We have all heard or read about New York State’s financial difficulties. In its efforts to increase revenue, New York is aggressively addressing the “tax gap”, the term for the billions of tax dollars not paid by businesses and individuals. The number of audits is rising as is the number of criminal fraud investigations.
With a hefty investment in technology to aid in “data mining”, the Tax Department is getting access to and analyzing third party information to identify possible errors in tax filing. A franchise’s sales may be verified against the parent company’s records. DMV records are matched to car sales. If retail sales can not be proven with sales receipts, the state tax department is allowed to calculate sales based on other criteria, for example comparable store sales or rental space. The burden is on the taxpayer to prove the state wrong.
New York is not relying on technology alone. More representatives are making unannounced visits to businesses. The representative will check for the store’s certificate of authority, take a head count of employees, and, perhaps, engage an employee in a discussion about the business. All efforts are aimed at identifying discrepancies between what is seen at the place of business and what the business has reported to the State. A discrepancy will likely result in a bill to the taxpayer or an audit.
The Tax Department is also closely examining contractors’ returns for the amounts of credit taken for materials purchased. The cost of materials purchased to complete a job is a valid deduction but the State might request that the contractor provide documentation to support the credit. Again, an audit might be initiated.
New York State is looking for money. The Tax Department is examining returns, visiting businesses and seeking ways to bring in revenue. The best defense for the taxpayer is better record keeping, longer retention of records, and professional advice in responding to the Tax Department.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
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