Retail Sales and Use Tax
Corporate officers' personal liability; Officer not responsible
Collection of Delinquent Tax
February 21, 1997
Re: § 58.1-1821Application: Retail Sales and Use Tax
This is in reply to your letter in which you seek correction of sales and use tax assessments on behalf of **************(the "Taxpayer") for the period October 1990 through November 1993. I apologize for the delay in responding to your letter.
The Taxpayer was president of a corporation engaged in the ship repair business. An audit of the corporation resulted in use tax assessments, which were issued on October 21, 1994. After the audit had been initiated, but prior to the issuance of the assessments, the corporation filed Chapter 11 Bankruptcy (on December 10, 1993). The corporation ceased doing business in June 1994. Because the corporation was no longer in business when the assessments were issued, the department converted the assessments to the Taxpayer, pursuant to Code of Virginia § 58.1-1813.
You contest the converted assessments, claiming that the Taxpayer is not a "responsible officer" under Code of Virginia § 58.1-1813. Specifically, you state that the Taxpayer did not willfully fail to cause the corporation to make payment of its use tax obligations to the Commonwealth.
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.
Based on the information presented, it appears that the Taxpayer was not knowledgeable of the failure to remit the use tax. The audit was not completed until months after the corporation had ceased doing business. Furthermore, the Taxpayer did not willfully fail to pay the tax, as there was never a time when the corporation's general creditors were paid in preference to the department. No other creditors were paid after the department made its assessment because the corporation was no longer in business. The Taxpayer did not have the requisite knowledge that use taxes had not been paid and did not willfully fail to pay those taxes by intentionally paying other creditors in preference to the department.
Accordingly, the penalty assessed to the Taxpayer for the period October 1990 through November 1993 (Bill Nos. ****) will be abated. To the extent that a portion of the bills has been paid by the Taxpayer, a refund will be issued.
Danny M. Payne