New York has complex sales and use tax laws that apply to many services along with tangible goods. Service providers doing business in New York must understand their tax obligations and properly collect and remit sales tax to avoid penalties.
This comprehensive guide examines New York’s sales tax requirements for services, including current tax rates, types of services that are taxable or exempt, record keeping rules, filing procedures, and more. Key questions are addressed concerning service sales tax calculations, multijurisdictional tax collection, compliance, audits, and recent legislative changes impacting service taxation in New York.
Overview of Service Sales Tax in New York
New York Tax Law defines a “sale” to include “any transfer of title or possession or both, exchange or barter, rental, lease or license to use or consume…tangible personal property or any service enumerated in article twenty-eight.” Thus, services listed under Tax Article 28 will incur New York sales tax.
What Services are Taxable in New York?
New York taxes over 40 different services under Article 28 of the Tax Law. Some major categories include:
- Utility services like gas, electric, refrigeration, and steam
- Telecommunication services including telephone, mobile, and paid television
- Personal services such as beauty, health spa, and health club services
- Services to property including interior decorating, cleaning, and maintenance
- Custom software services and data processing
- Entertainment and amusement admissions
- Transportation and delivery services
See the table below for more details on commonly taxed services:
| Taxable Service | Details |
|---|---|
| Utility Services | Gas, electric, steam, and refrigeration services |
| Telecommunications | Local, long distance, mobile, and paid TV services |
| Personal Services | Barber, beauty, tanning salon, massage, diet/weight loss services |
| Services to Property | Interior decorating, cleaning, repair, maintenance |
| Information Services | Custom software, database access, data processing |
| Entertainment | Admission to amusement parks, shows, sporting events |
| Transportation | Limousine, bus, flight, shipping, delivery services |
Are Any Services Exempt from Sales Tax?
Yes, New York provides exemptions for certain services including:
- Professional services in fields like healthcare, accounting, legal, etc.
- Education services provided by a school, college or university
- Certain real estate agent and broker commissions
- Services performed on exempt tangible personal property
- Services provided under an employer-employee relationship
So services provided by doctors, lawyers, teachers, real estate agents, and employees acting within their job duties are generally exempt.
What is the New York Sales Tax Rate on Services?
New York has a 4% baseline statewide sales tax rate that applies to taxable services. However, New York City and various counties impose local sales taxes on services that raise the total rate significantly higher for businesses operating in those areas.
Combined state and local tax rates on services range from 4% to 8.875% depending on the place of sale, as shown below:
| Jurisdiction | Tax Rate |
|---|---|
| New York State Sales Tax | 4% |
| MCTD Tax | 0.25% |
| New York City Local Tax | 4.5% |
| County Sales Taxes | avg. 3-4% |
| Total Tax Rates | 4 – 8.875% |
So a delivery business making sales in Manhattan must collect 8.875% sales tax on services, for example, while a telecom provider in Suffolk County would charge 7.625%. Businesses should verify the latest rates imposed based on their geographic service areas.
How Should Businesses Collect and Remit Service Sales Tax?
Service providers should follow these key steps to comply with New York’s service sales tax rules:
1. Register for Sales Tax Permits
Businesses must register for the required sales tax permits and certificates of authority to legally collect New York sales tax from service customers and clients. This includes the NY State Certificate of Authority and certificates from each county/city where taxable services will be sold and delivered.
2. Integrate Sales Tax Calculation and Collection
POS systems, ecommerce platforms, or accounting software must be configured to automatically calculate service sales tax rates at checkout/point of sale based on delivery ZIP code. Rates vary by location so this zip-based lookup is essential.
3. File Regular Sales Tax Returns
Businesses must file quarterly NY State Sales Tax returns (Form ST-100) declaring total taxable sales from services and goods and total sales tax due. Returns generally must be filed every 20th day after the end of each quarterly reporting period covering the prior 3 months sales.
4. Remit Collected Sales Tax on Time
Collected service sales taxes must be remitted on time with the quarterly returns to avoid severe penalties and interest. New York also requires that more than 55% of current liability is remitted by the 3rd month of the quarter to avoid owing additional fees.
Key Considerations Around Service Sales Tax Compliance
Properly applying New York’s multijurisdictional tax rules across dynamic service offerings poses major compliance challenges. Here are some key problem areas businesses should take extra care to address:
Multijurisdictional Tax Collection
Businesses must track place of sale to assess accurate rates and jurisdictions on every transaction. For mobile and delivery services crossing counties/cities, advanced mapping integration is essential to getting this right.
Taxability Determination Issues
Withlaws differing by locality, properly classifying services as taxable or exempt is difficult. For newer digital services like streaming media, cloud services, or apps, businesses may need external guidance. Audits around classification are common.
Managing Tax Changes Across Locations
Law changes, new taxes, and rate adjustments routinely occur at both state and local levels. Keeping current on requirements across jurisdictions requires resources and the latest updates.
New York Service Sales Tax Forms, Returns, and Filing
Staying compliant involves regular filing of returns and forms with the NY Department of Taxation. Key documents include:
New York Sales Tax Form ST-100
The quarterly NY State and Local Quarterly Sales and Use Tax Return form ST-100 details total taxable sales, taxes due by jurisdiction, and more. Returns and payments are generally due 20 days after each quarter ends.
Schedule N-ATT For Multi-Location Services
Service companies making sales across multiple NY jurisdictions must include Form ST-100 Schedule N-ATT. This breaks down taxable sales and taxes collected by each county, city, etc.
Schedule T For Telecommunication Services
Telecoms must include Form ST-100 Schedule T detailing intrastate, interstate and international taxable sales revenue. Different sourcing rules apply so this added form is essential.
Form DTF-17 For Business Purchases
To claim credit for sales taxes paid on services resold or used in the business, Form DTF-17 Schedule for Part-Quarterly (Monthly) Filers must be included. Materials incorporated into taxable services qualify.
In addition to properly collecting and remitting sales taxes due each quarter, service providers must also keep detailed tax records demonstrating compliance and sales tax calculations for a minimum of 3 years.
Sales Tax Exemption Certificates
Qualifying organizations providing certain exempt services or made eligible by NY statute can be exempt from collecting sales tax. To document exemption status for audits, sellers must keep relevant certificates on file including:
- Form ST-119 – Exempt Organization Certificates
- Form ST-120 – Resale Certificates
- Form FT-1020 – Exemption Certificate for Nonresident Telecom Customers
Government agencies, certain nonprofits, wholesalers reselling services, and multistate telecom customers are commonly eligible for authorized exemptions. But strict rules apply so prudent procedures around collecting exemption forms are vital.
Audits and Assessments for Service Sales Tax Issues
With intricate regulations spanning complex service transactions, New York assessments for underpayment of owed sales taxes are common. Various penalties can apply for noncompliance:
Interest and Late Filing Penalties
Missed or late returns trigger combined interest and penalties of 10% to 20% of taxes due. Paying after deadlines is thus quite expensive.
Assessment of Uncollected/Unremitted Tax
If audits uncover uncollected, unfiled, or deficiently calculated service sales taxes, New York will demand payment of taxes owed plus 7% penalties if reasonable cause lacking. Significant tax bills can result. Negative audit adjustments also stay on record for 3 years, elevating future audit risk.
Revocation of Certificates of Authority
If severe delinquencies, fraud or tax crimes are uncovered, New York can revoke a business’s certificates stopping ability to operate or do business collecting sales tax legally. This death penalty scenario makes compliance imperative.
How Can Businesses Reduce Service Sales Tax Risk?
The most effective ways for providers to minimize service sales tax exposure include:
Utilizing Automated Sales Tax Software
Configuring automated calculation, collection, filing, and remittance processes through integrated software tools helps mitigate compliance gaps that lead to audits and tax bills.
Performing Regular Internal Audits
Conducting cross-departmental reviews of collection processes, classifications, reporting, payments and liability management enables self-correction that demonstrates good faith.
Seeking Expert Guidance
With intricate, changing taxability rules across jurisdictions, utilizing external sales tax accountants or attorneys for advice can pay dividends when issues emerge. They can also help guide any audit defense if needed.
Conclusion
New York levies intricate sales taxes on over 40 classes of services at rates up to 8.875% depending on jurisdictions served, posing challenges for providers. Businesses performing or delivering taxable services in New York must take care to properly register, integrate accurate automated calculation and collection of taxes owed based on place of sale determinations, correctly classify services, file required returns, and remit taxes on time to avoid severe penalties or revocation of authority to operate. Expert guidance, software infrastructure, and proactive internal auditing is key to minimizing sales tax risk exposure amid the complex, high-liability terrain of New York service taxation.
Frequently Asked Questions
1. What common services are exempt from sales tax in New York?
New York exempts professional services like legal, healthcare, accounting, educational services, real estate broker commissions, and services to exempt property from sales tax.
2. What form do I file for New York sales tax returns?
Form ST-100 must be filed quarterly by most taxpayers to report total sales, taxes due by jurisdiction, and remit amounts owed. Telecoms also attach Schedule T, while those operating multi-jurisdictionally attach Schedule N-ATT.
3. When do I need to register for a New York Sales Tax Certificate of Authority?
Before making any taxable sales in the state, including sales of taxable services, businesses must apply for a Certificate of Authority permit.
4. Can I charge different sales tax rates to customers based on where they receive my service?
Yes, New York taxes services based on place of delivery, so mobile and delivery businesses must map customer locations to precise taxing jurisdictions to charge correct rates.
5. If my client is exempt from paying sales tax, what form should they provide?
To document valid exemptions, you must collect an appropriate New York exemption certificate like the ST-119 for nonprofits or ST-120 for resellers. Government agencies complete specialized forms.
