Avoid Sales Tax Issues by Keeping Adequate Records

January 2024

The value of $51,000 to sales tax…

$51,000. That’s a lot of money. It’s a nice car. Or, it can be a down payment on a house. It is almost equal to $1,000 a week for an entire year. And, it’s also the standard recordkeeping penalty New York State can impose for failure to maintain adequate books and records, for a standard 11 quarter sales and use tax audit. The first quarter is $1,000, and $5,000 each quarter for the remaining 10 quarters of the sales tax audit.

That amount doesn’t even include the potential tax, interest, and penalties that can be assessed on the audit itself. This is why each year our January newsletter urges you to maintain the records you need to defend yourself, if you are ever unlucky enough to be selected for a sales and use tax audit.

What kind of records do you need?

First, you need sales records that specifically describe what is being sold, where the product is being sold (or where the service was provided), and separately list any sales tax that was collected. Second, you need to obtain and maintain exemption certificates that your customers give you. Make sure you keep documents like tax returns, bank statements, and general ledgers. These should be kept for a variety of business reasons.

Put a lid on it!

You also need to keep the records so they can be provided to the auditor. With that in mind, keeping them in old boxes in the basement underneath a leaky pipe, is not a process we recommend. Instead, buy a plastic bin with a lid, and use the lid. That last part may sound like a joke, but we’ve seen a lidless bin turn into a bowl of water, destroying every piece of paper that was intended to be saved. Better yet, keep your records electronically and have a backup copy of your electronic records. Save your records on your own server, don’t rely on the software company to keep it for you!

Sales Tax Defense LLC can help!

Failing to keep records can be a costly, but easily avoidable mistake. If you have questions about starting to keep records, the records you currently have, or the records you kept in the past, call us! We’d love to help you make 2024 the year you started keeping the right records!

Helping a National Business

A large company had nexus in almost every state in the country, but was only collecting and remitting tax in one state. They didn’t know where to begin.

We worked with their CFO and internal counsel to determine where they needed to register for sales tax. If they owed taxes, we helped them remit those taxes through the states’ voluntary disclosure programs. We provided them with numerous research memorandums and matrices, so they knew what was taxable and how to tax it. Finally, we helped them set up their sales tax software to automate the system.

The company went from filing in a single state with exposure in almost every state without a plan of how to fix the problem, to a fully compliant taxpayer with all the resources they need to stay compliant in the future.