Tax Type
General Provisions
Retail Sales and Use Tax
Description
Corporate officer liability; Converted assessment
Topic
Collection of Delinquent Tax
Date Issued
03-02-1994
March 2, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*********
This will reply to your letter in which you seek correction of an assessment against your client, ***********(the "Taxpayer") for a sales and use tax assessment which has been converted to the Taxpayer's individual account. The original assessment was issued against***************(the "Company").
FACTS
The Taxpayer was the sole shareholder and principal officer of the Company. During December, 1990 and January, 1991, the Company experienced financial difficulty which resulted in the bank that held a note secured by the Company's assets (the "Bank") assuming operations of the Company for purposes of winding down the business and liquidating the assets.
The Bank took over the Company's operations in late January, 1991 after the Taxpayer filed the December, 1990 sales tax return, which was accompanied with a check. The check was subsequently dishonored due to insufficient funds. The Taxpayer claims that the check was dishonored due to the Bank's actions and that he paid the amounts owed to the Commonwealth in good faith. The Taxpayer has failed to provide the department with evidence that corroborates his assertion that there were adequate funds to cover the check at the time that it was written to the department.
The Taxpayer now asserts that he cannot be held personally liable as a responsible officer since he could not have prevented the nonpayment of the tax, due to the Bank's control of the Company's assets. Therefore, the Taxpayer requests that the converted assessment be abated.
DISCUSSION
Pursuant to Va. Code §58.1-1813, an individual can be held personally liable for the nonpayment of corporate taxes due to the Commonwealth if he (i) was an officer of the corporation, (ii) had knowledge of the debt, and (iii) had power to prevent the nonpayment of the debt.
Based on the facts, the Taxpayer clearly meets the first two criteria for holding him liable as a responsible officer. It appears, however, that the Taxpayer lacked the power to make payment after the Bank seized the Company's assets. Typically, a responsible officer that had knowledge of the debt could not be held personally liable if he could not prevent the nonpayment.
Regardless of the fact that the Taxpayer lacked the power to make payment prior to the Bank's takeover action, the Taxpayer can be held as a responsible officer for actions taken prior to the takeover. The remittance of the December, 1990 sales tax collected is one such action. The Taxpayer has not provided the department with any evidence that demonstrates that there were adequate funds in the account to cover the payment to the department at the time the check was written. Without corroborative evidence that would demonstrate that the check was negotiable at the time it was written, the Taxpayer will remain liable for the payment of the tax.
The Taxpayer's request that the assessment be abated is, therefore, denied. Collection action will recommence immediately.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP65560
Rulings of the Tax Commissioner