November 18, 2024
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek relief from the retail sales and use, litter, and withholding tax responsible party penalty issued against ***** (the “Taxpayer”).
FACTS
***** (Restaurant 1) and ***** (Restaurant 2), collectively the “Restaurants,” were assessed for delinquent litter tax, withholding taxes, and retail sales and use taxes, plus applicable penalties and interest, for multiple taxable periods from January 2017 through December 2018. Information reviewed by the Department indicated the Taxpayer was listed as vice president for Restaurant 1 and as a corporate officer for Restaurant 2. When the Restaurants failed to satisfy the assessments, penalties were assessed against the Taxpayer, a minority shareholder and chef. The Taxpayer filed an application for correction contending that he is not liable for the converted assessments because he was not involved in any financial aspects of the Restaurants. In addition, the Taxpayer maintains that he did not willfully fail to pay sales taxes, had no duty to pay taxes or any invoices for the Restaurants, had no knowledge of delinquent taxes, and had no authority to prevent the failure to pay any taxes.
DETERMINATION
Virginia Code § 58.1-1813 A states, “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 assessed and collected.”
Under Virginia Code § 58.1-1813 B, the term “corporate officer” is defined as “an officer or employee of a corporation... who as such officer [or] employee... 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 or attempt as set forth herein and (2) had the authority to prevent such failure or attempt.”
In Angelson v. Commonwealth, 25 Va. Cir. 319 (City of Richmond, 1991), the court set out four conditions that must be met before a person can be held individually liable for taxes assessed against a corporation:
1. 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.
2. 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.
3. The person must have knowledge of the failure or attempt as set out in the statute.
4. The person must have the authority to prevent such failure or attempt.
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 debts of the entity.
According to the Taxpayer, his role in both Restaurants was limited to handling menu creation, creating specials, and overseeing food preparation and the kitchen staff. The Taxpayer also contends that he had no financial or bookkeeping responsibilities of the Restaurants and had no role in payroll or the payment of taxes. Rather, the Taxpayer maintains that such responsibilities were the duties of the president and business manager who is also the majority owner in both restaurants. To support these facts, the Taxpayer submitted employee affidavits stating that his involvement was limited to food preparation and overseeing the kitchen and that the president handled the financial activities of the Restaurants.
Although listed as a corporate officer, the Taxpayer’s role within the Restaurants did not involve any fiduciary responsibilities that included the payment of taxes. Based on the evidence provided and the cited authorities, the Taxpayer is not a responsible officer for either Restaurant 1 or Restaurant 2. Accordingly, the converted assessments issued to the Taxpayer will be abated.
The Code of Virginia sections cited are available online at law.lis.virginia.gov. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR\2223.F