New York Sales Tax Registration – How to Register, Audit Prevention and What Triggers Denial?

New York sales tax is complicated. It can feel overwhelming for businesses of all shapes and sizes. Whether you are beginning a new business, or expanding operations into the Big Apple, or are simply doing an overhaul of your New York sales and use tax obligations, understanding the New York sales tax registration process is crucial. With specific requirements and potential penalties for noncompliance, getting your New York sales tax registration correct can save valuable time, resources, and headaches down the road. In this blog, we will provide a general overview of the New York sales tax registration process and will outline key steps and common pitfalls in order to help your business properly register with the state.

The New York Sales Tax Registration Process

The New York Department of Tax and Finance provides that every person who sells taxable tangible personal property or taxable services must register with the Tax Department through New York Business Express. Normally, the first step in the process is to determine if registration needs to occur. Of course, the New York Department of Tax and Finance will not complain if tax collection begins voluntarily, but adding an additional 8.875% to your checkout price, when it is unnecessary, can of course trigger higher customer-acquisition-cost, as well as additional compliance costs.

New York sales tax registration should occur if one of the following is true:

If economic nexus or physical presence has been established, registration with the state should occur.

Common Sales Tax Questions

1. Question: If both economic nexus and physical presence are established but on different dates, when should I register?
   1. Answer: These should not be viewed independently of one another. The answer would be register from the earlier point in time. For example, if physical presence is established in New York, prior to economic nexus, register within 30 days after establishing physical presence. The same result if vice versa. Often, audits occur as a result of improper New York sales tax registration start dates.
2. Question: what if I am in the professional service space? For example, what if I am a doctor, or lawyer or accountant or engineer – do I need to register?
   1. Answer: New York provides that every person who sells taxable tangible personal property or taxable services must register. If you are not providing taxable tangible personal property or taxable services, registration is likely not warranted.
3. Question: I sell on Amazon. I do not need to register, right?
   1. Answer: That is not necessarily correct. While New York legislation, effective June 1, 2019, imposed marketplace facilitator legislation and the obligation to collect and remit sales tax on Amazon, the term “retail sales” for purposes of your sales tax registration includes marketplace sales. As an example, if you sold $499,000 on Amazon and $1,001 of sales through your Shopify stores, assuming these are all retail sales (remember…excluding sale for resale) registration should have occurred.
4. Question: Once I register, am I required to collect sales tax forever? What if in five years after registration, I have minimal sales in New York? The cost of compliance is more than the money I make!
   1. Answer: Yes, you may be able to deregister. The concept is known as “surrendering your sales tax certificate of authority”. Other states refer to as the “tolling period” from when nexus is no longer established. Guidance on this varies. Some states say if you have not established nexus in a year, deregistration can occur. Some states say two years. Overall, review your sales figures and reach out to one of our Sales Tax Professionals to assist you with the process.

DTF-17 – New York Application to Register for a Sales Tax Certificate of Authority (CoA)

If nexus has been established, the next part of the process is to complete the registration with the New York State Department of Tax and Finance. As a preliminary matter, it is recommended to register online, via New York Business Express as processing is quicker and recordkeeping is easier. However, if you prefer to register via paper form, please make sure to check the state issued checklist to make sure all documentation has been completed in its entirety. If you do file the New York application for a sales Tax certificate via hardcopy, please mail your application to: NYS Tax Department, Sales Tax Registration Unit, W A Harriman Campus, Albany NY 12227, at least 20 days, but not more than 90 days, before you begin doing business in New York state.

Common DTF-17 Sales Tax Registration Questions and Mishaps

In this section, we will discuss common questions and issues that arise as you complete the DTF-17. Specifically, we will discuss problem areas, that if answered incorrectly, can potentially trigger an audit commencement notice. Businesses often overlook how important it is to ensure that your application to Register for a Sales Tax CoA is properly completed. Please use the below as a reference or guide when completing your sales tax registration.

Section C – Type of entity or organization

You must identify the type of business that is registering. This can be a sole proprietorship, limited liability company, limited partnership and so on. If you are operating as a sole proprietorship, the state will issue you a TF number, which will be used to create your Online Services account. This will be your Sales tax identification number. If any other entity type, your sales tax identification number will typically be your federal employer identification number (FEIN). For international entities, those not registered and were not granted a FEIN through the Department of Treasury or the Internal Revenue Service (IRS), you may need to register for a FEIN, which our team can assist with the process.

Section D – General Business Information

Enter the date you will begin business in NYS for sales tax purposes (mm/dd/yy) – It is important to note that the date that is entered here will be the first date that returns are required to be filed. Ensure this date is entered correctly. This is a common area that triggers an audit commencement notice if registration is improper.

Temporary Vendors – Election to register as a temporary vendor if you: have a seasonal business and there is no expectation of doing business within the state for more than two consecutive sales tax quarters. If you register as a temporary vendor, your CoA will automatically expire on the date specified that your business will end. If you would like to continue doing business, a reapplication for a CoA must occur. Once the registration has expired, you are no longer able to make taxable sales and issue resale certificates.

NAICS Code – the North American Industry Classification System (NAICS) U.S. Census Bureau is the standard used by federal statistical bureaus in identifying a business. This is typically found on your tax return. For sales tax purposes, this can trigger outliers and audits. For example, if you are registered as a restaurant or a bar but are filing sales tax returns where 80% of your sales are exempt, the state may run a state or zip code average to see if that is within the norm or area of acceptance of deemed exemptions. Although this is not a defined rule, the NAICS Code, along with how your returns are filed, can be a triggering event for sales and use tax audits.

What do you expect your annual sales will be? How much sales tax do you expect to collect annually? –this question may be used to reconcile the expectation with reality when filing your returns. Simultaneously, this can trigger the frequency of your sales and use tax filings. The more sales tax expected to be collected, the more likely your filing frequency will be monthly. This is because sales tax money collected is trust fund money, that being, funds that are held in trust for the state. From the state’s point of view, the less time that is given to remit the collected sales tax funds, the less likely you as a business will default on remitting your sales tax trust fund obligation.

Section D, Section E and Section F – Responsible Parties, Prior Tax Crime Conviction, and Officer Information

If you are a sole proprietorship, corporation, or partnership, when completing your sales tax registration, the state requires you to answer certain information pertaining to responsible officers, owner’s name, and social security number, as well as the business’ history with the New York Department of Tax and Finance. This includes the prior history of other owners, officers, partners, or employees of the entity that is applying, who were required to collect tax for this or another entity.

Section H – Business Background

New York requires, as part of the sales tax registration process, to report the business’ prior history with the tax Department. This section is crucial for registration purposes – for example, if the entity has prior tax debt that has not been paid in full, the business license application may be denied. This will be discussed in further detail in the next section.

Section L – Signature of Responsible Person

Once you have completed the sales tax registration, New York requires the person responsible to sign, date and include a social security number. For sales tax registration, the responsible person authorization and execution is key, as this is the individual that may be personally liable and on the hook for any sales tax collected but not remitted.

Sales Tax Registration Denial – What Happens?

Once you complete the DTF-17, a couple of events may transpire. New York may automatically grant a certificate of registration or issue a denial letter. Typically, this will be in the form and what is known as the Notice of Proposed Refusal to Issue Certificate of Authority. Generally, and under New York law, the Department has the discretion to and can refuse to issue a CoA if a prior registration has been suspended or revoked within a year of the application, or the current or previous business has unpaid New York State tax debts. If the business or prior business has unpaid tax debts, the Notice will be typically accompanied by a Consolidated statement of tax liabilities (Form DTF-967-E), detaining what tax debts are outstanding.

If a proposed denial letter is issued, a business cannot engage in any activity that requires a certificate of authority, such as making taxable sales, until the state tax debts have been paid in full, and the Tax Department issues a certificate of authority. If a business engages in unauthorized business practices, the business may be subject to civil penalties of up to $10,000 and potential arrest and criminal prosecutions (see Tax Law Section 1817(d)).

If the notice is received, your options are typically: (1) pay the amount due as specified in the DTF-967-E within 30 days of the notice, and call the New York Tax Department after making payment to complete the application process; or (2) submit a protest against the refusal to issue a Certificate of Authority. The protest must be filed within 30 days of the date of the Proposed Refusal and can be filed with either the New York’s Conciliation Conference or the Division of Tax Appeals. It is extremely important to preserve your appealable right, because if the notice is ignored, the application for a certificate of authority will be automatically denied.

Tax Tribunal Opines on Sales Tax Registration Denial

In a recent Tax Tribunal case, we have seen that the New York Department of Tax and Finance does make mistakes. In Long Island Motor SV, Inc. the Petitioner filed a form DTF-17, application to register for a sales tax certificate of authority with the Division. Thereafter, the Division issued a notice of proposed refusal to issue a CoA because the owner of Petitioner owed more than 50% of the voting stock of another corporation that had unpaid New York State tax debts. However, the notice of proposed refusal did not state the identity of the corporation in question and did not attach a consolidated statement of tax liabilities.

The Division of Tax Appeals determined that the notice of proposed refusal to issue a certificate of authority must be cancelled, as the Division failed to set forth the consolidated statement of tax debts due in its proposed denial. The Supervising Administrative Law Judge cited to Tax Law Section 1134(a)(4)(B) which provides that the commissioner may refuse to issue a certificate of authority, if a shareholder of a current applicant owns more than fifty percent of the shares of another company, and that other company has an outstanding tax debt at the time of the application. However, in its reasoning, the ALJ provides that the Division did not provide a notice and demand for payment, a consolidated statement of tax liabilities or a tax warrant, demonstrating the outstanding tax debts. Further, the ALJ reasoned that it was the Division’s burden to prove that the Petitioner’s shareholder had outstanding tax debts relating to another company.

This case shows and demonstrates that a tax debt that is final and not fully paid can impact a sales tax registration for a future company. Additionally, this case demonstrates the importance of preserving your appealable right and timely filing an appeal if there is any doubt relating to New York Department of Tax and Finance procedural mistakes. This is something that is often overlooked by taxpayers who are not familiar with procedural tax postures of New York state.

Sales Tax Helper Can Support You with Sales Tax Registration Needs

Our sales tax professionals can assist with your sales tax registration needs. By trusting us with your business sales tax needs, we will ensure that the sales tax registration is properly completed, assist in limiting potential audit exposure, and preserve your appealable right in the event that procedural posture has not been abided by a taxing authority. To learn more about how we may be able to help your business, schedule a consultation with us today.