The change to the Empire Zone program from this year's state budget has grabbed the headlines and attention of the business community in New York. Less noticed are the other changes affecting a variety of taxes and new tools given to our public servants in Albany charged with enforcing our complex tax laws.

New York is serious about filing information returns in a timely manner. Failure to file can result in a $1,500 civil penalty. If you are sixty days late the amount is $2,000 and if you are a repeat offender the amounts are doubled.

Sales tax auditors have great leeway in determining sales tax liabilities if they can prove a business has inadequate business records. We know of an instance of an auditor conducting her audit of a restaurant from the parking lot. If the taxpayer could not prove the restaurant had adequate business records, the auditor's results would have withstood tax tribunal scrutiny. We strongly recommend these records be maintained in an electronic format with adequate internal controls as a fundamental good business practice. If you fail to provide adequate electronic sales tax records to New York you can now face a civil fine of $5,000 on top of the sales tax liabilities that would be calculated.

New York has lowered the bar for felony tax crimes. A tax fraud act resulting in evasion of $3,000 is now a Class E felony in New York. Criminal prosecutions are generally the province of the local District Attorney. State level changes in county law allow the local District Attorney to cross designate the Department of Taxation & Finance attorneys to prosecute tax crimes in New York.

The Deputy Commissioner for Enforcement, William Comiskey, is a Spitzer appointee and has taken a very aggressive stance towards his job. We have noticed a significant increase in enforcement activities involving income tax, sales tax, trucking and other excise taxes. We are finding that where they make a sales tax assessment they are also assessing income taxes as well, upping the ante in dealing with our friends from Albany.

In this era of increased enforcement it is critical that you maintain adequate records and substantiating documentation. Sales tax in New York is subject to some pretty arcane rules and interpretations and is always a bone of contention when the auditors come calling. If there is doubt as to the taxability of a transaction please pick up the phone so we can do the research for you. Any assessment of sales tax will automatically come with a 7.5% interest charge (up from 6%) from the original due date of the return. New York won't have to pay you interest on a sales tax refund until 90 days after you actually submit a claim. 

New York's budget made modest cuts in personnel in most areas with the exception of the Department of Taxation and Finance. There are lots of new auditors with new enforcement tools trying their hardest to close the enormous budget gaps examining businesses operating in the Empire State. Be careful out there.

The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.