Is your business collecting but not properly remitting sales tax? If so, some taxpayers really do go to jail for that! Let’s take a brief look at two “hot off the press” examples:
New York: On July 21, 2023, a Staten Island, New York locksmith pleaded guilty to New York state criminal tax charges for failing to remit more than $860,000 in New York sales tax that he collected from customers but did not properly remit to the Department of Taxation and Finance. He is awaiting sentencing scheduled for October, but he is facing up to thirty years in state prison. According to the press release, the taxpayer engaged in a fraudulent scheme affecting more than fifty sales tax periods spanning twelve years.
New Jersey: Similarly, on June 19, 2023, a Union County, New Jersey restauranteur pleaded guilty to state criminal tax charges for failing to remit nearly $500,000 in New Jersey sales tax that he collected from customers but did not properly remit to the Division of Taxation. He is awaiting sentencing scheduled for September, but he is facing up to three years in state prison. Apparently, the restauranteur engaged in a multi-year underreporting scheme remitting only 40% of the sales tax actually collected from customers.
Take Away: Sales tax issues can be complicated, and cash flow concerns can pose difficulties for both large and small businesses. However, sales tax (much like payroll tax) is considered a “trust fund” tax and carries additional scrutiny and oversight. Collecting tax from customers and using those funds for other purposes, even if used for otherwise legitimate business purposes, can present significant risks to both the business and its owners and operators. The consequences could range from potential financial ruin in back tax, interest, and penalty; the imposition of personal liability for those individuals deemed “responsible persons” of the business; and, as here, even criminal prosecution.
If you or your business are dealing with sales tax or other tax issues, there may be legitimate “off ramps” that you can take well before the criminal agents come knocking, such as a “voluntary disclosure” for starters. Under the right circumstances, a voluntary disclosure can be a great tool to clean up tax violations, whether civil or criminal, fraudulent or accidental, so that you can rectify the situation and once again sleep soundly. At Rothenberg Tax Law, LLC, we have extensive experience assisting eligible taxpayers of all stripes to apply for and negotiate successful voluntary disclosures as well as the implementation of other applicable mitigation strategies.
For additional information:
- NY Department of Taxation and Finance Press Release here.
- NJ Office of Attorney General Press Release here.
