91-313 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Penalties; Liability of Corporate Officer

Topic

Collection of Delinquent Tax

Date Issued

12-30-1991

December 30, 1991

Re: 1821 Application: Sales and Use Tax

Dear********************

This will reply to your letter of March 25, 1991 in which you seek relief from the tax, penalty and interest assessed to**********(the Taxpayer) as a result of a sales and use tax audit of ********(the Corporation).

FACTS

The Corporation was audited for the period of July, 1987 through October, 1989 and assessed tax, penalty and interest. Upon completion of the audit, the audit findings were discussed with the Taxpayer and the Taxpayer was made aware of taxes owed by the Corporation. The Corporation entered into a partial payment agreement to satisfy the outstanding liability in February, 1990. After one payment, the Corporation defaulted on the agreement. On June 7, 1990, the department initiated a lien on the Corporation's bank account, but was advised by the bank that there were no funds available for payment on the lien. On February 19, 1990, the department sought satisfaction of the outstanding liability from the Taxpayer, the sole officer of the Corporation, under Va. Code §58.1-1813. On June 1, 1990, the Corporation ceased doing business. The Taxpayer failed to notify the department of this action and left no forwarding address.

The Taxpayer contends that he is not liable for the debt of the Corporation under Va. Code §58.1-1813 as there was no willful intent exhibited by him to evade the tax. The Taxpayer also takes exception to a number of sales held taxable in the audit sample.

DETERMINATION

Va. Code §58.1-1813 addresses the liability of corporate officers and provides, in part, the following:

- Any corporate or partnership officer who... 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.

Va. Code §58.1-1813 requires that the failure to pay over the taxes must be willful, and that the corporate officers had (1) knowledge of the failure and (2) authority to prevent it. 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 .

Based on the above, the Taxpayer had knowledge of the outstanding tax liability, and being the sole officer of the Corporation, willfully evaded the payment of such taxes, as evident by defaulting on the partial payment agreement. For this reason, I find the Taxpayer to be liable for the outstanding tax, penalty and interest assessed against the Corporation.

However, due to the fact that certain periods included in the audit liability were outside of the three years statute of limitations provided under Va. Code §58.1-634 at the time the assessment was issued to the Taxpayer, the assessment will be adjusted to remove the liability relating to July, 1987 through December, 1987.

In regard to exempt sales held taxable in the sample, I will allow the Taxpayer an additional 30 days to provide valid exemption certificates to substantiate such exempt sales. Absent additional information within 30 days, I must deem the assessment to be due and payable in full.

If you should have any further questions, please feel free to contact the department.

Sincerely,

W. H. Forst
Tax Commissioner

TPD/5112K

Rulings of the Tax Commissioner