If you missed the April 18th deadline for filing your New York State tax return, you could face serious penalties. Even if your case is not as egregious as the latest politician to be arrested for tax evasion, nonfilers are subject to monetary penalties and possible criminal charges. However, New York offers a way to become compliant by applying to the NYS Department of Taxation and Finance’s Voluntary Disclosure and Compliance Program. [Read more…]
Food and beverage sales are subject to complex tax rules in New York. Failing to pay sales tax can lead to severe consequences. Some of the key rules businesses need to know include the following:
- When are food and food products taxable.
Generally, food and food products are exempt from sales tax under New York tax law (NY Tax Law §1115). However, the sales of food and food products made by restaurants and other similar establishments are subject to sales tax in certain circumstances such as the following:
- Food and beverages prepared by the establishment;
- Products that are sold in a different form than that in which they were manufactured;
- Products consumed on the establishment premises; and
- Items that are not subject to tax, but are resold, may also be subject to sales tax depending on the situation.
For example, if a customer went to a drive thru fast food chain and separately ordered a sandwich and a bag of chips (which was not a “value meal”), the sandwich would be a taxable item because it was prepared on the establishment’s premises, but the bag of chips would not be subject to tax because it is sold in the same condition as it was manufactured. If the same order was considered a “value meal” then this entire purchase would be subject to tax.
For additional guidance, the New York State Department of Taxation and Finance provides many examples of when sales by Restaurants, Taverns and Similar Establishments are taxable.
- Use tax may apply if sales tax doesn’t.
Another confusing area of sales tax involves determining if complimentary food and beverages offered by the establishment are subject to tax. Sometimes restaurants may offer patrons or employees free food or drinks. Even when consumers/employees are not charged for taxable food items, the “purchase” is still subject to a “use tax.” Use tax is “a tax imposed on the use of taxable items and services in New York when sales tax has not been paid.” Since the consumer/employee is not purchasing the taxable items, but they are consuming these items within the New York establishment, a use tax is required and the establishment is the responsible party for paying the tax to New York State.
- Keeping accurate and detailed records of sales is a must!
New York State tax law provides that business records should be sequentially numbered and dated; checks and cash register tapes must be kept for at least three years from the due date of the return to which those records relate, or the date the return is filed, if later; and records must have sufficient details describing the taxability (or non-taxability) nature of each item sold. It is also important to keep any and all records proving that the business has collected and paid the correct taxes due. In addition to possible sales tax liability, the State may impose harsh civil penalties for inadequate recordkeeping as well.
For more information on recordkeeping requirements, see Brewed Awakening: NYS Sales Tax Recordkeeping.
- Consequences for failing to collect and/or remit sales tax are severe.
Penalties and interest as high as 14.5 percent may be imposed for failing to pay sales tax. The business could also have its Certificate of Authority revoked or face criminal prosecution. In some cases, certain owners, officers, directors, employees, partners or members (responsible persons) of a business can be held personally liable for the sales tax owed by the business. The State may pursue collection and use any combination of enforcement methods such as warrants, levies, income execution and seizures to collect what is owed.
If you haven’t collected or paid sales tax, New York State does offer a silver lining in the form of the Voluntary Disclosure and Compliance Program. The State will not impose penalties or bring criminal charges against eligible taxpayers with a history of noncompliance who come forward and pay their outstanding tax liabilities. As an added incentive, qualified taxpayers are also eligible for a limited look-back period.
With April 15th just around the corner, New York State published a press release on March 31, 2015 providing tips from the Acting New York State Tax Commissioner, Nonie Manion, for hiring an ethical and qualified tax preparer. Commissioner Manion recommends asking a potential preparer these four questions:
- Are you registered with the IRS and New York State? Most tax preparers are required to be registered with both the IRS and NYS.
- What will be the fee for preparing the return? The fee should be directly related to the services provided and should not include a charge to e-file in New York State.
- How will I receive my refund? The refund should be directly deposited in your bank account, not into a preparer’s bank account. If you don’t have a bank account, consider getting your refund on a debit card.
- Will you sign the return? A completed tax return must be signed by both the taxpayer and the preparer.
Even if you hire the appropriate tax preparer, there are still many reasons you can fall behind on filing your tax returns. New York State offers a program to help you easily get up-to-date with your taxes, possibly even without penalty. Under New York State’s Voluntary Disclosure and Compliance Program, the State won’t impose penalties and won’t bring criminal charges against eligible taxpayers who “fess up” and pay. If you meet the eligibility requirements, to participate, you need only inform the State about taxes owed, enter an agreement to pay what is owed and continue to pay taxes in the future.
Additionally, if you owe back taxes, don’t let another year go by accruing more interest and penalties. You may be eligible to set up an Installment Payment Agreement to pay your bill over time or to submit an Offer in Compromise whereby the State will consider reducing your bill to something more affordable.
Submitted by Jaime Linder on Fri, 04/03/2015 – 14:29
According to USA Today, the State has collected $4 million in back taxes since the program was launched in August. No word yet on how many licenses have been suspended, if any.
The USA Today piece also mentions another program from the NYS Department of Taxation and Finance:
New York is not offering any formal amnesty, but the state tax department website does dangle a carrot: If the delinquents pay up under the “voluntary disclosure and compliance program,” they can work out a payment plan for the taxes and interest owed. They also can avoid penalties and possible criminal charges by pledging to pay their taxes on time in the future.
It’s true that voluntary disclosure may enable taxpayers to avoid criminal charges and penalties under certain circumstances. But this statement is very misleading in the context of the article.
To be eligible for the Voluntary Disclosure and Compliance Program, as stated on the State’s website, an applicant must meet all of the following criteria:
- They must not currently be under audit by the Tax Department for the tax type and tax year(s) that they are disclosing.
- They must not have received a bill for the past due taxes that they are disclosing.
- They must not be under criminal investigation by a New York State agency or political subdivision of the state.
- They must not be seeking to disclose participation in a tax avoidance transaction (commonly known as a tax shelter) that is a federal or New York State reportable or listed transaction.
- If a taxpayer already has a balance due for a tax period, then the taxpayer cannot utilize voluntary disclosure for that liability.
So, for “tax delinquents” facing possible suspension of their drivers’ licenses, they cannot “pay up” these liabilities pursuant to the Voluntary Disclosure and Compliance Program. It’s too late for that.
Submitted by Brad Polizzano on