NY Sales tax was not collected when it should have been. What to do?


S

sithlord70

I am a small one man onsite computer repair business in NY. I've been
at it only 2 years thus far and its been slow going. I was laid off
from my job two years ago making 35k and decided to try to go it alone.
Its harder than I thought it would be. I work from home, moved back in
with my parents why I get the business going, and have earned less than
15k last year and am expecting to finish this year at just under 20k.
So while my income hasn't amounted to much it is growing. Hoping 2007
will be a good year. Last year, 2005, I screwed up and did not collect
NY sales tax from my customers for most of my services as I
misunderstood the tax law and thought I was only supposed to collect if
the service involved physical hardware repair such as motherboard
replacement and hard drive installation. Most of my services were
software level services such as installing, maintenance and
troubleshooting, software level upgrades and network related stuff such
as setting up domains and user accounts. I came to realize this year
that I needed to collect on everything which I was doing other than
straight consulting work which I do very little of. So this year I have
been collecting on virtually everything for NY which solves that
problem for 2006 but what do I do about 2005. This brings me to my
other dilema. I also screwed up in that I have not collected NJ sales
tax on services I have done in NJ at all the last 2 years. I was told
that it is voluntary since my business is out of state and that it is
up to the client to pay it to their home state. I just found out this
is also untrue and that I am required to pay it, either via the NY/NJ
reciprocal tax agreement or directly to NJ. I only have a couple of
customers in NJ and the amount I earned is less than 5k this year and
maybe 2k last year. Whats the best way to handle these issues. I'd like
to pay the states what I owe them but not sure if it is in my best
interest to do so at this point. Seems like it will be complicated
trying to do it all after the fact. Any idea how I should handle the
situation now? Am I still responsible to pay the sales tax when I never
actually collected it?

Oh I just filled out the NY/NJ Reciprocal tax agreement and I am
sending it in tomorrow. So at least from here forward that problem will
be taken care of.
 
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J

Jim Kingdon

I'd like to pay the states what I owe them but not sure if it is in my
best interest to do so at this point. Seems like it will be
complicated trying to do it all after the fact. Any idea how I should
handle the situation now? Am I still responsible to pay the sales tax
when I never actually collected it?
Well, I can't think of any reason why you'd be off the hook in terms
of paying the sales tax, but on the other hand I don't know whether
paying the back taxes is simple or complicated.

For income tax (federal at least), this kind of thing would be fairly
simple. File an amended return. But I don't know if NY/NJ sales tax
has a similar procedure (back when I was paying sales tax, they didn't
even have anything much resembling a "return" - a refreshing bout of
simplicity).

I think you've pretty much identified your choices: (1) try to figure
out the procedure by which they will let you give them more money, or
(2) just focus on getting it right for the future, with some
possibility of <insert various potential penalties here> with respect
to the past amounts. There are certainly risks to (2) (if you do
eventually have to pay up, interest and penalties are likely to keep
accruing during the time between now and then).
 
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S

Shyster1040

If you want to get right with NY, complete all of the prior returns that
should have been filed but weren't, calculate the tax, penalties, and
interest due, and file the returns with the Department of Taxation and
Finance. By default you would most likely be a quarterly filer, which
means that you need to get the forms for all of the calendar quarters
during which you were required to be collecting sales tax. The forms for
prior years can be obtained from the Department's website at:
<http://www.tax.state.ny.us/forms/prvforms/sales_by_type.htm>.

The website also has a question & answer function that might be useful in
ironing out any wrinkles that pop up as you complete the returns.
Finally, the Department also has a telephone number you can call to ask
any questions that aren't answered on the website. I don't have any
experience with the Department's sales Tax phone service, but in other
areas they are generally pretty helpful.

A similar procedure should apply to New Jersey; check the website for the
NJ Division of Taxation for forms and filing instructions.

Since you don't appear to have had a significant number of taxable sales,
it might be best to go ahead and take the hit of filing the past-due
returns and paying the late taxes, penalties, and interest. It will hurt,
particularly since it all has to come out of your pocket at once instead
of as earned, but doing it now will stop the interest and penalties from
continuing to build up, and will give you some peace of mind at night
since you won't have to worry about a potential audit in addition to all
of the other things a small business owner has to worry about.
 

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