If your business is selected for a sales tax audit, the New York State Department of Taxation and Finance will try to prove that the business owes additional taxes. This process is long, and requires that the department audits have access to all of the financial records for the business to calculate any back sales taxes owed.
There are multiple reasons why your business was chosen. New York State Sales and Use Tax audits can occur for multiple reasons such as:
- You might have underpaid your taxes
- Your business is the subject of interest to the Tax Department (i.e. restaurants)
- Random Selection
No matter the reason for the sales tax audit, it is important to properly prepare with the help of a New York Tax Attorney. The business owner must give documents to the auditors that prove sales tax paid was the correct amount. Auditors will determine the amount of sales tax they believe you should have collected through examining sales records, invoices, and Z-tapes.
Keeping complete records is essential for any business owner. New York Tax Law states that every business required to collect tax must keep records of every sale so the amount of tax due can be determined. The New York State Department of Taxation and Finance requires that a business owner must maintain records of:
- Guest checks
- Cash register Z-tapes
- Original sales documents
If as a business owner you fail to maintain these records, or if the New York State Department of Taxation and Finance finds these records to be incomplete, they determine the proper amount of sales tax due as a result of a sales tax audit. The amount determined does not have to be exact and is difficult to challenge later on.
As well as auditing a business to recuperate any sales taxes owed through a sales tax audit, New York can also impose a monetary liability on individuals who are deemed to be a “responsible person.” A responsible person is one who was in charge of collecting sales tax or signed the tax returns for the business. The New York State Department of Taxation and Finance will send a questionnaire to the business to help determine who the responsible people are in the business, and it can range from a manager, the owner, an officer, or any combination of individuals. If the business is unable to pay back taxes as a result of the sales tax audit, the New York State Department of Taxation and Finance will try to collect the liability from the responsible persons they have identified.