I can't tell you the number of clients that I have seen over the years whose records were never kept neat or organized and, one day, when the sales tax audit letter finally arrived they were not prepared to produce the records, exemption certificates, reconciling schedules, invoices and other documents necessary.
Instead, they unsheathed their checkbook and paid tax, penalty and interest that was, in my opinion, completely unnecessary. Please don't let that happen.
The biggest mistake I find clients making is not getting exemption certificates timely, not getting them at all or not being able to find them. This is one of the first things a sales tax auditor looks for.
Please be sure you are able to access and produce all exemption certificates whether they are a resale, exempt use, capital improvement, direct-pay permit, or other certificate. If need be make a photocopy and keep all copies in a special exemption folder or file. You'll be glad you did.
I would suggest that every business owner read these rules and make sure that you are meeting the standards required by law. Please call me if you have any questions about these rules.
Reg. Sec. 533.2. Records to be Kept. (Tax Law, Secs. 1132(c), 1135, 1138(a), 1142(5)).--
(a) General. (1) For the proper administration of the Sales and Use Tax Law and to prevent evasion of the sales tax, it is statutorily presumed that all receipts from sales and purchases of property or services of any type mentioned in subdivision (a), (b), (c) and (d) of section 1105 of the Tax Law, all rents for occupancy of the type mentioned in subdivision (e) of such section, and all amusement charges of any type mentioned in subdivision (f) of such section are subject to the tax until the contrary is established. The burden of proving that any receipt, amusement charge, or rent is not taxable is on the vendor or the customer. To satisfy his burden of proof, a vendor must maintain records sufficient to verify all transactions.
(b) Sales records. (1) Every person required to collect tax, including every person purchasing or selling tangible personal property for resale must keep records of every sale, amusement charge, charge for dues or occupancy, and all amounts paid, charged or due thereon, and of the tax payable thereon. The records must contain a true copy of each:
(i) sales slip, invoice, receipt, contract, statement, or other memorandum of sale;
(ii) guest check, hotel guest check, receipt from admissions such as ticket stubs, receipt from dues; and
(iii) cash register tape and any other original sales document.
Where no written document is given to the customer, the seller shall keep a daily record of all cash and credit sales in a day book or similar book.
(2) The sales record either must provide sufficient detail to independently determine the taxable status of each sale and the amount of tax due and collected thereon or may be substantiated by analysis of supporting records.
(i) Cash register tapes which identify the individual items sold, selling price and the tax due are sufficient to independently determine the taxable status of each sale and the amount of tax due thereon.
(ii) Cash register tapes which indicate whether each item sold is in a taxable or exempt category, but which do not identify the individual items sold, may be sufficient to prove gross sales but are not sufficient to independently determine the tax status of each sale. In this situation, other records will be required to substantiate the proper collection of tax due, such as purchases records, identification of taxable and nontaxable merchandise on display or documentation of like probative value.
(3) The seller must maintain records which substantiate points of delivery if delivery was made at a place other than his place of business. Such documents should include receipts from parcel delivery services, common carriers, unregulated truckers, the United States Postal Service, foreign freight forwarders, and logs from company vehicles. Such documents must be referenced to specific sales transactions.
(4) Exemption certificates must be dated and retained in order to prove exempt sales. Once a properly completed certificate is obtained, it relieves the seller of liability to collect the tax on transactions to which the certificate applies. Every vendor accepting an exemption certificate must maintain a method of associating a sale made for exempt purposes with the certificate on file. The burden of proving the validity of any properly completed certificate rests with the customer or other person who issues the certificate.
(d) Miscellaneous records. (1) Every vendor must maintain and make available upon request, records and supporting documents for all exemptions, exclusions or exceptions allowed by law or claimed in filing sales and use tax returns.
(2) Records or schedules relating to the sales tax return, such as tax worksheets, general journal, ledgers, sales and purchase journals, schedules accounting for the difference between gross sales and services and taxable sales and services, must be maintained and be made available upon request.
(3) Documentation must be maintained for any refund or credit claimed.
(4) Any vendor who must file any tax returns or schedules required by the federal government, the State of New York, or any municipality within New York State, must keep a copy of all such returns or schedules and make them available to the Department of Taxation and Finance upon request.
(5) If a vendor has signed a record retention agreement with the Internal Revenue Service, the vendor must make a copy of such agreement available upon request.
(6) Vendors must maintain and make available documentation which will provide a meaningful description of their accounting system, whether manual or automated, and the records contained herein. This documentation must be adequate to explain the meaning of all entries on the records.
(g) Incorrect or insufficient records. (1) If the records of a taxpayer are determined to be incorrect or insufficient, the return filed on the basis of information obtained from such records may be deemed to be incorrect or insufficient. The Tax Commission may then determine the amount of tax due the State by using any information available, whether at the taxpayer's place of business or from any other source.
(2) The records of a taxpayer may be deemed to be incorrect or insufficient if:
(i) the records are not maintained in accordance with the provisions of this section; or
(ii) an evaluation of the taxpayer's accounting system discloses that the system does not provide adequate internal control procedures which assure the accuracy and completeness of the transactions recorded in the books and records.