Two common scenarios of errors when collecting sales and use tax…
Picture this: You own a business. There are two scenarios which are very common. First, you fail to collect sales tax when you are supposed to. Second, you fail to self-assess use tax when a vendor does not charge you sales tax when they were supposed to. It’s not intentional. After all, the sales and use tax laws are complex, confusing, and difficult to apply to today’s products. It is doubly challenging since the tax law is generally outdated. Regardless, the business is assessed.
What can happen when a business is assessed?
When a business is assessed, a responsible person of the business (often the owner) is also personally assessed. If you can’t pay the assessment in full, the state can place liens against your personal property even if you’re in a payment plan. These liens also negatively impact your credit score. If you’re not in a payment plan, the state can also levy your bank accounts and even suspend your driver’s license.
Be careful with self-assessing use tax
This is what makes sales and use tax so scary. Unlike income taxes, even a business losing money can create substantial tax liabilities. If you’re not monitoring your purchase invoices and self-assessing use tax, when necessary (ESPECIALLY CONTRACTORS), someone else’s failure to collect sales tax from you can be devastating.
What is a bulk sale?
A bulk sale occurs when there’s a sale, transfer or assignment of business assets. For example, when a pizza place is sold including the pizza oven, a bulk sale has occurred. New York State has been able to transfer any sales and use tax due from the selling business to the purchasing business for a long time. However, the responsible person of the purchasing business was not held personally liable for any tax due.
A change on March 16th
However, on March 16th, the New York State Supreme Court sustained an assessment against the responsible person of a purchasing business related to a bulk sale. This decision clearly cements a reversal of a long-standing Tax Department policy where personal liability was not imposed against the officers/owners of the acquiring company in a bulk sale.
Sales Tax Defense LLC can help!
Given this change in the interpretation of the tax law, it has never been more imperative to engage a knowledgeable and experienced professional to help guide you BEFORE purchasing a business. If you or your hired professional need any help in protecting you against a surprise bulk sale assessment or a sales tax due diligence review, contact Sales Tax Defense LLC!
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