Tax Type
Retail Sales and Use Tax
Description
Corporate officers' personal liability
Topic
Collection of Delinquent Tax
Date Issued
03-29-1995
March 29, 1995
Re: §58.1 -1821 Application: Retail Sales and Use Tax
Dear*************
This will reply to your letter of September 7,1994 in which you seek correction of a sales and use tax assessment on behalf of your client,********************(the "Taxpayer") for the period July 1989 through June 1992.
FACTS
The Taxpayer was the president of a corporation that ceased doing business in July 1992. An audit for the period July 1989 through June 1992 resulted in a use tax assessment, which was issued in December 1992. Because the corporation was no longer in business when the assessment was issued, the department converted the assessment to the Taxpayer, under Code of Virginia §58.1-1813.
The Taxpayer contests the converted assessment, claiming he was not a responsible officer under §58.1-1813 and that the statute of limitations has expired for most of the taxes assessed to him. Finally, the Taxpayer contends that the audit contains numerous errors which, when corrected, will substantially reduce the assessment.
DETERMINATION
Code of Virginia § 58.1 -1813 states that "[a]ny corporate or partnership officer who willfully fails to pay, collect, or truthfully account for and pay over any tax...or willfully attempts in any manner to evade or defeat any such tax or the payment thereof...shall be liable to a penalty of the amount of the tax evaded, or not paid, collected or accounted for and paid over...."
The statute defines the term "corporate officer" as an officer of a 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.
Based on the information presented, it appears that the Taxpayer was not knowledgeable of the failure to remit the use tax. The audit was not completed until months after the corporation had ceased doing business. Furthermore, the Taxpayer did not willfully fail to pay the tax, as there was never a time when the corporation's general creditors were paid in preference to the department. No other creditors were paid after the department made its assessment because the corporation was no longer in business. The Taxpayer did not have the requisite knowledge that use taxes had not been paid and did not willfully fail to pay those taxes by intentionally paying other creditors in preference to the department.
Because it has been determined that the Taxpayer is not a responsible corporate officer under Code of Virginia §58.1-1813, it is not necessary to address the other issues you raise. The penalty assessed to the Taxpayer for the period from July 1989 to June 1992 will be abated.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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Rulings of the Tax Commissioner