If you are an employee or officer of a company that is required to collect and remit sales and use tax and fail to do so, you may be personally liable to pay the outstanding tax along with penalties and interest. The NYS Department of Taxation and Finance (“Department”) may consider you to be a “responsible person” if:
• You are an officer, director, or employee of a corporation or dissolved corporation, or employee of a partnership or sole proprietorship who was under a duty to act for the business to comply with the applicable provisions of the Tax Law; or
• You complete the tax returns or maintain the books and records for a business.
The determination of whether an individual is a person under a duty to act for a business is based upon the facts and circumstances of each case. The question to be answered is whether the individual had or could have had enough authority and control over the affairs of the business to be considered a responsible officer or employee. The following factors have been identified as indicators of responsibility:
• The individual’s status as an officer, director, shareholder or partner;
• Ability to write checks on behalf of the company;
• The individual’s knowledge of and control over the financial affairs of the company;
• Ability to hire and fire employees;
• Whether the individual signed tax returns for the company;
• The individual’s ownership interest in the company.
The Department has been quick to consider an officer or partner a responsible person where one or two of the above factors exist, even though the individual has no involvement or responsibility for the preparation of the sales tax return, remitting payment, or control over the financial affairs of the company.
Example: James Corporation is owned by shareholders A, B, and C. Shareholder A, an officer of the company owns 85% of the stock and maintains control over the financial affairs of the company, writes checks, has the ability to hire and fire employees and prepares and signs the company’s sales tax return. Shareholder B, an officer of the company owns 7.5% of the stock and is responsible for sales and supervising the company’s employees that work on jobsites outside the office. Shareholder B has the authority to sign checks and does so on occasion, but has no involvement or responsibility for the sales tax return. Shareholder C is also an officer, owns 7.5% of the stock of the company and is married to Shareholder B. Shareholder C works part-time performing administrative and clerical work for the company. She has authority to signs checks and does so occasionally when Shareholder A is not available. James Corporation is audited by the Department for the most recent three years and the sales tax auditor finds the company has unpaid sales tax amounting to $200,000. The company is assessed an additional $80,000 in interest and penalties. The sales tax auditor believes that all three shareholders possess sufficient indicators of responsibility and deems them to be responsible persons. This means the Department can attempt to collect the $280,000 of taxes, penalties and interest in full or in part from the company or shareholders A, B, and C.
If you disagree with the Department’s assessment that you are a responsible person you have the right to appeal. You can request a Conciliation Conference or file an appeal with the Division of Tax Appeals. You will be given the opportunity to present any information you may have to refute the assessment.
If you have been notified that your company will be subject to a sales tax audit or you have been assessed as a responsible person, you need representation from the experienced CPAs and tax attorneys at East Coast Tax Consulting Group LLC. We have been successfully helping taxpayers in NYS tax audits and collection matters for more than thirty years. Contact us today for a free confidential consultation.