Sales Tax in a Post-Covid World

March 2021

The amount of overall damage caused by the COVID-19 pandemic is immeasurable. However, the damage to state budgets is much more measurable.

In January, the New York State Governor stated that the 2020-21 budget shortfall was about $4 billion dollars. Some of that shortfall may have been addressed through federal assistance but the sizeable shortfall will still remain. The pandemic is also not over yet so there certainly is a risk of other issues arising before everything is fully reopened.

In the 2019-2020 tax year, New York State collected $17 billion in sales taxes or 21% of the state-imposed taxes so it is easy to see how New York State could seek to raise even more tax revenue from sales tax to help cover previous shortfalls and address future budget needs.

But this isn’t just an issue for businesses located in New York State since New York State has enacted an economic nexus retroactively effective to June 21, 2018. This means that if you reach a certain amount of sales into New York in the immediately preceding four sales tax quarters (or a certain number of transactions into New York State), out-of-state vendors must collect and remit New York State sales tax.

If you’re subscribed to our newsletter, you should be more than aware of economic nexus. However, it is more relevant than ever given the COVID-19 pandemic and how New York State generally conducts audits. Often, New York State seeks to audit a 3-year period. Since it has been almost 3 years since June 21, 2018, the effective date of these new economic nexus rules, New York State could be getting ready to audit many out-of-state vendors. This could be their first “bite at the apple” for covering budget shortfalls through economic nexus.

If you’re a vendor outside New York State making sales into New York State, contact us and we can help you address your sales and use tax responsibilities before your potential audit starts!

Success Story

Audit Assessment Reduced by More than $1.1 Million!

A business was issued an assessment by the NYS Department of Taxation & Finance for over a million dollars, which they believed was wrongfully assessed. Tax Defense argued the taxability of many of the business’s sales. After going back and forth with the audit division and proving that many of the sales were wrongfully assessed as taxable, we then reworked the auditors work papers to determine the least amount of tax due possible.

In addition to arguing both the taxable treatment of the transactions and the methodology, we also argued for penalty abatement of statutory penalties and the record keeping penalty. After numerous conversations with the audit division, we were able to settle the case without needing to attend a hearing and the entire assessment was reduced by over $1.1 million!