August 1, 2017
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter requesting correction of the retail sales and use tax and withholding tax assessments converted to ***** (the “Taxpayer”) as a result of liabilities incurred by ***** (the “Corporation”) for various periods between March 2013 and August 2015. I apologize for the time required to respond to your letter.
FACTS
The Corporation operated as a gaming and hobby shop. Prior to the Corporation's closing, it incurred certain unpaid retail sales and use tax and withholding liabilities. The unpaid tax liabilities of the Corporation were converted to the Taxpayer and her husband, the president of the Corporation, pursuant to Va. Code § 58.1-1813.
During the period of the Corporation's operations the Taxpayer owned a 50% share in the Corporation. Since the Corporation's inception, the Taxpayer has acted as the secretary of the Corporation, while also maintaining a managerial position in one of the Corporation's retail locations. The Taxpayer's duties were managing employees, waiting on customers, ringing up sales at the cash register, opening and closing the store along with other general duties including making deposits of cash and checks for the Corporation. The Taxpayer signed checks for parcel deliveries and checks prepared by her husband.
The Taxpayer states in a prepared affidavit that throughout the Corporation's existence, she had no involvement with, responsibility for, duties, or knowledge of the Corporation's sales tax returns, payroll withholding returns, pass-through entity returns, or any other returns whether federal, state or local. In support of the Taxpayer's statements, the Taxpayer's husband also submits an affidavit stating that he alone was responsible for all of the financial aspects of the Corporation relating to the overall management of the Corporation, as well as being exclusively responsible for all bookkeeping, accounting, payroll, tax preparation, filing and all legal matters of the Corporation.
The Taxpayer cites Angelson v. Commonwealth of Virginia, 25 Va. Cir. 319 (City of Richmond, 1991) to support that she is not liable for the converted assessments.
DETERMINATION
Virginia Code § 58.1-1813 A states, “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 “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 the authority to prevent such failure or attempt.”
In Angelson v. Commonwealth of Virginia, the court pointed out four conditions of Va. Code § 58.1-1813 that must be met before a person can be held individually liable for taxes assessed against a corporation. “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.
The Taxpayer's husband has submitted an affidavit setting forth his responsibility for all bookkeeping, accounting and tax preparation duties. The Taxpayer's husband acknowledges responsibility and liability for the Corporation's debts. Based on this information, the Taxpayer has neither willfully failed to pay over any taxes administered by the Department, nor willfully attempted to evade such payment of the taxes.
The Taxpayer held the office of secretary of the Corporation and received a salary from the Corporation. The Taxpayer managed one of the two stores and made sales to customers. However, as provided in the husband's affidavit, the responsibility for the preparation, filing and payment of the sales and withholding taxes for the Corporation to the Department belonged to the Taxpayer's husband.
In addition, according to the affidavit submitted, the Taxpayer appears not to have had knowledge of the tax delinquencies during the operation of the Corporation. The Taxpayer, however, did become aware of the tax delinquencies when the Department's representative advised the Taxpayer of the outstanding amounts. Even if the Taxpayer had been aware of the tax deficiencies during the operation of the Corporation, the information provided indicates that the Taxpayer did not have the authority to prevent such failure. In fact, the Taxpayer's husband has stated that he alone was responsible for all the bookkeeping, accounting, payroll, tax preparation, regulatory compliance and all legal matters of the Corporation.
Based on all of the foregoing, I find that the Taxpayer does not satisfy the conditions set out in Angelson and, therefore, cannot be held liable as a responsible officer of the Corporation pursuant to Va. Code § 58.1-1813.
CONCLUSION
The converted assessments issued to the Taxpayer will be abated in accordance with this determination, and a refund will be issued for monies received from liens and income tax refunds that were applied to the converted assessments.
The Code of Virginia sections cited are available on-line in the Laws, Rules and Decisions section of the Department's website located at www.tax.virginia.gov. If you have any questions regarding this matter, please contact ***** of the Department's Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/846.Q