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New York Sales Tax

The Business Owner’s Guide to New York Sales Tax: Penalties, Paying, and Filing

Collecting sales tax is a reality of running a business in most states. In fact, just five U.S. states don’t impose a state-wide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. 

New York does have sales and use taxes. This is a tax that consumers are charged when they buy a meal at a restaurant or purchase a new computer. The customer pays sales tax when they make a purchase, so they’re not required to report this tax on their personal tax returns. However, you, as the business making the sale, must file a sales tax return with the state to report this tax and send the payments to the state promptly.

The type of product or service will impact whether you have to charge sales tax. Understanding what’s taxable and how to comply with state tax laws is a must to run your business successfully. 

This post walks through all the ins and outs of New York sales tax and what you need to know as a business owner.

ny state taxes

What Is the Sales Tax in New York?

Your first question is probably, “How much is NY sales tax?” The cost of living in New York, especially New York City, is notoriously high, so you can expect higher sales tax than in other areas of the country.

The sales tax for New York State is 4%. This may sound low but remember that each New York county then imposes an additional sales tax that ranges from 3% to 4.5%. So, you’re looking at an average of 8% total sales tax for the state.

The five boroughs of New York City have the highest tax rate in the state at 8.875% (Bronx, Brooklyn, Manhattan, Queens, and Staten Island). This includes an added 0.375% New York City sales tax within the metropolitan commuter transportation district (MCTD). However, a few counties in New York have as low as 7% for the total sales tax.

This NY sales tax rate is applied to specific types of services delivered or products provided from vendors. The law on which products and services are subject to sales tax in New York State is complex, with many carve-outs and exceptions. It’s best to assume your sales are subject to sales tax unless you can confirm that they are exempt. The website for the NYS Department of Taxation and Finance (tax.ny.gov) has helpful information on this, but if you are not sure, it’s best to consult with a tax law firm like McLaud Law P.C.

Also keep in mind that if you are not actually transacting any taxable sales (e.g. all of your customers are tax-exempt) but you are doing business in an area of commerce that could generate taxable sales, you are still required to register for NYS sales tax and file sales tax returns.

What Is the Use Tax?

Similarly, the use tax in New York is usually the same rate as the sales tax and applies to products or services that are purchased outside New York but used within the state. For example, if you buy a product online, like a new computer, and you don’t pay sales tax on that purchase but you use the device in New York, you would owe New York use tax on that purchase.

The purpose of a use tax is to protect in-state businesses from outside competition. Without a use tax, residents of New York could buy products from other states and avoid paying sales tax, which would hinder the success of in-state businesses.

What Is Nexus in New York?

Another term to know as a business in New York is nexus. Businesses selling taxable goods or services need to collect sales tax in the state if they also have a physical or economic nexus in that state. 

A physical nexus usually means you have a business location in the state, such as an office or storefront. An economic nexus means you are bringing in an amount of revenue that meets the state’s tax requirements. 

New York businesses have a threshold of at least $500,000 in gross receipts alongside at least 100 taxable transactions to have economic nexus and thus an obligation to collect sales tax.

How to Register for a New York Sales Tax License

If you’re a business operating in New York and need to collect sales tax, you’re required to register with the NYS Department of Taxation and Finance and have a Certificate of Authority to Collect Sales Tax. This certification allows you to collect all required sales tax and accept tax exemption certificates in the state.

You are not supposed to collect any sales tax until you have this certificate and, naturally, you are not supposed to transact any sales without collecting appropriate sales tax, so obtaining a Certificate of Authority is vital. The state requires you to register at least 20 days prior to starting your business. Once you receive the document in the mail, it must be displayed continuously within your business. If you have more than one business location, you’ll need a certificate at each location.

Apply for a Certificate of Authority on the state’s website using their New York Business Express tool. You’ll need this information for your application:

  • Business details, including legal name, address, phone number, email, and employer ID
  • Reason for applying, including starting a business or adding a new location
  • Business type, such as a corporation, LLC, or sole proprietorship
  • Date you will start providing taxable products or services
  • Bank account details
  • Any license numbers related to vehicles, lottery, or liquor businesses
  • Tax preparer information, if applicable
  • Business contacts’ details, including title, name, address, social security number, duties, and ownership percentage
  • A business account created with NY.gov
  • Form DTF-17.1, Business Contact and Responsible Person Questionnaire

Navigating the registration process for a Certificate of Authority can be difficult, especially if you are not accustomed to how the NYS Department of Taxation and Finance operate. You may want to seek help from a tax professional like those at McLaud Law P.C. to help.

How to File Sales Tax in New York

The sales and use tax in New York may sound like a lot to deal with, but once you understand your obligations and set up a schedule, you can easily stay in compliance. Follow these steps closely to properly file and pay sales tax in New York State:

  1. Apply for the Certificate of Authority: Remember that you cannot collect sales tax on products or services until you are registered with the state and have received your certificate.
  2. Separate your bank accounts: It’s a good idea to keep a separate bank account that you use solely for sales tax. Any and all sales tax you collect cannot be used to cover other expenses, so it’s best to keep everything separate and have one account for all sales tax so you can pay it regularly.
  3. File your sales tax returns on time: annual filers should submit their returns by March 20th. Monthly filers should file by the 20th of the month following the month of sales. If you need to file tax returns quarterly as a vendor, here are the deadlines to know:
    1. March 1 through May 31: File by June 20
    2. June 1 through August 31: File by September 20
    3. September 1 through November 30: File by December 20
    4. December 1 through February 28: File by March 20
  4. File your sales tax return online: To file your return, use the state’s online filing service: the New York Sales Tax Web File. You just have to create an account and you can start filing your returns, making required sales tax payments, and paying any other bills. You can also set up automated alerts through this system to help you avoid missing deadlines.

On your sales tax returns, you’ll need to provide this information:

  • Total sales made in that period
  • Taxable sales made
  • Taxable business purchases made when tax wasn’t paid to the seller
  • Any credits in that period
  • Sales and use tax for each location of the business in that period
  • A list of any other applicable taxes due
  1. Keep all necessary records: businesses collecting sales tax need to be extra diligent about maintaining records. Every sale and purchase the business transacts needs to have a record. You never want to face an audit on a sales tax return and be without important receipts and documentation. 
  2. Talk to a tax expert: all of these compliance requirements are made easier when you work with a tax professional. An expert will help you understand your obligations as a business owner and help you put solid practices in place to ensure ongoing efficiency.

Work with a tax attorney who understands the specific laws New York businesses must comply with to be successful and avoid penalties.

Consequences of Failing to Pay Sales Tax in NY

Staying on top of your sales tax responsibilities is a must. Whether or not you actually collect sales tax from your customers, you’ll still be on the hook for those taxes. In other words, if you fail to collect sales tax from customers in taxable transactions, you will have to pay what you owe yourself.

Sales Tax liabilities are the most severely enforced tax problem in New York State. Remember that, unlike most taxes, the sales tax was never your money; you collect it from your customers on behalf of NYS and give it to them when you file the return (or sooner). This is why you should always be setting these funds aside, and never spending them – NYS sees that as stealing from them. This is also why the penalties and interest for sales tax liabilities are higher than other taxes.

If you don’t pay sales tax, you’ll have to contend with the consequences. These usually take the form of penalties. This brief guide reveals exactly what penalties you could face:

  • A late sales tax return within 60 days: 10% of your tax balance for month one, plus 1% for each month thereafter, not to exceed 30% of what you owe. Minimum penalty of $50.
  • A late sales tax return greater than 60 days: The greater of the above penalty, $100 or 100% of the tax on your return.
  • Failure to display your Certificate of Authority: $50.
  • Selling taxable products or services without a required certificate: Up to $500 for the first day, plus up to $200 per day thereafter, not to exceed $10,000.
  • Failure to make records available for an audit: Up to $1,000 for each applicable quarter.
  • Failure to provide records in an electronic format if elected to maintain records this way: Up to $5,000 per applicable quarter.

In addition, if you willfully fail to comply with the law, including failing to collect sales tax or failing to remit the required taxes, you could also face additional fines and potential jail time as consequences. It is unusual for a tax problem to be prosecuted criminally, but it does happen, and sales tax has the highest risk of turning criminal.

Another penalty could apply if you provide your start date on your Certificate of Authority application and don’t file an initial return for that tax period, even if your opening was delayed. The state says the minimum penalty for making this mistake is $50. 

For example, say you want to start your business on May 1, and this is the date you indicate on your certificate application. Once things get going, you may realize you can’t open until July 1, so you’re not yet selling anything or collecting taxes. If you’re a monthly or quarterly filer, you will still need to file your return by June 20th, even though you’re not sending in sales taxes yet; otherwise, you’ll be hit with the $50 penalty. You’ll just note $0 sales on the return.

Sales Tax Audits

Another potential consequence of failing to comply with sales tax is facing an audit. However, remember that not all audits indicate you’re doing something wrong. Your business could be chosen for an audit at random, even though you’re compliant.

Your sales tax return could be selected for an audit, and the most important thing in that case is to provide detailed, complete, and accurate records. To be fully compliant with the law, businesses must:

  • Register with New York State and receive a Certificate of Authority
  • Collect the right amount of sales tax from customers
  • Remit that collected tax with your sales tax return
  • Keep accurate records of all transactions, including sales and purchases
  • Maintain records of sales tax returns

The auditor will demand all documentation and records that show you followed these requirements. You may need to be able to show sales transaction receipts and sales tax collected and remitted, as necessary.

You should never face an audit alone. If you are being audited, it is important to be represented by an experienced tax resolution professional, like those at McLaud Law P.C., who can help you get the best result and minimize the risk of more trouble coming from the audit. Be careful about being represented by the same accountant who prepared the returns, as they may have a conflict of interest if their work is called into question during your audit.

Finding the Right Tax Professional for Sales Tax Obligations

Business owners must carefully comply with sales tax laws in New York to stay in good standing and avoid penalties and other negative consequences. Remember that you need a Certificate of Authority before charging sales tax, to display this certificate at your business, and to account for the state-wide tax and your county or city’s tax rate. Remit the sales tax you collect by each deadline (usually quarterly) with your sales tax return. 

This process may not sound too bad, but there are always changing tax laws and requirements. Make sure you nail down an effective tax process by working with a tax professional. 

The team at McLaud Law P.C. is experienced in guiding business clients through sales tax compliance. We will help you understand state and local laws so you can improve your recordkeeping practices and remit the right amount of tax to the state on time. 

Set up a consultation with McLaud Law today or call us at 585-397-7785 to learn more about what we can do for your business.

This communication is Attorney Advertising. It is presented for informational purposes only and does not constitute legal advice. Every legal situation is different, and prior results do not guarantee a similar outcome. This communication does not create an attorney-client relationship between McLaud Law P.C. and the recipient.