Tax Type
Retail Sales and Use Tax
Description
Corporation's tax assessments were properly converted to the Taxpayer
Topic
Persons Subject to Tax
Responsible Officer
Date Issued
10-08-2009
October 8, 2009
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek correction of retail sales and use tax assessments for the monthly periods of September 2005 through October 2006 that were converted to ***** (the "Taxpayer"), as a responsible officer of ***** (the "Corporation"). I apologize for the delay in the Department's response.
FACTS
The Taxpayer was the vice president, secretary and treasurer of the corporation. The Department issued assessments for unpaid retail sales and use taxes to the Corporation for the taxable periods at issue. Upon failure to collect the deficiencies from the Corporation, the Department assessed the Taxpayer penalties in the amount of the taxes, interest and penalties owed by the Corporation, pursuant to Va. Code § 58.1-1813.
The Taxpayer states she is not a responsible officer of the Corporation and is not personally liable for the assessments. The Taxpayer contends she was not involved in the daily business operations of the Corporation, had no knowledge of the outstanding sales tax liabilities of the Corporation and was a token officer of the Corporation. The Taxpayer worked a full time job for a separate employer during the time the Corporation was in business. The Taxpayer was married to the president of the Corporation but divorced the president after the Corporation went out of business. The divorce settlement stipulates that the Corporation's president is responsible for the debts of the Corporation. For the reasons stated, the Taxpayer maintains that the Department's determination that she is a responsible officer of the Corporation is erroneous.
DETERMINATION
When a corporation fails or is unable to pay its tax liabilities, the Department may assess the corporate officers personally for a penalty equal to the amount of the liabilities. Virginia Code § 58.1-1813 A states:
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- Any corporate, partnership or limited liability officer who willfully fails to pay, collect or truthfully account for and pay over any tax administered by the Department of Taxation, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty of the amount of the tax evaded, or not paid, collected or accounted for and paid over, to be assessed and collected in the same manner as such taxes are assessed and collected.
Virginia Code 58.1-1813 B defines the term "corporate, partnership or limited liability officer" as:
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- an officer or employee of a corporation, or a member, manager or employee of a partnership or limited liability company, who as such officer, employee, member or manager is under a duty to perform on behalf of the corporation, partnership or limited liability company the act in respect of which the violation occurs and who (1) had knowledge of the failure or attempt as set forth herein and (2) had authority to prevent such failure or attempt.
In Angelson v. Commonwealth of Virginia, 25 Va. Cir. 319 (City of Richmond, 1991), the court determined that four conditions in Va. Code § 58.1-1813 must be met before a person can be held individually liable for taxes assessed against a corporation. The court stated:
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- First, the person must willfully fail to pay, collect, or truthfully account for and pay over a state tax, or willfully attempt in any manner to evade or defeat such tax or its payment. Second, the person must be an officer or employee of the corporation and have a duty to perform the act in respect of which the violation occurs. Third, the person must have (actual) knowledge of the failure or attempt as set out in the statute. And fourth, the person must have authority to prevent such failure or attempt. [Insert added.]
The court stated that the absence of any one of these conditions prohibits the Department from collecting corporate taxes from an individual. Under the standard of willfulness applied by the courts, all that needs to be shown is that the act was "voluntary, conscious, and intentional." Hewitt v. U.S., 377 F.2d 921, 924 (C.A. Tex.). In other words, it need only be shown that the corporate officer was aware of the outstanding liability and knowingly and intentionally paid operating expenses or other debts of the company.
The fact that the Taxpayer was an officer of the Corporation is not in dispute. Based on the Department's records and the information provided by the Taxpayer, the Taxpayer was aware of the Corporation's outstanding sales and use tax liabilities. The Taxpayer possessed an accounts payable spreadsheet that showed an outstanding liability owed for Virginia sales and use taxes. The Taxpayer also contacted the Department to set up a partial payment plan for the Corporation's outstanding tax liabilities.
The evidence also shows that the Taxpayer was involved in other business activities of the Corporation. The Taxpayer personally guaranteed the lease of a company van and apparently made delinquent lease payments to the lessor. The Taxpayer signed the Corporation's 2005 Virginia Form 502 tax return, corresponded with the Corporation's registered agent and collaborated with and provided business records to the Corporation's accounting firm for use in preparing tax returns. While the Taxpayer's initial involvement with the Corporation may have been limited, the Taxpayer was clearly involved with the business in the months prior to her resignation from the Corporation's board of directors. In addition, letters to the Department from the other investors in the Corporation state that the Corporation's president and the Taxpayer conducted all the Corporation's business matters.
The Taxpayer suggests that the terms of the divorce settlement make the president responsible for all debts of the Corporation, including the assessments at issue. While this may be true, the terms of a divorce do not bind the Department with respect to determining if the Taxpayer is a responsible officer and liable for the Corporation's outstanding sales and use tax assessments.
Thus, the Taxpayer meets the criteria set out in Va. Code § 58.1-1813 and in Angelson v. Commonwealth of Virginia. The Taxpayer had actual knowledge of the Corporation's sales and use tax liabilities. Yet, the Taxpayer did not act to pay the Corporation's outstanding assessments. The Taxpayer has provided no documentation to substantiate that the president had complete and exclusive authority to remit the payment of taxes. As vice president, secretary and treasurer of the Corporation, the Taxpayer had the authority, to ensure the assessments were paid, but failed to do so.
CONCLUSION
Based on the above, the Corporation's sales and use tax assessments were properly converted to the Taxpayer as a responsible officer. Updated bills will be issued to the Taxpayer with interest accrued to date. The bills should be paid within 30 days to avoid the accrual of additional interest.
The Code of Virginia sections cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions concerning this determination, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-2131935500.S
Rulings of the Tax Commissioner