Could Virginia decide whether a minimally involved vice president would be personally liable before any business taxes were converted?

Plain-English summary

Virginia could not determine the vice president's possible personal liability because the submitted facts were incomplete. No unpaid business taxes had been converted to the taxpayer, so there was no assessment eligible for an administrative appeal. The Department instead treated the letter as a prospective ruling request.

Responsible-officer liability required a corporate duty related to the tax failure, actual knowledge, authority to prevent it, and willfulness. The taxpayer said involvement was minimal after termination from employment, but also said officer and board status continued. The record did not fully describe duties, financial oversight, check-signing authority, or who signed tax payments.

Minimal involvement alone did not resolve those questions. Virginia left the status undecided and said the taxpayer could request another ruling after supplying the specifically missing information.

Common questions

Q: Did Virginia hold this taxpayer personally liable?
A: No. No conversion had occurred, and the ruling did not decide liability either way.

Q: Was being a mostly inactive officer enough to rule out liability?
A: Not without facts about the person's actual duties, knowledge, and authority.

Citations and references

• Va. Code §§ 58.1-1813 and 58.1-1821.

Subject

Converted sales and use and withholding taxes

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-50

Original ruling text

April 23, 2012

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to the appeal submitted on behalf of * (the "Taxpayer") concerning certain converted sales and use and withholding taxes for the periods January 2007 through June 2010. I note, however, that none of the tax liabilities incurred by *** (the "Business") were converted to the Taxpayer. Because no converted assessments were converted to the Taxpayer, your application for appeal on behalf of the Taxpayer is premature for consideration under the appeal provisions of Va. Code § 58.1-1821. For this reason, I have decided to treat your appeal as a request for a ruling. I apologize for the delay in responding to your letter.

FACTS

It is my understanding that the officers of the Business consisted of * (President), the Taxpayer (Vice President and 25% owner), and (Secretary and 25% owner). ** (Principal Owner) was 50% owner. I understand that the President and Principal Owner have operated the Business since 2004. According to the President, the Business closed on June 30, 2010. According to the Taxpayer, the President and Principal Owner operated the business.

The facts submitted indicate that the Taxpayer joined the Business in the 1990's. In 1997, the Taxpayer was terminated from the Business and subsequently moved elsewhere in Virginia. I understand that the Taxpayer had minimal involvement with the Business but continued to maintain officer status and 25% ownership of the Business. During the time in which the Business failed to meet its tax obligations, the studio manager repeatedly failed to file or pay such taxes and resolve other outstanding liabilities. It is claimed that the Taxpayer had no knowledge of these unpaid taxes or lacked any effective authority to pay the unpaid taxes. I also understand that the Taxpayer had no business role or activities at or with the Business after the President took over the Business in 2004. Rather, the Taxpayer had only vague knowledge of the Business' situation.

RULING

Subsection A of Va. Code § 58.1-1813 addresses the tax liability of corporate officers and states, in part, the following:

Any corporate . . . officer who willfully fails to pay, collect or truthfully account for and pay over any tax administered by the Department . . . shall . . . be liable to a penalty of the amount of the tax evaded . . . .

Subsection B of Va. Code § 58.1-1813 defines corporate officer as:

An officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee or member is under a duty to perform on behalf of the corporation or partnership the act in respect of which the violation occurs and who (1) had knowledge of the failure or attempt as set forth herein and (2) had authority to prevent such failure or attempt.

Based on the limited amount of information provided in your letter, I am not clear about the type of involvement that the Taxpayer had with the Business. For instance, the Taxpayer states in his response to the Department's personal responsibility questionnaire that he was not involved in the operation of the Business, but remained active as an officer and on the board of directors since 2001. However, a full description of the Taxpayer's duties was not provided. As such, it is not possible to exclude the Taxpayer from the possibility that he had some oversight role in the financial affairs of the Business, including tax matters. The fact that the Taxpayer had minimal involvement in the Business does not mean that he had no involvement in the Business or no knowledge of the unpaid tax liabilities or lacked the necessary authority to correct the failure to report and pay the taxes in question. It is also unclear as to whether the Taxpayer had any check signing authority, and if so, the type of debts that he was authorized or not authorized to pay. I understand that the sales and withholding tax payments made during the periods in question are signed by one individual. However, that signature is unreadable and no information has been provided to identify such individual by name, address, and social security number.

The limited information provided with your letter does not provide sufficient enough facts to decisively determine whether the Taxpayer is or is not a corporate officer as defined above.

You requested a hearing by conference call. A member of the Department's Appeals and Rulings staff called the number provided and left a message. However, because the call was not returned after a few days, we concluded this matter on the basis of the available information. If the missing information specifically identified in this response is made available to the Department, the Taxpayer may request another ruling in regard to the Taxpayer.

CONCLUSION

This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia section cited is available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this ruling, you may contact * in the Department's Office of Tax Policy, Appeals

and Rulings, at *.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4774357521.2 R