Open a Notice of Determination from the NYS Department of Tax & Finance and you’ll see three numbers: tax, penalties, and interest. The penalty line can feel like salt in the wound—often 10 % for “negligence,” 25 % for “failure to file,” or a jaw‑dropping 200 % for “fraud.” Here’s the kicker: auditors assess first and leave it to you to prove reasonable cause. Many times penalties are the result of an audit, while others it’s the result of simply missing or late filed returns.
The good news? Penalties are usually the softest part of the bill. Our internal case log—from 2019 through early 2025 shows the Department agreed to waive all penalties in over 70 % of New York audits we defended. In short, New York sales tax penalty abatements are possible.
Here’s what you’ll pick up in the next few minutes: • A plain‑English rundown of each penalty in Tax Law §§ 1145 & 1149:
• The five red flags that prompt auditors to tack on extra charges
• Four reasonable‑cause arguments that have actually worked in conference rooms
• An inside look at how BCMS or the Tax Tribunal can roll back penalties even when the tax itself sticks
Bottom line: Before you cut a check, make sure you’ve tried every one of these moves.
Penalty Types & Statutory Rates
Before you decide whether a penalty is worth fighting, you need to know exactly which type of penalty you’re looking at, how it’s calculated, and what triggered it. The quick‑reference chart below pulls the key figures straight from Tax Law §§ 1131, 1132, and 1145 so you can see at a glance how a 10 % negligence add‑on differs from a 200 % fraud hit and why each one landed on your notice.
Penalty | Statute | Rate | Typical Trigger |
Negligence | § 1145(a)(1) | 10 % of tax | Record‑keeping gaps, math errors |
Failure to File / Pay | § 1145(a)(1) | 10 % + 1 %/mo (max 30 %) | Late ST‑100 returns |
Fraud | § 1145(a)(2) | 200 % of tax | Intentional underreporting |
Responsible‑Person | § 1131(1); § 1133(a) | Same as entity | Officer liability |
Collection Penalty | § 1132(a) | Up to 17 % | Tax collected but not remitted |
Remember: interest (currently 9 % of tax) accrues on top of these penalties.
If you received a penalty and need assistance, please contact Sales Tax Helper!
Top 5 Auditor Triggers for Penalties
Before penalties ever show up on a Notice of Determination, the groundwork is usually laid by one of five red flags auditors spot during the field exam. Yes, late or missed ST‑100 returns can trigger these surcharges, but we see them most often while an audit is still in progress, when record gaps or cash‑flow blips look intentional from the state’s vantage point.
1. ST‑100 Filed After an IDR Arrives
Auditors issue an Information & Document Request (IDR) early in the exam. When they see you scramble to file several past‑due ST‑100 returns only after that IDR lands, they assume the late filings were deliberate, not accidental. That sequence triggers the 10 % negligence penalty and often the 10 % failure‑to‑file surcharge on top. We counter by showing prior good‑faith extensions, CPA engagement letters, or proof the returns were queued before the IDR’s date stamp. Establishing an administrative, not willful, reason for the delay is usually enough to kill both penalties.
2. Tax Collected but Not Remitted (the “Conversion” Penalty)
It is critical to develop a strategy to deal with tax collected issues. Truning them over to the auditor can result in hefty penalties and even critical implications. Anytime there is tax collected or suspected tax collected issues, professional involvement is likely the right course.
For instance, if your POS or e‑commerce platform shows that you charged customers sales tax, but the ST‑100 you filed reports a lower amount or nothing at all. New York treats that delta as tax you held “in trust” and then converted to working capital, which can stack the 17 % collection penalty on top of negligence. We pull daily Z‑tapes, bank‑deposit records, and refund logs to show timing‑related gaps, not intentional diversion. When we demonstrate that cash‑flow issues not intent caused the mismatch, auditors often downgrade the charge to a bookkeeping error and waive the penalty.
3. Missing ST‑120 Resale Certificates
Wholesale sales are exempt only if you maintain valid ST‑120 forms on file at the time of sale. Missing paperwork tells auditors you ignored record‑keeping rules, so they slap on negligence and disallow the exemption taxing every dollar at the full rate. During the audit there are strategies we can assist with to secure missing exemption or resale certificates.
4. Cash‑Heavy Industry Presumption
Bars, delis, salons, and convenience stores start audits under a cloud: auditors assume unreported cash sales. They apply a markup test comparing vendor purchases to reported sales and any shortfall is branded negligence. We rebut with daily cash‑register z‑reports, merchant‑services statements, and camera timestamps to prove sales entered the POS. Showing tight controls converts the presumption into a paperwork dispute, and penalties especially the 10 % negligence add‑on often evaporate.
5. Unregistered Nexus (Years of Untaxed Sales)
If you sold into New York for years, via Amazon FBA, Shopify, or field reps, before registering, auditors float the 200 % fraud penalty under § 1145(a)(2). We demonstrate that Wayfair nexus thresholds were unclear, show contemporaneous advice from out‑of‑state CPAs, and, if possible, file a voluntary‑disclosure request for the oldest periods. That narrative reframes the issue as confusion, not evasion, leading auditors or BCMS conferees to drop the fraud tag and settle at the 10 % negligence rate or even zero.
Reasonable‑Cause Arguments That Work
Even when the tax is indisputable, penalties are negotiable, but only if you can show “reasonable cause.” Think of reasonable cause as evidence that you acted in good faith, kept credible records, or were blindsided by events no business could control. Nail that story, and New York’s own rules compel auditors, BCMS conferees, or Tribunal judges to wipe the surcharge. The five strategies below are the ones we deploy most and they work.
1. Clean Filing History
If your ST‑100 returns were timely and accurate for years before the audit period, one late or short‑filed quarter looks more like an honest slip than systemic neglect. We pull transcript data from NYS Online Services to prove that compliance streak and attach it to a reasonable‑cause letter. BCMS conferees often cite a spotless history when recommending full penalty abatement. In many cases the mere presence of a multi‑year clean streak is enough to erase the 10 % negligence add‑on that stemmed from a single missed return.
2. Reliance on CPA or Software
New York precedent lets taxpayers rely on professional advice unless blatant red flags were ignored. We submit engagement letters, email threads, and POS‑vendor contracts showing you delegated tax calculations to a licensed CPA or reputable software platform. By framing the underpayment as a third‑party error, not willful neglect, we shift the narrative away from negligence. Auditors will often waive the 10 % surcharge and issue an advisory note to update your settings.
Professional assistance during the audit can also be an important way to counter penalties. By having a professional, you can credibly say that you have hired one and are relying on them to ensure prospective compliance. Credibly stating and ensuring prospective compliance often eliminates penalties.
3. Documented Hardship or Force Majeure
Floods wipe servers, fires destroy paper files, and ransomware can lock whole databases. When catastrophe overlaps a filing deadline, we gather incident reports, insurance claims, and IT forensics to show records were unavailable, not withheld. Tax Law § 1145 expressly lists events beyond a taxpayer’s control as reasonable cause. Presenting this documentation early usually converts a pending negligence penalty into a compliance reminder.
4. Voluntary Disclosure Pre‑Audit
Entering New York’s Voluntary Disclosure Program, or even self‑reporting errors, before an audit notice arrives earns substantial goodwill. We supply the VDA acceptance letter and proof of voluntary payments to show you were already cleaning house. Under § 1147, auditors can recommend full penalty relief for those periods because you came forward first. Even when additional tax is still due, the Department nearly always limits the balance to tax plus statutory interest.
5. First‑Time Audit / First‑Time Offense
If this is your company’s first New York sales‑tax audit and your account transcript shows no prior assessments state policy says field agents should treat the case as educational rather than punitive. We retrieve your filing history from NYS Online Services to prove a spotless slate and cite the internal Audit Directive that encourages warnings over penalties for brand‑new auditees. When we package that data with prompt, full cooperation, auditors often strike the 10 % negligence surcharge in the preliminary workpapers, sparing you a fight at BCMS.
Auditors have discretion to recommend penalty relief when these factors appear in the file but only if you present them clearly and early.
How to Request Penalty Abatement
Not every forum inside the New York audit process has the same authority—or appetite—to waive penalties. Timing is everything: present your reasonable‑cause evidence as early as possible, but know that you’ll get three distinct bites at the apple. Below is a play‑by‑play of how we approach each stage and why it works.
1. During the Audit – The field stage is your first shot at killing penalties before they snowball. We draft a reasonable‑cause letter on firm letterhead that cites your bookkeeping controls, prior filing history, and any force‑majeure events. Exhibits can include CPA engagement letters, POS service tickets, or sworn affidavits from IT vendors. When auditors see organized evidence of good faith, they frequently recommend penalty removal in their own workpapers, sparing you a formal protest later.
2. At BCMS (Bureau of Conciliation and Mediation Services) – If penalties survive the field, we petition for a BCMS conference within the 90‑day window. Here, we make an equity argument: penalties would make an installment plan impossible, jeopardize payroll, or force layoffs. We submit cash‑flow statements and propose paying tax plus interest in exchange for a penalty waiver. Conferees have broad discretion and often prefer a quick, collectible settlement to litigating small penalties at the Tribunal. Our stats show the overwhelming majority of penalty abatements happen right here.
3. At DTA (Division of Tax Appeals) – When BCMS can’t or won’t waive penalties, we file a DTA petition and plead penalties as a separate cause of action. Discovery lets us depose the auditor, exposing weak documentation for the negligence or fraud claim. Tax Judges routinely uphold the tax but drop penalties if the state can’t prove willfulness. Roughly 15 % of our successful waivers come at this stage usually when the auditor’s sampling or nexus analysis is shaky and penalties were tacked on as leverage.
Case Study – Penalty Wiped & Tax Trimmed for Upstate Window Installer
When the auditors finished their fieldwork, our client, a family‑owned window‑installation outfit in the Capital Region was staring at $120 k in tax, a $12 k negligence penalty, and another $24 k in late payment penalties. On paper the numbers looked final: the Comptroller agreed that most returns were accurate and tacked on the penalties simply because a handful of ST‑100s had been filed late.
We appealed to BCMS with a single goal - kill the penalty, but our prep uncovered something bigger. During discovery we traced the late filings to a bookkeeping‑software migration and, in the process, spotted capital‑improvement invoices the auditor had taxed by mistake. We brought both findings to the conference: a timeline that proved good‑faith recordkeeping and a recalculated tax line showing an $18 k overstatement.
The conferee agreed. She wiped 100 % of the penalties and accepted the lower tax figure, chopping the bill to $102 k—a $42 k swing that more than covered our fees and kept the installer’s expansion plans on track.
FAQ
Are negligence penalties automatic in NY? Not quite automatic, but close, auditors tack on the 10 % negligence penalty whenever their worksheets show underpaid tax. Prove the shortfall was a record‑keeping hiccup, not willful neglect, and BCMS will usually strike it.
Can penalties be removed but interest stay? Yes. Interest is statutory and almost never waived; penalties are discretionary and routinely disappear if we show reasonable cause.
Does paying early erase penalties? No, but it helps. A voluntary payment signals cooperation and can support a hardship claim when we ask BCMS to waive penalties.
How long do I have to protest a penalty? You get 90 days from the Notice of Determination date to file a BCMS petition. Miss that window and the penalty becomes final—even if the tax is still appealable on other grounds.
Can penalties be waived if I’m on an installment plan? Sometimes. The state prefers collectible balances; agreeing to a payment plan paired with a reasonable‑cause letter often convinces conferees to drop the penalty line so long as you stay current on the plan.
Do officer penalties work differently? Yes. Responsible‑person charges follow the individual, not the company, but the same reasonable‑cause arguments—clean history, reliance on a CPA—can still wipe the surcharge.
Conclusion
Penalties aren’t carved in granite—they’re a bargaining chip. Show the state you kept good records, acted in good faith, and can pay the tax, and those 10 % and 200 % add‑ons often melt away. If a Notice is already on your desk, email it over. We’ll comb through the workpapers, draft a waiver request, and tell you—at no charge—how much of the bill we think we can erase.