Question: Are you a "Responsible Person" for your company's sales taxes?
Answer: It depends on your state, your job description, and your duties.
CEOs facing increasing challenges in a multi-state tax environment
A recent Tax Appeals Case in New York demonstrated how a company's problems can become a CEO's personal problems. The taxpayer at issue was a CEO, chairman of the board, and a shareholder of a public company. He admitted he was responsible for the day-to-day management of the company, but argued that he relied upon the CFO along with outside accountants to manage the financial affairs of the company. However, he had access to the company books and records and was able to write checks. He had the power to hire and fire employees and to monitor the activities of employees. He was unable to prove that he was thwarted or prevented by others from acting in a responsible manner regarding tax payments. He was held to be personally liable for payment of sales taxes owed by the company.
Who is the responsible person for unpaid sales taxes?
New York State law imposes personal responsibility for sales tax collection and remittance on "responsible persons" jointly with the business entity. A responsible person generally is one who is in a position of authority and control sufficient to be able to understand the business entity's tax liabilities and to write a check or otherwise compel payment of the liabilities. A person is not allowed to "outsource" that responsibility to other employees or to outside vendors or agents, or to claim ignorance of the business's tax situation. However, certain business owners who are not even involved in the financial matters of an organization may be held to be responsible persons, including, for example, a member owning more than 50% of an LLC. A responsible person who fails to ensure a business's payment of tax liabilities puts his or her own assets at risk, including potentially a house and other investments that may be seized by tax authorities. This rule to remit tax applies whether or not the tax was ever collected.
A good reminder for CEOs in all states
One point to note about this case: The person in question was found liable for not remitting sales taxes that had already been collected from customers. It's wise to review your state tax exposure on a regular basis to gain control over your possible multi-state sales tax exposure.
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