June 30, 2015
Re: § 58.1-1821 Application: Withholding Tax
Dear *****:
This will reply to your letter in which you seek correction of the assessment issued to ***** (the "Taxpayer"), resulting from sales and use tax and employer withholding assessments issued to ***** (VSC) for the taxable periods August 2008 through December 2011. I apologize for the delay in responding to your appeal.
FACTS
The Department assessed VSC sales and use tax and withholding tax for a number of taxable periods between August 2008 and December 2011. VSC filed sales and use and withholding tax returns but failed to remit the payments. When the Department was unable to collect the assessments from VSC, it assessed penalties against the Taxpayer pursuant to Va. Code § 58.1-1813 equal to the amount of the sales and use tax and withholding tax, penalties and interest owed by VSC. The Taxpayer appeals the conversion of the assessments, contending that she was merely an employee and her father was the only officer.
DETERMINATION
Virginia Code § 58.1-1813 provides that when a corporation fails or is unable to pay its tax deficiencies, the Department is permitted in certain circumstances to assess the responsible corporate officer(s) for a penalty of the amount of tax evaded, or not paid, collected or accounted for and paid over. Such penalty will be assessed and collected in the same manner as such taxes are assessed and collected.
Virginia Code § 58.1-1813 B defines the term "corporate officer" as "an officer or employee of a corporation . . . who as such officer, employee, member or manager, is under a duty to perform on behalf of the corporation...the act in respect of which the violation occurs and (1) had knowledge of the failure or attempt as set forth herein and (2) had the authority to prevent such failure or attempt."
Virginia Code § 58.1-1813 requires that the failure to pay over the taxes be willful, and that the corporate officer had: (1) knowledge of the failure, and (2) 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). In other words, it need only be shown that the corporate officer was aware of the outstanding liability and knowingly and intentionally paid operating expenses or other debt of the corporation.
The Taxpayer contends that she became an employee of VSC in 2008, and she never had been entrusted with the authority to handle VSC's tax matters. She asserts that her father was the only officer of VSC and he always handled VSC's tax matters. However, quarterly employee reports filed with the Virginia Employment Commission (VEC) in December 2008 and January 2009 are signed by the Taxpayer as president of VSC. These returns indicate the Taxpayer was entrusted with tax matters involving VSC. She also signed checks for sales taxes payable to the Department of Taxation.
Though the Taxpayer asserts that she had no knowledge of VSC's tax issues, the Department finds it unlikely that the Taxpayer had sufficient awareness to file payroll reports with the VEC and sign checks payable to the Department of Taxation yet lack knowledge regarding tax matters at the Department.
Generally, the president of an organization has the authority to direct the performances of each employee. Thus, even if the Taxpayer did not have the direct responsibility of maintaining the corporation's tax accounts, she was responsible for overall performance of the organization. Furthermore, copies of canceled checks endorsed by the Taxpayer indicate that the Taxpayer had access to VSC's financial information. As president of VSC, the Taxpayer was privileged to the Department's notices and collection efforts.
Based on the available evidence, it is my determination that the Taxpayer had a duty and authority to perform the act in respect to which the violation occurred on behalf of VSC. As president, the Taxpayer had knowledge of and the authority to prevent the failure to pay the tax owed by VSC. Accordingly, the Taxpayer is a responsible officer pursuant to Va. Code § 58.1-1813, and the penalty assessments
are upheld. Updated bills with interest accrued to date will be mailed shortly. The outstanding balance should be paid within 30 days of the bill date to avoid additional interest.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5344697573.D