Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. New York first adopted a general state sales tax in 1965, and since that time, the base sales tax rate has risen to 4 percent. On top of the state sales tax, there may be one or more local sales taxes, as well as one or more special district taxes, each of which can range between 0 percent and 4.875 percent. Currently, combined sales tax rates in New York range from 4 percent to 8.875 percent, depending on the location of the sale.
As a business owner selling taxable goods or services, you act as an agent of the state of New York by collecting tax from purchasers and passing it along to the appropriate tax authority. As of March 2019, sales and use tax in New York is administered by the New York Department of Taxation and Finance.
Any sales tax collected from customers belongs to the state of New York, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.
Use tax is similar to sales tax, but applied where goods are consumed rather then where purchased. As an example, consider materials purchased tax free by a construction company. Should the company choose to consume those materials for their own purposes such as upgrading an office, use tax would be due on the materials used.
To summarize, use tax is due when goods are purchased tax free by a merchant and then converted for use, consumption, or enjoyment by that same merchant.
In New York, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto tax collector.
To help you determine whether you need to collect sales tax in New York, start by answering these three questions:
If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.
If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.
It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.