Tax Type
Individual Income Tax
Description
Failure to withhold; President liable for corporation's unpaid taxes
Topic
Withholding of Tax
Date Issued
05-03-1996
May 3, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax Withholding Tax
Dear***************
This will reply to your letter of August 17, 1995 in which you seek correction of sales tax assessments and withholding tax assessments issued to***** (the "Taxpayer").
FACTS
The Taxpayer was the president and part owner of a corporation which had unpaid sales tax and withholding tax assessments primarily for the months of June 1994 through October 1994. Upon failure to collect the deficiencies from the corporation, the department converted the assessments to the Taxpayer under Code of Virginia § 58.1-1813.
You maintain that the Taxpayer was not a "corporate or partnership officer" within the meaning of the statute. You point out that the Taxpayer held a full-time job as an international airline pilot. You indicate that as of June 1994 the Taxpayer had no operational authority or responsibility to manage the business, collect its receipts or disburse these receipts. You further indicate that as of that time the operational duties of the corporation were turned over to another individual who was named general manager for the business, and the Taxpayer's signature was removed from the corporation's bank signature card.
DETERMINATION
- Code of Virginia § 58.1-1813 provides that:
- Any corporate or partnership officer who willfully fails to pay, collect, or truthfully account for and pay over any state tax...or willfully attempts in any manner to evade or defeat any such tax or the payment thereof...shall be liable for 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 the 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.
It has been shown that in June 1994 the Taxpayer exercised his authority to (1) hire a general manager and (2) authorize changes to bank signature cards. In late 1994 the Taxpayer again exercised his authority over the corporation by approving other changes to bank signature cards and by entering into agreements with a new manager. Based on the authority exercised by the Taxpayer throughout the life of the company, I must conclude that he had the authority to prevent the tax violations. At a minimum, the Taxpayer could have reinstated his own right to sign checks on behalf of the corporation.
It is also clear that the Taxpayer had knowledge of tax filing and tax payment responsibilities because the Taxpayer himself filed returns and paid the tax for the first few months of the corporation's operation. Based on the facts presented thus far, I cannot rule out the possibility that the Taxpayer knew or should have known about the corporation's tax liabilities. While the Taxpayer was fully engaged as an international airline pilot and may have been absent periodically, these violations occurred over a period of four months. There is no documentation to substantiate the Taxpayer's lack of contact with the corporation for this extended period.
Furthermore, there is no documentation to substantiate the Taxpayer's claim that the general manager had complete and exclusive authority to operate the business, including the payment of taxes. Such documentation would go a long way to show that the Taxpayer was not under a duty to perform the tax activities which resulted in the assessments.
Under Code of Virginia § 58.1-205, an assessment of tax by the department is deemed prima facie correct. The burden of proving otherwise rests with the Taxpayer. Without such proof, the information and documents before me suggest that the Taxpayer can be held liable for the corporation's assessments.
If you have any questions regarding this matter, you may contact **** in my Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10119I
Rulings of the Tax Commissioner