There are many issues to consider when starting or buying a business: permits, licenses and registration issues; employee withholding taxes; unemployment insurance; purchasing the assets and liabilities of an existing business; and annual tax returns, to name a few. Anyone contemplating starting a new business or buying an existing one should discuss the situation in detail with their CPA, professional tax preparer and business advisors.

Permits, licenses, and registrations
Frequently, new businesses must register and obtain their operating permits and licenses prior to beginning operations. The nature and types of permits and licenses required from New York State will often depend the nature and size of the business. Entrepreneurs thinking of starting a business should contact the “Governor’s Office of Regulatory Reform” for relevant information, check the “Online Permit Assistance and Licensing” website or the Department of State website.

In addition to state requirements, many municipalities and counties have local requirements with which a new business must comply, so entrepreneurs should also contact local authorities where their business will be located and conducting business. For example, businesses in New York City may be subject to the city’s business income and excise taxes. Details can be obtained from the New York City Department of Finance. The “New York State Tax Guide for New Businesses” (Publication 20) is also a good source of information for anyone starting a business.

Recordkeeping
Businesses must maintain accurate financial records to enable preparation of correct business tax returns and to compare records from one time period to another (month-to-month, quarter-to-quarter, year-to-year). In addition, the underlying documentation, including canceled checks, receipts, purchase orders, sales ledgers and other records, whether in paper or electronic form, must be kept, usually for a minimum of three years from the date the relevant tax return was filed. All relevant business records must be made available to the New York State Department of Taxation and Finance, when requested.

Employee Tax Issues
Whether starting a new business or buying an existing business, there will be employees. There are numerous important tax issues to address as regards employees.

Employer Identification Number
A business must obtain a Federal Employer Identification Number (EIN) from the Internal Revenue Service (IRS) to identify the business to the IRS and to New York State. An EIN can be obtained online through the IRS website or by submitting an “Application for Employer Identification Number” (Form SS-4). The form is on the IRS website or can be obtained by contacting the IRS directly.

After receiving an EIN, the business must then be registered with New York State Labor Department through their website or by contacting them directly.

Employee Information Reporting
Within 20 days of an employee’s hiring date, the business must report to the Tax Department certain information (i.e. name, address and Social Security Number) on every employee who will be working within New York State. The “hiring date” is defined as the first day the employee performs any services for which they will receive wages, commissions or other compensation.

Withholding Taxes
Businesses are required to deduct or “withhold” certain amounts from their employees’ compensation, then periodically remit the withholdings to New York State. Withholding Taxes for individuals are similar to Estimated Tax Payments required of businesses and are used to meet the taxpayer’s income tax liability at year end.

Unemployment Insurance
Businesses may have to pay New York State “Unemployment Insurance Tax” that provides temporary compensation for eligible workers who lose their jobs through no fault of their own. Businesses that must pay Unemployment Insurance Taxes must file a “Quarterly Wage Report” with the Tax Department that is used by the Department of Labor to calculate Workers’ Benefits.

Both Withholding Tax Returns (Forms NYS-1 and NYS-45) and Quarterly Wage Reports including Unemployment Insurance can be field electronically through the Online tax Center of the Tax Department. To file electronically, a business must first register, then can report their tax information online and make payments directly from their bank account to the Tax Department.

The “Employer’s Guide to Unemployment Insurance, Wage Reporting and Withholding Tax” (Publication NYS-50) contains detailed information on Withholding Taxes and Unemployment Insurance, as does the “Withholding Tax Tables and Methods” (Publication NYS-50-T) for New York State, New York City and Yonkers. The state’s Department of Labor or Withholding Tax Information Center can also be contacted for more information.

Workers’ Compensation and Disability Insurance
Businesses also have to pay “Workers’ Compensation” and “Disability Insurance” for all employees to provide benefits to workers who become ill or are injured “on or off the job.” Private insurance firms and the State Insurance Fund have additional information on these benefit programs.

Selling products or services
Generally, businesses are required to collect sales tax on products and services they sell.

Certificate of Authority
To verify that the business is registered for purposes of collecting and remitting sales taxes and to legally make taxable sales or to issue or accept Sales Tax Exemption Certificates a business must possess a “Certificate of Authority” (COA) issued by the Tax Department. At least 20 days before a business begins operation, a business must apply for a COA. Applications can be made through the “Online Permit Assistance and Licensing” website or by submitting an “Application to Register for a Sales Tax Certificate of Authority” (Form DTF-17) to the Tax Department. Businesses that make taxable sales before obtaining their COA are subject to a penalty of up to $10,000.

“Sales Tax Returns” must be filed within 20 days from the end of the tax period, whether or not any tax is owed. Sales Tax Returns and any payments due must be submitted on time and can be paid electronically through the Online Tax Center. The process is the same as for Withholding tax payments: first, register the business, then report their sales tax information online and make payments directly from their bank account to the Tax Department.

Collection of Sales Taxes
Most products and services are subject to sales tax, including items sold at a retail store or services performed by a cleaning service. In these scenarios, the business must collects sales tax from the purchaser of the product or service. Certain goods are automatically exempt from sales tax, including food, drugs and other medicines, while other sales tax exemptions must have a “Sales Tax Exemption Certificate.” In addition, certain purchases, such as inventory intended to be sold, may be exempt from payment of sales tax.

Additional information on Sales Tax regulations can be found in the “New York State and Local Sales and Use Tax Quick Reference Guide” (Publication 850) and “A Guide to Sales Tax in New York State” (Publication 750). Businesses can also contact the Tax Department’s “Sales Tax Information Center.”

Sales Tax Rates
Because Sales Tax Rates vary by location, businesses must determine the appropriate rate for each location in which they make sales and collect the correct amount of sales tax. The Sales Tax Rates for various locations can be found on the website “Sales Tax Jurisdiction and Rate Lookup” or in the “New York State Sales and Use Tax Rates by Jurisdiction” (Publication 718).

Sales Tax Recordkeeping Requirements
Beyond normal recordkeeping requirements, the following detailed information must be kept on sales taxes collected:

1) Amount of each sale with receipt or invoice copy
2) Amount of sales tax collected, if any, on each sale
3) Amount of any credit or return on each sale
4) Jurisdiction in which the sale was made/delivered
5) Exemption Certificates, if required, on all tax-exempt sales made
6) Exemption Certificates on all tax-exempt purchases made
7) Daily record of all sales (cash, debit, credit card, other)

Additional information is available in the “Important Information for Business Owners” (Publication 900).

Partly or Fully Buying an Existing Business
There are specific concerns and risks in partly or fully buying an existing business, particularly ensuring that there are no unpaid tax liabilities and penalties owed by the current owners, that would become the new owners’ responsibility. In fact, the Tax Department recommends that prospective buyers contact them before buying a business to determine if the business owes any taxes because failure to do so virtually guarantees that the new owner will have to pay the seller’s tax liabilities.

Therefore, at least 10 days before paying the seller for part or all of a business, the prospective buyer should submit a “Notification of Sale, Transfer or Assignment in Bulk” (Form AU-196.10) to the Tax Department. They will then review the business’ tax status and issue one of the following:

- If no unpaid taxes and no review or audit required: “Purchaser’s and/or Escrow Agent’s Release – Bulk Sale” (Form AU-197.1). The buyer can then safely pay the seller and take control of the business.

- If there are unpaid taxes and a review or audit is required: “Notice of Claim to Purchaser” (Form AU- 196.2). The buyer should withhold payment until notified by the Tax Department that all taxes have been paid by the sellers.

Additional information can be found in the “Guidelines for Bulk Sales Transactions” (TSB M 83(6)S) or the buyer can contact the Sales Tax Information Center. Because of these risks, it is strongly recommended a prospective business buyer consult with their CPA, professional tax preparer and business advisors before purchasing an existing business.

Permits, Licenses and Registrations
Usually, the permits, licenses and registrations obtained by the sellers cannot be transferred to the buyer, so the buyer must apply for new ones.

Certificate of Authority
As with existing permits, licenses and registrations, the buyer must apply at least 20 days before acquiring the business for a new Sales Tax Certificate of Authority through the “Online Permit Assistance and Licensing” website or by submitting an “Application to Register for a Sales Tax Certificate of Authority” (Form DTF-17) to the Tax Department.

Acquisition of Real Property
If purchase of an existing business includes real property (deed or lease), the buyer may be liable for the Real Estate Transfer Tax, if the seller does not pay it. Information on this tax can be found in the instructions for the “Combined Real Estate Transfer Tax Return” (Form TP-584).

Acquisition of Business Assets
If purchase of an existing business includes business assets (i.e. furniture, equipment), the buyer must pay sales tax on the value of the assets.

Other Taxes
Specific businesses or business activities may be subject to other taxes, as noted below:

a) Metropolitan Commuter Transportation Mobility Tax (MCTMT): business activities are within the Metropolitan Commuter Transportation District (MCTD)

b) Cigarette and Tobacco Products Tax: produces, possesses or sells any tobacco products

c) Alcoholic Beverage Tax: produces, imports or sells alcoholic beverages

d) Petroleum Business Tax: produces, imports or sells petroleum products

e) Highway Use Tax and Fuel Use Tax: operates any vehicle weighing over 18,000 pounds on New York State public highways

f) Waste Tire Management Fee: sells tires or vehicles with tires

Additional information on these and other taxes can be found in the “New York State Tax Guide for New Businesses (Publication 20) or the business can contact the “Miscellaneous Business Tax Information Center” division of the Tax Department.

Because of the risks in starting or buying a business and the complexity of the tax issues, entrepreneurs and prospective business buyers should thoroughly discuss their specific circumstances with their CPA, professional tax preparer and business advisors.

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