a sales tax audit, you must provide the auditor will all records that are deemed necessary to verify the information provided on your return. The information filed on your return must match the records that you keep. When auditing, the Tax department could find records to be inadequate. This might occur if:
- Sales receipts cannot be verified
- Cannot verify if receipts are subject to sales tax
- There is no detailed information of individual transactions such as summary reports, a daily summary or insufficient Z tapes
- Taxable status of purchases are not verified
- You do not provide records to the auditor
- It’s impossible to conduct an audit with your records
- Business purchases do not correlate to business sales
In New York State, you can be subject to sales tax penalties if you do not:
- Register to collect taxes
- File sales tax returns
- File sales tax returns on time
- Collect the correct amount of tax due
- Keep adequate records
If records for a business are considered to be inadequate, the Tax Department will take action and estimate the amounts. The business owner may face additional taxes due, as well as penalties and interest. There is also the possibility of criminal penalties if it is believed that proper records were willfully failed to maintain. We can help when the records are poor, so feel free to contact to discuss your case.
