Objective

To determine the extent of implementation of the recommendation included in our initial audit report, Sales Tax Vendor Registration Practices (Report 2020-S-40).

About the Program

The Department of Taxation and Finance (Department) is responsible for administering more than 40 State and local taxes, including the sales and use tax. Provisions of State Tax Law (Law) impose a tax on sales of tangible personal property and certain services, with some exemptions, and require vendors that make these sales to register for a Certificate of Authority (COA), collect the tax from customers, and remit the tax to the State.

New York's sales tax is imposed at a rate of 4%. Additional sales taxes are administered by the Department and imposed by localities and range from 3% to 4.875%, and in the Metropolitan Commuter Transportation District at 0.375%. The use tax is imposed on taxable items or services used in New York when a sales tax has not been paid. The Department may deny a COA in some circumstances, such as when a vendor submits an incomplete application or has unpaid tax debts. The Department may also assess penalties on vendors that make taxable sales without a COA.

The State share of sales and use tax collections is the second largest tax amount collected annually and represented 13.9% of all taxes collected by the Department for the State Fiscal Year (SFY) ending March 31, 2022. During SFY ending March 31, 2022, the Department distributed over $36.9 billion in sales and use taxes, with approximately $16.5 billion going to the State and over $20.4 billion going to localities. New York has generally experienced a trend of growing sales and use tax collections over the past decade.

The objective of our initial audit, issued October 14, 2021, was to determine whether the Department had taken steps to ensure that persons who are required to register as sales tax vendors, including those with no physical presence in the State, had done so. We found that the Department had generally taken steps to ensure that entities required to register as sales tax vendors had done so; however, we also identified opportunities for improvement. We found vendors that were denied a COA yet continued to operate and likely make taxable sales, as well as unregistered vendors that submitted sales tax returns showing taxable sales. These findings were attributable, in part, to the lack of information-sharing among the Department’s divisions and the lack of relevant follow-up.

Key Finding

The Department has made progress addressing the issues we in the initial audit report and has implemented the one recommendation from that report.