Tax Type
Retail Sales and Use Tax
Description
Convert assessments to the corporate officers
Topic
Assessment
Exemptions
Date Issued
04-16-2002
April 16, 2002
Dear *****:
This will reply to your letter in which you seek correction of the converted sales and use tax assessment issued to ***** (the "Officer"), for the period December 1996 through January 1999. I apologize for the delay in the department's response.
FACTS
The Officer was the president of an S corporation, which operated as a retail bakery (the "Taxpayer"). Under audit, the department discovered that the Taxpayer had purchased equipment exempt from the sales and use tax under the manufacturing exemption pursuant to Code of Virginia § 58.1-609.3. The department issued assessments to the Taxpayer, which were contested. In its ruling, the department held that the Taxpayer did not qualify for the industrial manufacturing or processing exemption and upheld the audit assessment.
The Officer terminated the business approximately fifteen months after issuance of the assessment. The department converted the assessment from the Taxpayer to the Officer pursuant to Code of Virginia § 58.1-1813. The Officer contests the conversion.
DETERMINATION
When a corporation fails or is unable to pay its tax deficiencies, the department may convert the assessments to the corporate officers under Code of Virginia § 58.1-1813. This 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. Under the standard of willfulness applied by the courts, all that needs to be shown is that the act was "voluntary, conscious, and intentional." Hewitt v. U.S., 377 F.2d 921, 924 (5th Cir. 1967).
You maintain that the department unfairly assessed the Taxpayer because the Officer relied on the knowledge and expertise of a vendor. This issue has previously been addressed in Public Document (P.D.) 01-79 (6/20/01), in which the department reiterated its longstanding position that it may proceed against either the seller or the purchaser in instances where the tax has not been collected or paid.
You have provided no evidence with regard to your standing as the corporate officer responsible for satisfying the tax liability of the Taxpayer. The Officer had knowledge of the outstanding liability when the Taxpayer ceased operations in late 2000. The Officer signed the letters contesting the assessment in late 1999. The fact that the appeal was not resolved until after the Taxpayer closed does not relieve the Officer of the responsibility of ensuring that the liability is satisfied. As such, the department finds that the Officer had knowledge of the liability and voluntarily failed to exercise the authority to satisfy the assessment.
Based on the foregoing, the Officer falls within the definition of "corporate officer" in Code of Virginia § 58.1-1813. Accordingly, there is no basis for correction of the department's assessment. Payment of the balance of the assessment remains due. The Officer will receive an updated bill with interest accrued to date. The bill should be paid within 30 days of receipt to avoid the accrual of additional interest.
Copies of the Code of Virginia and public documents cited are included for reference purposes. These and other reference documents are also available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you should have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/37727E
Rulings of the Tax Commissioner