New York State Announces Penalty and Interest Waiver for Sales Tax Filings
As the COVID-19 spreads, taxpayers of all walks of life are affected by the vast actions taken to contain its spread and protect public health. In the face of this public health crisis, we want to ensure that all those that are being affected by this are educated on their rights and responsibilities in regard to their personal and business tax obligations. Many persons and businesses have taken drastic steps in response to this challenge, and will assuredly have to take further actions as the situation evolves.
New York State has announced that it is not extending the deadline to file or remit sales tax for quarter ending February 29, 2020, which is due today, March 20, 2020. Although the deadline is not extended to file or pay, New York State has announced that it is providing relief to taxpayers by waiving penalty and interest. The Tax Department detailed this relief in Notice N-20-1. Taxpayers qualify for the penalty and interest relief so long as their return is filed and the amount due paid within sixty (60) days of the due date, March 20th. In circumstances where the return is not filed and/or payment is not made within the sixty days, the Department of Tax will be handled on a case-by-case basis. While not explained in detail in the notice, it appears any request for abatement not covered by the Notice or not falling within the specified sixty days would have to demonstrate reasonable cause, the normal standard for penalty abatement. (UPDATE – On May 21, 2020. Governor Cuomo announced that the state is extending the original 60 day period for sales tax interest and penalty relief through June 22, 2020).
While the relief provided is significant for taxpayers, it is important to understand how sales tax works. Sales tax is a tax on the purchaser or user of goods or services. Emphasis must be placed on purchaser as the tax itself is collected and paid over by the seller of goods or services. This is called a “trust fund tax,” as the seller holds the funds and remits them to New York State Department of Tax on a quarterly basis. Because of this, New York aggressively pursues collection of sales tax from the sellers.
As the interest and penalties can be significant, the relief provided by the State is important. Without the relief above, the penalties for failing to timely file and pay over the sales tax can be large. The lowest of these penalties is 10% of the tax due in the first month, which increases by an additional 1% each month until it reaches 30%. If it is determined to be a fraudulent act, the penalty is 100% of the tax due plus interest of 14.5%. Suffice it to say, failing to pay over sales tax collected for even a single quarter could result in massive amounts of interest and penalties on top of the tax due.
New York State also has the ability to pursue collection of the trust fund tax against any and all responsible persons required to collection, truthfully account for, and pay over the tax. Sole proprietors, partners, and corporate officers are all presumed to be responsible persons as well. The usual protection of the corporate veil does not apply.
Much like the IRS, New York has collection alternatives available to taxpayers that are unable to pay the tax due. However, in regard to trust fund tax cases, the options are much more limited. Trust fund taxes are not dischargeable in bankruptcy. As a general rule, New York will not compromise a trust fund tax for less than the original tax amount due. The state has wide latitude to reject offers in compromise based on public policy grounds. A seller should not expect to be able to compromise their trust fund tax liability without a showing of an inability to pay along with reasoning behind not remitting the tax in the first place. While the taxes themselves are not dischargeable in bankruptcy, bankruptcy may be an appropriate avenue to resolve the tax liability through a bankruptcy plan.
While the State announced waiver of penalties and interest, there has been no announcement relating movement of the deadline or waiver of any provisions relating to personal liability. As such, it is critical that all tax payments be made timely. Should a business find itself behind on tax payments, it is important to understand that there is no one size fits all strategy to handling trust fund tax collection. Every business is unique, and there are many factors that need to be evaluated prior to determining which strategy is the most viable. Andreozzi Bluestein has extensive experience representing taxpayers before New York state in conjunction with sales tax defense, trust fund taxes, and collection alternatives. If you or a client have past due or impending sales tax liabilities or other trust fund tax liabilities, please call us at any time for a no-obligation consultation.
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