Tax Type
Retail Sales and Use Tax
Description
Converted sales and use and withholding taxes
Topic
Records/Returns/Payments
Responsible Officer
Date Issued
04-23-2012
April 23, 2012
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to the appeal in which you (the "Taxpayer") protest any personal tax liability under Va. Code § 58.1-1813 for the unpaid tax liabilities incurred by ***** (the "Business") for the period January 2007 through June 2010. I must note, however, that none of the tax liabilities incurred by the Business have been converted to the Taxpayer. As such, your application for appeal is premature for consideration under the appeal provisions of Va. Code § 58.1-1821. For this reason, I have decided to treat your appeal as a request for a ruling. I apologize for the delay in responding to your letter.
FACTS
Based on the information provided in your letter, the officers of the Business consisted of the Taxpayer (serving as President), ***** (serving as Vice President and 25% owner), and ***** (serving as Secretary and 25% owner). ***** (Principal Owner) had 50% ownership of the Business. I understand that the Taxpayer and the Principal Owner operated the Business from 2004 to its closing on June 30, 2010. In 2005, the Taxpayer became the President of the Business.
The Taxpayer resided in the state of Washington while managing the Business and had ongoing contact with staff of the Business via e-mail and telephone. Despite this, the Taxpayer claims to have never exercised any authority that he may have had, i.e., to sign checks, file or review taxes, or decide which bills to pay. Furthermore, the Secretary stated that the Taxpayer was not involved in day-to-day activities of the Business, although the Taxpayer assisted and supervised the staff of the Business.
In late December 2009, the Taxpayer learned that the studio manager was not managing the daily operations effectively, such as reporting and paying all of the state tax liabilities owed. A procedure was implemented by the Principal Owner to correct the situation. It appears that the Taxpayer was aware of these actions. On April 14, 2010, the Taxpayer proposed an offer in compromise for the sales tax and withholding tax owed by the Business. The Department responded to the offer on August 10, 2010, but did not accept it. Rather, the Department made a counter offer. By this time, the Business had closed and the Taxpayer did not accept the counter offer.
On March 21, 2011, the Department sent a notice of personal responsibility to the Taxpayer to complete and return to the Department. The Taxpayer completed and returned it to the Department. As part of the response, the Taxpayer indicated that he informed his staff to pay the outstanding state tax liabilities when the bookkeeper brought the matter to his attention, which was evidently in 2009.
RULING
Subsection A of Va. Code § 58.1-1813 addresses the tax liability of corporate officers and states, in part, the following:
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- Any corporate . . . officer who willfully fails to pay, collect or truthfully account for and pay over any tax administered by the Department . . . shall . . . be liable to a penalty of the amount of the tax evaded . . . .
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- Subsection B of Va. Code § 58.1-1813 defines corporate officer as:
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- An officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee or member is under a duty to perform on behalf of the corporation or partnership 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. [Emphasis and 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.
Pursuant to Public Document 09-116 (7/31/09), a president who subsequently became aware of a sales tax liability but who did not have the duty of reporting it when it was due could not be held liable as, a corporate officer as defined in Va. Code § 58.1-1813. Rather, the store manager who had the specific duty to report and pay the sales tax but failed to do so was held liable for the tax.
Although the Taxpayer was an officer of the Business, had become aware of the unpaid state tax liabilities well after the failure to report and pay the taxes, had the authority to prevent a future failure, and may have willfully failed to pay over and account for all of these liabilities once known, the Taxpayer did not have the specific corporate duty of timely reporting and paying the tax on behalf of the Business. For this reason, it appears that the Taxpayer does not meet all of the criteria to be defined as a corporate officer pursuant to Va. Code § 58.1-1813, and is therefore not responsible for the unpaid tax liabilities of the Business.
The Taxpayer requested a hearing by conference call. A member of the Department's Appeals and Rulings staff called the number provided and left a message. However, because the call was not returned after a few days, we concluded this matter on the basis of the available information. Based on the ruling, it would seem that a conference call is not necessary.
CONCLUSION
This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections and the public document cited 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 about this ruling, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings at *****.
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- Sincerely,
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Craig M. Burns
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- Tax Commissioner
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AR/1-4774357521.R
Rulings of the Tax Commissioner