January 5, 2018
Re: § 58.1-1821 Application: Consumer Use Tax
Dear *****:
This will reply to your letter in which you seek the correction of the consumer use tax assessments converted to ***** (the “Taxpayer”) as a responsible officer of ***** (the “Corporation”). I apologize for the delay in responding to your request.
FACTS
The Department conducted a consumer use tax audit of the Corporation and issued assessments for the period November 2008 through December 2014. In accordance with Virginia Code § 58.1-1813, the Corporation's delinquent audit assessments were converted to the Taxpayer as a responsible officer of the Corporation.
The Taxpayer was an officer of the Corporation and a minority shareholder of the Corporation's stock. The Taxpayer contends that he ceased to be a stockholder, officer and employee of the Corporation on June 30, 2014. The Taxpayer notes that the audit period extends to December 31, 2014. The Taxpayer maintains that the conversion of the consumer use tax assessments is erroneous because he was not aware of the consumer use tax audit and the assessments until notice was received from the Department that the audit assessments were converted.
DETERMINATION
Responsible Officer
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, 25 Va. Cir. 319 (City of Richmond, 1991), the court determined that four conditions in Virginia Code § 58.1-1813 must be met before a person can be held individually liable for taxes assessed against a corporation. The court stated:
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 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.
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 Corporation.
The Taxpayer has provided a copy of a stock redemption agreement that demonstrates all the Taxpayer's shares of the Corporation's stock were redeemed in exchange for a motor vehicle and a promissory note from the Corporation for repayment of a personal loan made to the business. The redemption agreement is dated June 30, 2014. The Taxpayer furnished the Department with pay stubs from November and December 2014 that establish his employment with another business.
The audit work papers indicate that the president of the Corporation worked with the audit staff during the audit. The president signed a waiver to extend the time limitation for assessing the period that was audited. The president filed an administrative appeal of the audit assessments after the audit was completed. During the audit, the president of the Corporation completed a questionnaire to update information about the business. This information was requested by the Department's auditor. The questionnaire includes information about the owners and officers of the Corporation and lists the Taxpayer as an officer through June 2014. A review of Virginia State Corporation Commission records confirms that the Taxpayer is no longer an officer of the Corporation.
The Department's audit of the Corporation commenced in November 2014 and was completed in April 2015. While the Taxpayer was an officer and employee of the Corporation during part of the period examined in the audit, the Taxpayer has demonstrated that he was no longer an officer or employee of the Corporation beginning in July 2014. As such, the Taxpayer did not have actual knowledge of the audit or the resulting assessments and could not have willfully avoided the payment of the assessments. Further, the Taxpayer did not have the authority to pay the tax liability and could not have prevented payment of the Corporation's assessments.
Based on the provisions of Virginia Code § 58.1-1813 and the criteria set out in Angelson, there was no willful failure or attempt by the Taxpayer to avoid payment of the consumer use tax assessments due the Commonwealth. As such, the Taxpayer does not meet all of the criteria set out in Angelson and therefore cannot be held personally liable for the unpaid consumer use tax assessments issued to the Corporation.
CONCLUSION
Based on this determination, the conversion of the Corporation's assessments to the Taxpayer as a responsible officer is erroneous. The converted assessments issued as bill ***** and bill ***** will be abated in full.
The Code of Virginia sections cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions 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 *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/767.S