Tax Type
Retail Sales and Use Tax
Description
Penalties; Liability of Corporate Officers
Topic
Collection of Delinquent Tax
Date Issued
08-26-1991
August 26, 1991
Re: Request for Ruling: Retail Sales and Use Tax
Dear****************
This will reply to your letter of January 19, 1990 in which you request a ruling on behalf of*************** (the Taxpayers) regarding the liability of corporate officers for the delinquent tax liability of **************(the Corporation).
FACTS
The Taxpayers are requesting a ruling as to the liability of corporate officers for delinquent retail sales and use tax arising from an audit of the Corporation for the period July 1, 1983 through December 31, 1988. The Taxpayers were Vice President and President of the Corporation during the years in question. The Taxpayers feel that they are not liable for the tax under Va. Code §58.1-1813 in that they did not willfully refuse to pay, collect or truthfully account for all taxes, nor did they willfully evade or defeat such tax. Additionally, the Taxpayers assert that since the Corporation's liquidation plan in June of 1989, adopted by the Taxpayers as directors of the corporation, required that all liabilities of the Corporation be paid from the assets of the Corporation, they are not liable for the taxes. All assets of the Corporation have been depleted as a result of payment of the Corporation's other liabilities.
RULING
The purpose of Va. Code §58.1-1813 is to encourage the prompt payment of taxes and to provide an additional tool for the department to use in collecting delinquent taxes owed by a corporation. There is no provision in the statute that requires the department to seek payment of the assessed amounts from officers of a corporation only after efforts by the department to obtain the assessed amount from the corporation are exhausted. Rather, the statute insures the ultimate collection of such taxes from a secondary source. Thus, the fact that the Corporation has subsequently been dissolved with a resolution that all debts of the Corporation had to be paid out of the assets of the Corporation, does not relieve the corporate officers of their responsibility, nor does the fact the assets of the corporation have been depleted.
Va. Code §58.1-1813 requires that the failure to pay over the taxes must be willful, and that the corporate officers had (1) knowledge of the failure and (2) 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 (C.A. Tex.) In other words, it need only be shown that the corporate officers were aware of the outstanding liability and knowingly and intentionally paid operating expenses or other debts of the corporation.
Based upon the facts we have, we cannot rule out the possibility that the Taxpayers knew or should have known about the potential retail sales and use liability. It is also apparent that the Taxpayer exercised control over the operation of the corporation and having such could potentially be held liable for the Corporation's assessment should they be so assessed.
If you have any questions regarding this matter, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner