Could California issue a sales-tax determination personally against a business trust's successor trustee despite a trust clause disclaiming personal liability?

Plain-English summary

California legal staff concluded that a successor trustee of a Massachusetts, or business, trust could be personally assessed for the trust's sales-tax liability even though the trust agreement told claimants to look only to trust assets.

The memorandum relied on California cases holding that trustees of this kind of business trust are generally personally liable for trust obligations. A trust instrument's internal liability limitation does not by itself bind a creditor. The trustee would need to show that the creditor expressly or implicitly agreed not to seek personal liability.

Because the Board had made no such agreement, staff said a determination could be issued against the trustee.

Common questions

Did the trust agreement eliminate the trustee's tax exposure?

No, according to the memorandum.

What would have changed the result?

An express or implied agreement by the Board to exempt the trustee from personal liability.

Was this memorandum the actual assessment?

No. It advised staff that a determination could be issued.

Citations and references

• People v. Sischo (1939) 31 Cal.App.2d 345 — cited for trustee liability for a business trust's sales tax
• Goldwater v. Oltman (1930) 210 Cal. 408 — cited for personal liability absent a contrary agreement with the creditor

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/170-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/170-0240.pdf

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

Memorandum
170.0240

To :

Mr. Dennis Sturdevant
Compliance Planning and Evaluation

From :

Thomas J. Cooke
Tax Counsel

Subject:

Date:

May 6, 1997

Telephone: (916) 445-6496

CalNet 485-6496

S--- I---, Ltd.

This office has received your memorandum dated May 2, 1997 concerning the above taxpayer. In your memorandum, you state that a successor trustee of the above Massachusetts or business trust is claiming that a determination cannot be issued against him for the liability due by the trust apparently on the basis that the trust agreement provides that the trustee shall not be personally liable “when dealing with Trust property or matters, and such persons [claimants of the Trust] must look only to the assets of the Trust Estate for payment . . . .” In People v. Sischo (1939) 31 Cal.App.2d 345, a trust agreement of a Massachusetts or business trust provided that the trustees should not be personally liable for the obligations of the trust. The appellate court stated: “We hold that such a liquidated demand or obligation as the amount of sales tax duly levied by the state board of equalization upon a retailer which is a business trust is a claim on which the trustees of said business trust are personally liable, under the general rule that trustees of such trusts are personally liable for the obligations of their trusts except when specifically exempted, either expressly or by implication.” The court cited the case of Goldwater v. Oltman (1930) 210 Cal. 408 and stated: “That case holds that the trustees of a Massachusetts Trust are personally liable on all contracts with third persons in the absence of an express or implied agreement with the creditor to the contrary, and that mere knowledge of a provision in the trust agreement that persons having dealings with the trustees shall look only to the property of the trust for payment will not release the trustees from personal liability in a case where they have not stipulated against it.”

Mr. Dennis Sturdevant

-2-

May 6, 1997
170.0240

Since the trustee of S--- I---, Ltd. cannot show that the Board agreed expressly or by implication to exempt him from the tax due by the trust, a determination can be issued against the trustee.

TJC/cmm
cc:

Riverside District Administrator (EH)