New York – Taxpayer May be Liable for Tax Collected and Remitted on its Behalf

SALT Report 2784 – The New York Department of Taxation and Finance issued an advisory opinion regarding whether a Taxpayer would be held jointly liable for the tax it allows another party to collect and remit on its behalf.

In this case, the Taxpayer is part of a large restaurant group that operates food concession stands in sports stadiums. At one point the Taxpayer entered into a contract in which it agreed to sublease several concessions stands to another related entity.  Although the concession stands would be under the control of the related entity, the Taxpayer would remain the employer of the cashiers and servers that work in the concession stands, as required by the employee’s union contract.

The Taxpayer states that the employees would be responsible for selling the food and beverage and collecting all payments at these locations. The receipts from the food sales, including the tax receipts, would be deposited into a bank account controlled by the related entity. The related entity has agreed to file the appropriate sales tax returns with the Department and remit the tax received from the food and beverage sales.

The Taxpayer requested a ruling as to whether it would be responsible for remitting sales tax to the Department if the other entity has agreed to collect and remit the sales on the Taxpayer’s behalf.

In its response, the Department stated that any person required to collect tax cannot contract or assign that duty to another party. Because of the Taxpayer’s agreement with the related entity, in which the Taxpayer’s employees collect the payments for food and beverage sales, and the entity has agreed to remit the tax to the Department with its sales tax returns, the Department concluded that the Taxpayer and the entity are co-vendors as defined in the state’s Tax Law.

Therefore, the Taxpayer and the entity would be jointly liable for any sales tax due on its sales of food an beverages at the stadium location.  This means that the Taxpayer would be held liable for the tax if the entity fails to remit it to the Department.  Further, the Taxpayer would also be liable if the entity was late with its return or failed to remit the correct amount of tax.

Additionally, the Department warns that the Taxpayer should take steps to ensure it receives all copies of the sales tax returns submitted by the related entity and confirm that all tax payments are accurate and timely made.  This is because there are no means available for the Taxpayer to report the tax collected by the entity on its own sales and use tax returns unless it also has the tax receipts that are to be paid with the submitted return.

For Further Information

New York Department of Taxation and Finance – TSB-A-13(15)S