Who is Personally Liable for Sales Tax at Your Company?
Individuals who may be held responsible include CEOs, CFOs, Directors
States are taking an aggressive approach to enforcing a business’ sales and use tax liability and going to great lengths to collect not only from the business and its owners, but certain company employees.
Who do the states consider as the responsible parties for sales tax remittance and recovery? Is it only the owner of the company? States are allowed to go beyond the corporate veil and can hold a number of different individuals in a company accountable for a company’s sales and use tax liabilities. The individuals who may be held responsible include CEOs, CFOs, Directors and others who control or have authority over the company’s tax and accounting processes.
With the COVID-19 pandemic and downturn in the economy, states are seeking ways to generate cash and many revenue departments are looking to sales tax to help with tax revenue shortfalls. Sales tax is a trust tax, meaning that the taxpayer is entrusted with the responsibility of collecting the tax on behalf of the state. With the passing of economic nexus laws, the states have shifted the responsibility for sales tax remittance to the “sellers” in all industries and ultimately to the responsible parties who work for those sellers.
Who is Defined as a Responsible Party
Each state defines responsible party differently. Some of the more common criteria include a person who fulfills at least one of the following roles at the company:
- actively involved in operating the business on a regular basis
- involved in deciding which financial obligations are paid
- involved in personnel activity (such as hiring or firing employees)
- check signing authority
- tax return preparation
- authority over business decisions
- tax manager, general manager and/or corporate officer
Personal Information Requirement
States can ask for a variety of personal information about the responsible parties of the company including social security numbers, driver’s license numbers, home address and birth date. This information is required in order for states to issue sales tax permits.
In many states, responsible party laws allow the state to pursue an individual for the full amount of sales tax owed by the company. Sales tax liability is also not dischargeable in bankruptcy, a fact that responsible parties need to keep in mind when becoming accountable for the collection and remittance for sales and use tax.
What to Do Now
Given the significant risk faced by businesses, owners and many employees working for these businesses, it is more important than ever to make certain that businesses have the tools and expert guidance to ensure that they are accurately complying with the increasingly complex sales and use tax rules and frequently changing rates. In addition, they need to ensure that they have access to the documentation needed in the likely event of a sales and use tax audit.