May 25, 2021
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you seek correction of the retail sale and use tax assessment converted to ***** (the “Taxpayer”) as a result of liabilities incurred by ***** (the “Company”) for various periods between May 2015 and May 2016. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer was president and minority shareholder of the Company, which was engaged in the operation of a restaurant in Virginia. During the periods at issue, the Company incurred unpaid sales and use tax liabilities, which resulted in assessments against the Company. Thereafter, the unpaid tax liabilities of the Company were converted to the Taxpayer as a responsible officer pursuant to Virginia Code § 58.1-1813. The Taxpayer appeals, contending that he does not meet the requirements of a responsible officer under Virginia Code § 58.1-1813 and requests an abatement of the converted assessments.
DETERMINATION
Virginia Code § 58.1-1813 A provides that:
Any corporate, partnership or limited liability officer who willfully fails to pay, collect, or truthfully account for and pay over any tax administered by the Department of Taxation, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall in addition to other penalties provided by law, be liable to a penalty of the amount of the tax evaded, or not paid, collected or accounted for and paid over, to be assessed and collected in the same manner as such taxes are assesses and collected.
Virginia Code § 58.1-1813 B defines the term “corporate, partnership or limited liability officer” as
an officer or employee of a corporation, or a member, manager or employee of a partnership or limited liability company, who as such officer, employee, member or manager is under a duty to perform on behalf of the corporation, partnership or limited liability company the act in respect of which the violation occurs and who (1) had knowledge of the failure or attempt as set forth herein and (2) had the authority to prevent such failure or attempt.
In Angelson v. Commonwealth of Virginia, 25 Va. Cir. 319 (City of Richmond, 1991), the court set out a four prong test for interpreting the provisions in Virginia Code § 58.1-1813. The Court stated:
First, the person must willfully fail to pay, collect, or truthfully account for and pay over a state tax, or willfully attempt in any manner to evade or defeat such tax or its payment. Second, the person must be an officer or employee of the corporation and have a duty to perform the act in respect of which the violation occurs. Third, the person must have actual knowledge of the failure or attempt as set out in the statute. And fourth, the person must have authority to prevent such failure or attempt.
The court stated that the absence of any one of these conditions prohibits the Department from collecting corporate taxes from an individual. 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 (C.A. Tex.).
Although an officer of the Company, it appears the Taxpayer did not have the specific corporate duty of timely reporting and paying the Company’s tax obligations. The Taxpayer was also not responsible for budgeting or paying the Company’s bills. These responsibilities belonged to the other shareholders, who signed checks and tax returns filed by the Company. While the Taxpayer may have had knowledge that the Company was not current on its tax obligations during the periods at issue, the Taxpayer lacked authority to prevent the failure of the Company to pay the taxes. Additionally, the evidence fails to show the Taxpayer willfully failed to pay the taxes owed by the Company to the Department.
CONCLUSION
Based on all of the foregoing, and absent evidence to the contrary, I find that the Taxpayer was not a responsible officer within the meaning of Virginia Code § 58.1-1813 A and B, and the interpretation thereof in Angelson v Commonwealth of Virginia. Accordingly, the converted assessments issued to the Taxpayer will be abated and any amounts paid or otherwise collected by the Taxpayer in payment of the assessments at issue shall be refunded, including any accrued interest.
The Code of Virginia sections cited are available online at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department’s website. If you have any questions regarding this determination, please contact ***** in the Office of Tax Policy, Appeals, and Rulings at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1165.A