Sales tax venders in New York State can maintain books and records using the cash or accrual method. However, sellers are required to report any sales, and remit the appropriate amount of sales tax using the accrual method, regardless of the method used for a company’s internal method of accounting. While a business operating in New York can report on a cash basis for income tax reporting purposes, provided certain conditions are met, sales tax must be reported on an accrual basis. This means that a company may be required to remit sales tax to New York State even if the tax has not yet been collected from the customer.
The accrual method of accounting sales tax and remittance reporting requirements creates a number of challenges for businesses. Businesses that maintain their internal accounting records using a cash basis method of accounting must run a parallel system to track accounting records using the accrual method of accounting to comply with New York sales tax reporting requirements. This can also create cash flow constraints for companies that have a low receivables turnover ratio, i.e., if a company’s collection of receivables is not made on a timely basis, and there are receivables aging beyond the sales tax reporting and remittance frequency, a company may have cash constraints when the sales tax remittance becomes due.
To surmount these challenges sales tax venders should consider increasing their accounts receivable collection efforts. The tenacious debt collector increases cash flows which is instrumental to the viability of an organization. Failure to maintain concerted efforts towards the collection of outstanding receivables by finance and accounting departments can be detrimental to the vitality of an organization.
Be aware of the fines and penalties associated with the failure to keep adequate records and remit sales tax on a timely basis. Civil penalties include:
- Monetary fines calculated as a percentage of tax due for late payment.
- Penalties start at $1,000 for the first quarter but escalate to $5,000 per quarter for subsequent quarters for the failure to keep adequate records.
New York also has the right to impose criminal penalties including misdemeanor and felony charges in the case of:
- failure to file a sales tax return,
- failure to pay sales tax due, or
- intent to evade sales tax reporting requirements
The New York Tax Department is even permitted by law to recommend the suspension of a responsible person’s New York State driver’s license if past due tax is personally assessed. Contact EFPR Group for further information on state sales tax rules and regulations or assistance in analyzing the compliance requirements associated with doing business in New York, or any other state.
The materials contained herein are intended for educational and informational purposes only and do not constitute tax or legal advice. Readers are responsible for obtaining such advice from their own tax and legal counsel. IRS Circular 230 disclosure: Any information contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction(s) or tax-related matter(s) that may be addressed herein.