Tax Type
Retail Sales and Use Tax
Description
Corporate officers' personal liability; Employees held not liable
Topic
Collection of Delinquent Tax
Date Issued
03-29-1996
March 29, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********************
This is in reply to your letters dated October 16 and November 14, 1995 and February 7, 1996 in which you seek relief of sales and withholding taxes assessed to your clients, ("Taxpayers"), regarding the operation of ******. The assessments cover various periods between July 1993 and April 1994.
FACTS
The tax assessments are attributable to an out-of-state corporation's operation of automotive shops at multiple locations in Virginia. The corporation has ceased operation and as such, the department converted the corporation's liability to officers of the corporation and an employee of the business.
******* was personally assessed the liability as a director and President of the corporation, while was personally assessed as Vice -President and******was personally assessed as an accounts payable clerk. Although the corporation's headquarters is located out-of-state, the Taxpayers maintain Virginia residences and are employed at the various locations in Virginia.
You argue that the Taxpayers were erroneously assessed because they did not possess the authority to pay the taxes, nor were they aware that such taxes were not paid, and further they do not meet the statutory requirements for responsible officer status regarding the corporation's debts.
To support your assertions, affidavits are submitted by the former Chief Operating Officer of the corporation, located at the corporate headquarters, claiming responsibility for the unpaid sales and withholding taxes. You also request the release of tax liens against the Taxpayers.
DETERMINATION
Code of Virginia § 58.1-1813 states that "[a]ny corporate or partnership officer who willfully fails to pay, collect, or truthfully account for and pay over any tax...or willfully attempts in any manner to evade or defeat any such tax or the payment thereof...shall be liable to a penalty of the amount of the tax evaded, or not paid, collected or accounted for and paid over..."
The statute defines the term "corporate officer" as an officer of a corporation who is under a duty to perform on behalf of the corporation the act in respect of which the violation occurs and who (1) had knowledge of the failure and (2) had the authority to prevent it.
According to the affidavits, the Taxpayers did not possess signatory power on any of the corporation's checking accounts. The Taxpayers were not charged with the responsibility for paying the corporation's debts as part of their duties in the daily physical operations of the business. Further, the payroll and sales information was routinely forwarded to the corporate headquarters outside Virginia for processing and payment.
Based on the information presented, it appears that the Taxpayers do not qualify as corporate officers as defined under the statute as they were not responsible for the payment of the taxes. Also, it appears that they were not aware that the taxes were not paid, as this aspect of the business was consolidated and handled at the out-of-state corporate headquarters.
Accordingly, the assessments against the Taxpayers will be abated and any department liens will be released.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10399/10595J
Rulings of the Tax Commissioner