New York Sales Tax Penalties & Interest Checklist
Introduction
New York imposes sales tax on retail sales of tangible personal property and certain specifically enumerated taxable services under Tax Law Article 28. Businesses making taxable retail sales must register for a Certificate of Authority. Registered vendors must file sales tax returns according to their assigned filing frequency and remit tax due, even if no sales were made during the period.
If taxes are not paid on time or returns are not filed correctly, New York assesses penalties and interest charges under statutory provisions. Understanding how penalties and interest work—and what the state considers when enforcing them—is important because unpaid taxes grow over time and can trigger additional collection actions.
What This Issue Means
Sales tax penalties are statutory charges under Tax Law Section 1145 for specific violations
failure to file at 5 percent per month up to 25 percent maximum; failure to pay at 0.5 percent per month up to 25 percent maximum; substantial understatement at 10 percent if error exceeds the greater of 10 percent or $2,000.
The minimum penalty for returns over 60 days late is the lesser of $100 or 100 percent of the tax due. Interest accrues daily under Tax Law Section 1142 at rates set quarterly, equal to the federal short-term rate plus 5.5 percentage points, with a minimum of 7.5 percent. These charges appear on state notices, demand letters, and account statements from the New York
Department of Taxation and Finance.
Why the State Issued This or Requires This
The state applies penalties and interest to encourage timely filing and payment. Late payment and failure-to-file penalties are standard administrative enforcement tools used to manage revenue collection.
Interest compensates the state for the time value of money owed to it. Interest rates are set quarterly by the Tax Commissioner under Tax Law Section 1142. Current and historical rates are published at tax.ny.gov/pay/interest.
What Happens If This Is Ignored
If penalties and interest remain unpaid, the Department may file a tax warrant under Tax Law
Section 1141 with the Secretary of State and county clerk, creating a lien on real and personal property. The Department may then enforce collection through income executions up to 10 percent of gross wages, bank levies, and seizure of personal property. Ignoring enforcement notices escalates collection efforts rather than reducing or dismissing the charges.
What This Does NOT Mean
Penalties and interest are civil administrative charges. Criminal prosecution under Tax Law
Section 1817 is a separate process requiring evidence of willful intent to evade tax. Revocation of the Certificate of Authority under Section 1134 of the Tax Law is a distinct administrative procedure triggered by certain infractions.
Penalties and interest alone do not automatically trigger either action. The Department may abate penalties for reasonable cause under Tax Law Section 1145. You have not lost the right to dispute the underlying tax liability or the penalties themselves.
Checklist: What to Do After Receiving a Penalty and
Interest Notice
Step 1: Gather and Organize Your Documents
Collect the state notice or letter showing the penalty and interest amount. Obtain the original sales tax return or returns involved. Gather your business records showing sales, purchases, and tax collected. Locate bank statements or payment records showing when taxes were paid.
Find any prior correspondence from the Department about this account and documentation of any business changes, closures, or transitions. Keep all originals in one folder or file, make copies for your records, note the date you received the state notice because this affects your deadline to respond, and do not discard any documents.
Step 2: Review the Notice for Accuracy
Check whether the business name and identification number are correct. Verify that the tax periods listed are accurate. Confirm the tax amount is correct based on your records. Identify whether the penalty rates and amounts are clearly shown. Check whether the interest calculation period is displayed.
Determine whether the notice shows a deadline for response or payment. Compare the notice to your filed returns, note specific discrepancies if information appears incorrect, check whether
the Department has applied more than one penalty, and do not assume errors will correct themselves.
Step 3: Determine Your Deadline to Respond
Response deadlines vary by notice type. For a Notice of Determination assessing tax, penalties, and interest, you have 90 days from the date the notice is mailed to file a protest. You may either request a conciliation conference with the Bureau of Conciliation and Mediation Services by filing Form CMS-1-MN or petition the Division of Tax Appeals for a formal hearing.
The 90-day deadline is statutory and strictly enforced under Tax Law Section 1138. Extensions are generally not available. Missing the deadline makes the assessment final and unappealable.
If the last day to file a protest falls on a Saturday, Sunday, or legal holiday, the deadline is extended to the next business day. Mark the response deadline clearly on your calendar and begin gathering supporting documents immediately.
Step 4: Determine If You Want to Request a Hearing or File a Protest
After receiving a Notice of Determination, you have two options for protesting. Request a conciliation conference with the Bureau of Conciliation and Mediation Services using Form
CMS-1-MN, or petition the Division of Tax Appeals for a formal hearing before an administrative law judge.
You may be represented by an attorney, certified public accountant, enrolled agent, or other authorized representative. Filing a Request for Conciliation Conference stays collection activity during the conciliation process. Petitioning the Division of Tax Appeals does not automatically stay collection, but you may request a stay by posting a bond or demonstrating financial hardship.
Determine whether you want to dispute the penalty, the tax, or both, and gather evidence supporting your position, such as documented reasons for late payment, evidence of timely filing, or proof of payment.
Step 5: Identify Potential Penalty Abatement Grounds
The Department may abate penalties for reasonable cause under Tax Law Section 1145.
Reasonable cause exists when you exercised ordinary business care and prudence but were nevertheless unable to comply. You must submit a written request explaining the circumstances with supporting documentation.
The Department considers your compliance history when evaluating reasonable cause requests. New York does not have a separate first-time penalty abatement program. Document any circumstances that led to the late payment or filing, such as illness, natural disaster,
business closure, or the death of the owner. Gather records proving your compliance history in prior years and prepare a clear, factual explanation of what happened.
Step 6: Contact the Department of Taxation and Finance for Clarification If
Needed
Contact the Sales Tax Information Center at (518) 485-2889, Monday through Friday, 8:30 AM to 4:30 PM Eastern Time. You may confirm the penalty and interest amounts, ask questions about the calculation, request copies of Department records for the account, inquire about payment plan options, and get information about penalty abatement procedures.
Have your notice and business identification number ready, ask specific factual questions, request written confirmation if important information is provided by phone, and keep notes on names, dates, and information provided.
Step 7: Decide Whether to Pay Now, Request a Payment Plan, or Dispute
the Amount
You have three general options. Pay the full amount to stop interest from accruing. Request an
Installment agreement by submitting Form DTF-4, Application for Installment Payment
Agreement, with financial documentation. Request a hearing to dispute the penalty, interest, or tax before paying.
Understand that petitioning the Division of Tax Appeals does not automatically stop collection action, while filing Form CMS-1-MN continues collection. Determine which option is realistic for your situation. If paying in full, ensure payment is received and credited properly. Interest continues to accrue on unpaid tax balances during an Installment Payment Agreement.
Step 8: If Disputing, Gather Supporting Evidence
Collect bank records or canceled checks showing payment dates. Find evidence of timely mailing if claiming payment was sent on time. Gather business records explaining the reason for the late payment. Gather documentation of circumstances that were beyond your control.
Compile records of prior compliance with tax obligations. Include correspondence with the
Department showing that prior guidance was followed.
Obtain the accountant/bookkeeper's records and statements. Organize evidence chronologically, make clear, legible copies, write a brief explanation of what each document shows, do not submit original documents to the Department, and keep originals in your records.
Step 9: Prepare Your Response or Hearing Request
Your submission should include your name, business name, and contact information. Provide the notice number or reference information. State clearly what you are disputing. Explain the
facts and circumstances supporting your position. Include copies of supporting documents, your signature, and date.
Keep your explanation factual and organized. Avoid emotional language or accusations.
Address the specific penalty or interest charge being disputed. Include copies of all supporting documents rather than originals. Meet the Department’s deadline for submission.
Step 10: Submit Your Response Within the Deadline
Follow the exact instructions on your notice for submission. Methods may include mailing to the address shown on your notice, submitting online through the state’s portal if available for your notice type, or delivering in person to a state office. Use certified mail with a return receipt to create proof of delivery. Keep a copy of everything you submit. Submit before the deadline shown on the notice. Do not submit originals; submit copies only.
Step 11: Monitor Your Account After Submission
The Department processes your submission and may request additional information. If requesting a hearing, you may receive notice of a hearing date. If no hearing is requested, the
Department reviews your submission and issues a determination.
You will receive written notice of the outcome. Interest may continue to accrue during the review process unless you filed Form CMS-1-MN, which stays in collection. Keep checking your mail for Department correspondence. Note any new notices or hearing date notices. Continue monitoring your account for any changes if a hearing is scheduled.
- Missing the 90-day deadline makes the amount final and eliminates the right to appeal.
- Sending original documents to the Department poses a risk; always submit copies and
- Missing the statutory protest deadline limits your options for disputing the charge.
- Ignoring follow-up notices requires prompt attention; additional notices do not resolve
- Providing incomplete supporting evidence may not address the Department’s concerns.
- Assuming the penalty will be automatically removed is incorrect; penalties remain unless
- Not keeping payment records eliminates proof of compliance; document how and when
- Confusing the penalty dispute with the tax dispute may require addressing both
- State enforcement notices and responses
- Sales tax audits, assessments, and collections
- Payroll & trust fund tax enforcement issues
- Penalty and interest reduction options
- Payment plans and state tax relief eligibility
- Representation before state tax agencies
Step 12: If a Hearing Is Held or a Decision Issued, Review the Determination
The Department will issue a formal determination letter explaining the decision. The letter includes notification of whether the penalty was reduced, removed, or upheld. You will receive notification of any interest adjustments and instructions for payment if amounts are still owed.
After a Division of Tax Appeals hearing, an unfavorable decision may be appealed to the Tax
Appeals Tribunal. After a Tribunal decision, you may appeal to the Appellate Division of the
Supreme Court. Read the determination carefully, understand the Department’s reasoning, calculate what is still owed, if anything, follow instructions for payment or next steps, and keep the determination in your records.
What Happens After This Is Completed
Once you have submitted your response, requested a hearing, or paid the amount owed, the
Department will process your submission. If a hearing is requested, you may receive a notice of the hearing date. The Department will examine your evidence and make a formal determination
if the penalty is contested. If the amount is paid in full or an Installment Payment Agreement is established, the collection notice closes and interest stops accruing upon payment.
Common Mistakes to Avoid keep the originals in your records. themselves. formally abated by the Department. payments are made. separately through the protest process.
Frequently Asked Questions
How long does interest accrue on unpaid sales tax?
Interest continues to accrue on unpaid tax amounts until the full amount is paid. Interest accrues daily at quarterly-set rates under Tax Law Section 1142. The rate equals the federal short-term rate plus 5.5 percentage points, with a minimum of 7.5 percent.
Can the Department remove or reduce penalties?
The Department may abate penalties for reasonable cause under Tax Law Section 1145.
Reasonable cause exists when you exercised ordinary business care but were unable to comply due to circumstances beyond your control. You must request this relief formally with a written explanation and supporting documentation.
What is the difference between a penalty and interest?
A penalty is a statutory charge for violating a tax rule, such as late payment or failure to file.
Interest is a charge that accrues daily on unpaid tax amounts, reflecting the time value of money. Penalty rates are fixed percentages; interest rates are set quarterly.
If I request a hearing, does the Department stop collecting?
Filing a Request for Conciliation Conference using Form CMS-1-MN stays the collection activity during the conciliation process. Petitioning the Division of Tax Appeals does not automatically stay collection, but you may request a stay by posting a bond or demonstrating financial hardship.
What happens if I disagree with the hearing decision?
After a Division of Tax Appeals hearing, you may appeal an unfavorable decision to the Tax
Appeals Tribunal. You may file an appeal with the Supreme Court's Appellate Division following a Tribunal ruling. You can request permission to appeal to the New York Court of Appeals following an Appellate Division ruling. Each level has specific filing requirements and deadlines.
How is the interest rate calculated?
Interest rates are set quarterly by the Tax Commissioner. The rate equals the federal short-term rate plus 5.5 percentage points, with a minimum of 7.5 percent. Current and historical rates are published at tax.ny.gov/pay/interest.
Can I pay the tax without paying the penalty or interest?
The Department requires payment of the assessed tax, penalties, and interest. You may dispute penalties and interest through the protest process while the assessment is pending. The
Department applies partial payments to the penalty, then to interest, and finally to tax. You may request penalty abatement separately from disputing the underlying tax.
If I set up a payment plan, does interest stop?
Interest continues to accrue on unpaid tax balances during an Installment Payment Agreement.
The IPA agreement specifies the payment schedule, but interest accrues daily on the outstanding balance until paid in full. Penalties do not continue to accrue once an IPA is approved and you remain in compliance.
What is reasonable cause?
"Reasonable cause" means the failure to file or pay was due to circumstances beyond your control, such as serious illness, natural disaster, or the death of a key employee. You must
document the circumstance and show you acted responsibly once you became aware of the issue. The Department evaluates each request individually.
Closing
Penalties and interest charges from New York are serious administrative actions with statutory authority and defined procedures. The Department has processes for reviewing, reducing, or removing penalties under reasonable cause standards.
Understanding what the charges represent, meeting response deadlines, and gathering supporting evidence are the most important steps. Contact the New York Department of
Taxation and Finance directly for factual information if you are unsure about any part of the process. Taking action promptly reduces stress and improves your options for resolving the issue.
Facing State Tax Enforcement Action?
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