Tuesday, November 6, 2012

Sales Tax Liabilty can Land you in Jail? Who Should Worry?


In our October 22nd blog post, Hotel Owner Faces 15 Years in Jail For Sales Tax Theft, we wrote about a Florida restaurant owner who was arrested for collecting and not remitting sales tax. He was charged with a felony and if convicted could receive 30 years.

It is not just the State of Florida cracking down but a number of states that are looking to fund their budget shortfalls!

The next consideration is whether individuals can also be held responsible for unpaid Sale Taxes?

It depends on what state we are talking about, the type of business entity, the status of the entity, whether or not the tax was actually collected or not, and in many instances knowledge of the failure to collect or pay.

It also depends on whether you can be considered a “responsible person.”  An  example of how broad this definition is can is reflected  in the state of New York's position that the law enables auditors to hold any partner or any LLC member responsible for sales tax, regardless of whether that person was involved in the business.
  • Under the Tax Law, a responsible person includes any partner of a partnership or member of a limited liability company regardless of whether the partner or member is under a duty to act on behalf of the business.
  • The Tax Law imposes joint and several personal liability for the payment of sales tax on responsible persons of a business with an outstanding sales tax liability.
  • As such, the Department can use a responsible person’s personal assets to satisfy the sales tax liability of the business even if the business is a corporation or a limited liability company.

However, On April 14, 2011, the New York Department of Taxation & Finance (the "Department") issued a new policy under which certain limited partners and limited liability company members will be provided relief from per se personal liability as a responsible person under the New York sales and use tax law (the "Tax Law"). TSB-M-11(6)S.

The policy was effective March 9, 2011. The Department’s new policy provides relief for a limited partner of a limited partnership and a limited liability company member with less than a 50% interest who can demonstrate that he or she was not under a duty to act in complying with the Tax Law on behalf of the limited partnership or limited liability company. In addition, the limited partner or limited liability company member must cooperate with the Department in providing information regarding the business. A person who qualifies for relief will not be responsible for any penalty owed by the business, and such an individual’s sales tax liability will be limited to his or her percentage of ownership or share of profits and losses in the business.
You should also be aware that personal and business bankruptcies generally do not discharge sales tax liabilities.

In most all states or taxing jurisdictions, (with California being one large notable exception), these are not taxes on "you", but money the business collects from others (customers or employees) on behalf of the State. They are trust funds....they not only won't ever be discharged....they carry direct, pierce any corporate shield, to the officers and involved parties, responsibility.

What about non-employee return preparers; what exposure do they have?  Many states consider this group as a potential responsible person. 


Have a Sales Tax Problem?

Contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).


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