Companies operating in New York need to be aware of the state’s revenue shortfall and the tactics being employed by the state to increase revenues. New York is conducting an increasing number of sales tax audits. All businesses, and in particular cash businesses, need to be diligent in their maintenance of proper records and documentation as required by the state’s statutes and regulations. New York has employed various sampling techniques including the use of comparable revenues by similar establishments and the use of third-party supplier information to estimate sales for businesses where complete tax and revenue records are not available. The sampling techniques used by the state can result in significant sales tax assessments that are difficult and costly to refute.
Limited liability companies are taxed as partnerships in New York, which raises a potentially costly sales tax obligation for individual partners of an LLC. This tax treatment allows individual partners to be liable for sales tax obligations of the business. LLCs and their individual owners must be aware of the entity’s sales tax policy and procedures in order to minimize personal responsibility for the sales tax liability of the LLC. If the individual partner’s ownership interest is less than 51%, then that partner’s maximum liability is limited to that partner’s ownership interest percentage multiplied by the sales tax liability. There is no relief for individual owners that own greater than 51% of the LLC.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.