If you fall behind on your New York State sales tax payments, your bill can quickly become a big problem. Sales tax is a trust fund tax, meaning the money isn’t your business’s and should have passed through your account to New York State. Once a balance becomes past due, the New York State (NYS) Department of Taxation and Finance (DTF) can hit you with heavy penalties, accruing interest, tax warrants, license revocations, and personal liability.
This situation is fixable if you’re proactive and act quickly to file missing sales tax returns and create a plan to pay unpaid sales taxes. Whether you’re behind a few months or several years, now’s the time to act. Call the Law Offices of Stephen B. Kass at 212-843-0050 today.
Key Takeaways
- Consequences of unpaid sales taxes – You potentially face penalties, tax warrants, liens, personal liability, and loss of your business license.
- File no matter what – Filing sales tax returns is recommended even if you can’t pay in full.
- Unpaid sales tax debts grow quickly – Interest and penalties can quickly increase your unpaid tax balance.
- Get professional help – A tax pro can help limit liability by reducing penalties and protecting assets.
You Haven’t Been Paying NY Sales Tax – Now What?
If you’ve found yourself with a New York sales tax problem, you’ve likely fallen behind on collecting sales tax, filing your sales tax returns, or remitting sales tax to the New York State DTF. This happens more often than you might think, as a business could face cash flow problems, have trouble filing sales tax returns due to staff shortages, or lose the records needed to file accurate returns.
Regardless of what causes you to fall behind, know that New York takes it very seriously. Sales tax is in a completely different category from income tax because sales taxes are a type of trust fund tax. The business collects a trust fund tax on behalf of the state, so the money collected isn’t the business’s. Instead, it belongs to the state, and therefore, the DTF views unpaid sales taxes as a misuse of state funds.
This means unpaid sales taxes could result in severe penalties and even personal liability. The longer you wait to address this problem, the higher your debt climbs and the greater your risk of aggressive enforcement.
The Consequences of Ignoring Unpaid Sales Tax
New York has broad enforcement powers when it comes to unpaid sales tax. Ignoring their notices or letting your debt build up can leave you in a grave financial position.
New York State penalties can reach 30% of the amount you owe if you file late or don’t file at all. The failure-to-file/late filing penalty starts at 10% of the tax due for the first month, plus an additional 1% for each month or partial month that the balance goes unpaid.
If a business ignores repeated notices and reminders from the Department of Taxation and Finance, the DTF may take more aggressive steps to force payment. They can issue tax warrants – also known as tax liens – that lay claim to your business’s assets. They can also levy the business’s bank accounts, garnish accounts receivable, and lock business assets.
Continued refusal to comply may also result in the loss of your Certificate of Authority, which means you can no longer make taxable sales in the state.
Perhaps the worst outcome of unpaid sales tax debt is personal liability. The Consolidated Laws of New York allow the DTF to identify a responsible party in a business and hold them personally liable for the unpaid sales tax. This puts your personal income, bank accounts, real estate, and other assets at risk of seizure.
Filing a Sales Tax Return Even If You Can’t Pay
This is a common mistake that many New York businesses make. Even if you can’t pay in full right away, you should still file a sales tax return on time. This shows a good faith effort to comply, and it ensures that you’re only billed for what you actually owe, not what the DTF estimates on your behalf.
When your returns are filed, you’re then eligible to look into relief options like payment plans. If you’re behind and you don’t know how to reconstruct accurate returns, working with a tax attorney makes reconstructing and filing accurate returns much easier.
What Happens After You File
After you submit your sales tax returns, the NYS Department of Taxation and Finance will process your returns, calculate all applicable penalties and interest, and send you a Notice of Determination. If you don’t respond with payment in full or efforts to address the tax debt in other ways, the DTF begins collection actions.
Calculating Your Sales Tax Debt
It’s always better to calculate your own sales tax debt instead of letting the DTF estimate it for you, as their estimates tend to be significantly higher. By gathering your sales reports, receipts, and POS data, you can reconstruct how much sales tax you collected (or should’ve collected) and what you still owe the Department. If you’re overwhelmed by your financial records and receipts, bring in a tax professional to streamline the process.
Options to Pay or Settle NY Sales Tax Debt
There are several options available to you after you’ve caught up on all of your sales tax returns. Payment in full is obviously the best path forward, as it prevents aggressive collection actions, stops interest and penalties from continuing to accrue, and gets you completely caught up in one step.
If paying in full isn’t an option, consider an installment payment agreement. This allows you to spread payments out over up to 36 months. If you owe more than $20,000 or need more than 36 months to catch up, you may need to work directly with the DTF to negotiate a personalized plan.
Penalty abatement is available at the state level; the DTF allows tax attorneys to request penalty relief for their clients online. Discuss with your tax professional if you have reasonable cause for penalty relief. This alone can decrease your tax bill by a significant amount.
The DTF has an offer in compromise program, but be aware that because sales tax is a trust fund tax, it’s difficult to get an offer in compromise approved, but we have been doing lots of of these and knows the rules and how to best settle with NYS. The Department considers each offer and determines whether or not it’s in the state’s best interest. Because this is a rare solution for sales tax debt, it is highly recommended that you work with a tax professional on your application.
When Voluntary Disclosure Can Help
If the Department of Taxation and Finance hasn’t yet contacted you about your unpaid sales tax matter, the Voluntary Disclosure Program could save you money and help you become compliant more quickly. The program essentially requires you to “come clean” about how much you owe by reporting your past-due taxes, entering an agreement to pay what you owe, and agreeing to pay on time in the future.
In return, taxpayers get their penalties waived and get to avoid criminal prosecution if their non-payment would have been a criminal offense. Taking advantage of this program gives you a break on your penalties and the ability to wipe the slate clean moving forward.
Why Work with a Tax Attorney
When you retain a tax attorney, they can help you decide whether or not you qualify for the Voluntary Disclosure Program and guide you through the application process. If that isn’t the best option for you, they can negotiate payment plans, penalty reductions, and offers in compromise on your behalf. By communicating with the DTF for you, they can also help prevent enforced collection actions and protect your assets.
If you’ve fallen behind on your sales tax payments, you aren’t alone. Delaying only increases the risk of a negative outcome, but at the Law Offices of Stephen B. Kass, we can help you catch up, as well as help you resolve any other tax matter with the IRS or NYS Department of Taxation and Finance. Call us at 212-843-0050 or send us a message online to discuss your options.
Frequently Asked Questions
Can I go to jail for not paying New York sales tax?
In some cases, failing to pay sales tax is a crime. These cases generally involve willful non-remittance, fraud, and repeated failure to file. However, most unpaid sales tax cases remain civil in nature.
How far back can NY go for unfiled sales tax returns?
Generally, the state can go back as far as it wants if the return was never filed. Once a return is filed and a liability is assessed, the state has 20 years to collect tax liabilities.
Can NY revoke my Certificate of Authority?
Yes. This effectively shuts your business down.
What is the Voluntary Disclosure Agreement, and who qualifies?
This provides penalty relief, protection from criminal charges, and potentially a limited lookback period to taxpayers who haven’t paid sales taxes in years and are ready to come clean. But if the DTF has already contacted you about your tax debt, you don’t qualify.
Resources:
https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/sales_and_use_tax_penalties.htm
https://www.tax.ny.gov/bus/st/stidx.htm
https://www.nysenate.gov/legislation/laws/TAX/A28P4
https://www.tax.ny.gov/enforcement/collections/oic.htm
https://www.tax.ny.gov/pay/ipa/req-ipa.htm
https://www.tax.ny.gov/pay/ipa/
https://law.justia.com/codes/new-york/tax/article-41/part-1/3008/
https://www.tax.ny.gov/enforcement/vold/program-info.htm
https://www.tax.ny.gov/pdf/publications/general/pub200.pdf
https://www.tax.ny.gov/enforcement/vold/lookback.htm
https://www.tax.ny.gov/pdf/memos/multitax/m11_10c_10i_11m_3mctmt_4r_15s.pdf
