January 25, 2022
Re: § 58.1-1821 Application: Withholding Tax and Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”) in which you seek correction of the withholding tax and sales and use tax assessments converted to the Taxpayer as a responsible officer of ***** (the “Corporation”) for the period July 2015 through November 2015. I apologize for the delay in responding to your appeal.
FACTS
The Corporation was assessed withholding taxes, plus applicable penalties and interest for the period July 2013 through November 2015. The Corporation was also assessed retail sales and use taxes, plus applicable penalties and interest for the period June 2014 through November 2015. When the Corporation failed to satisfy the assessments, the delinquent assessments were converted to the Taxpayer as a responsible officer. The Taxpayer maintains that during the periods at issue she was a shift manager at the Corporation’s restaurant. The Taxpayer states that she has never been an owner, partner or shareholder of the Corporation. The Taxpayer also states that she has never had control of the bills that were paid, has never had control over the corporate bank account, and was never authorized to sign checks on behalf of the Corporation. The Taxpayer contends that the converted assessments are erroneous and requests that the converted assessments be abated in full.
DETERMINATION
Responsible Officer
Virginia Code § 58.1-1813 A provides:
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.
Further, Virginia Code § 58.1-1813 B states:
The term "corporate, partnership or limited liability officer" as used in this section means 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 (1991), the court determined that the four conditions stated 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 found that:
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. (id. at 321)
The court further 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 (1967). 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.
In order for the delinquent liabilities of the Corporation to be converted to a responsible officer, all parts of the four part test established in Virginia Code § 58.1-1813 and addressed in the Angelson decision, must be met. Based on the information before me, the Taxpayer did not willfully fail to remit the taxes at issue, nor did the Taxpayer have a duty to remit such taxes. I further find that the Taxpayer did not have the knowledge or the authority to prevent the Corporation’s failure to file and remit the taxes. Accordingly, I find that the Taxpayer was not a responsible officer to whom the delinquent liabilities of the Corporation could be converted for the periods at issue. The assessments at issue will be abated in full.
The Code of Virginia sections cited 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 about this response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1935P