Can a corporation's president be personally liable for collected but unpaid Washington sales tax even if the accountant gave bad advice?

Plain-English summary

The Washington Department of Revenue held that a corporation's president was personally liable for collected but unremitted retail sales tax after the business closed, regardless of fault or knowledge.

The corporation amended its 2011 returns to report income and collected sales tax but did not pay the tax. The Department issued balance-due notices and then a tax warrant. The business later stopped operating and its registration was closed while the warrant remained unpaid.

RCW 82.32.145 permits the Department to pursue specified responsible individuals when a terminated limited-liability business owes trust-fund taxes and an unpaid tax warrant exists. A corporation's president is its chief executive. For a current or former chief executive, the statute imposes liability regardless of fault or whether that person knew or should have known of the unpaid liability.

The taxpayers therefore could not avoid liability by blaming their former accountant's advice. They also could not use review of the trust fund accountability assessment to attack the corporation's underlying assessment after that assessment had become final.

Result: petition denied.

What this means for you

Corporate presidents

Collected sales tax is trust money. A president can face personal liability after the corporation closes even without knowledge of the nonpayment.

Owners relying on accountants

Delegating return preparation does not remove the statutory exposure imposed on a chief executive.

People challenging a TFAA

Administrative review addresses whether the accountability assessment itself was properly issued. It generally does not reopen the business's already-final tax assessment.

Common questions

Q: Why was the president a responsible individual?

A: RCW 82.32.145 defines a corporation's president as its chief executive, one of the positions expressly covered.

Q: Did bad accounting advice excuse the liability?

A: No. Liability for a current or former chief executive applies regardless of fault or awareness.

Q: Could financial hardship defeat the assessment?

A: The determination did not identify hardship as a defense and denied the petition.

Q: Could the taxpayers contest the corporation's tax amount in this proceeding?

A: No. The underlying assessment had become final. The determination noted separate payment-and-refund procedures that may be available under RCW 82.32.060, WAC 458-20-100, and RCW 82.32.180.

Citations and references

• RCW 82.08.050 (collection and trust status of retail sales tax)
• RCW 82.32.145(1), (2), (3)(a), and (9) (TFAA liability and responsible individuals)
• RCW 82.32.160 (finality after the review period)
• Det. No. 14-0340, 34 WTD 244 (2015) (scope of TFAA review)

Source

• Landing page: Washington Tax Decisions ZIP files
• Original PDF: 37WTD254.pdf
• Source archive: Volume 37 ZIP (member 37WTD254.pdf)

Original ruling text

Det. No. 18-0139, 37 WTD 254 (October 31, 2018)

254

Cite as Det. No. 18-0139, 37 WTD 254 (2018)

BEFORE THE ADMINISTRATIVE REVIEW AND HEARINGS DIVISION
DEPARTMENT OF REVENUE
STATE OF WASHINGTON
In the Matter of the Petition for Correction of )
Trust Fund Accountability Assessment of
)
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)
...
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DETERMINATION
No. 18-0139
Registration No. . . .

RCW 82.32.145: TRUST FUND ACCOUNTABILITY ASSESSMENT –
RESPONSIBLE INDIVIDUAL OF A CLOSED BUSINESS. A president of a corporation is a “responsible individual” for the purpose of imposing personal liability for unpaid trust fund taxes following the issuance of a tax warrant against a business, regardless of fault or whether the individual was or should have been aware of the unpaid trust fund tax liability of the corporation. Fisher, T.R.O. – A former president . . . of a disbanded corporation petition[s] for review a trust fund accountability assessment [(TFAA)] against [him] . . . . The petition is denied.1 ISSUE Under RCW 82.32.145, [is the] president of a closed corporation [a] “responsible individual,” and therefore, personally liable for collected and unremitted retail sales tax? FINDINGS OF FACT On January 14, 2006, . . . (“Entity”) filed articles of incorporation with the Secretary of State along with an initial annual report, naming . . . as Director and President of Entity and naming . . . as Director, Secretary, and Treasurer of Entity. Throughout 2011, Entity filed monthly tax returns stating it had no business to report. In 2012, Entity amended each of its 2011 monthly tax returns to report income and collected retail sales tax, but did not remit payment for taxes owing. On May 9, 2012, the Department of Revenue (“Department”) issued balance due notices for the February through December periods of 2011; on May 10, 2012, the Department issued a balance due notice for the January 2011 period. When Entity did not pay the balance due notices, the Department issued Tax Warrant No. . . . on June 8, 2012, against Entity.

1

Identifying details regarding the taxpayer and the assessment have been redacted pursuant to RCW 82.32.410.

Det. No. 18-0139, 37 WTD 254 (October 31, 2018)

255

In a conversation with a Department employee on March 18, 2013, . . . advised the Department Entity was no longer doing business. The Department closed Entity’s business registration, effective December 31, 2013. In September 2017, the Department issued a [TFAA] against . . . and . . . (collectively, “Taxpayers”). Taxpayers timely sought administrative review, attacking the assessment against Entity asserting that their old accountant gave them bad advice and reported the wrong numbers to the Department. Taxpayers separately argue that the imposition of the [TFAA] would cause a substantial financial hardship on Taxpayers. ANALYSIS RCW 82.08.050 requires businesses that make retail sales to collect retail sales tax from their customers and hold it in trust until they pay it to the Department. Sellers who fail to remit collected retail sales tax to the Department are personally liable to the state for the amount of the tax. RCW 82.08.050(3). When a limited liability business entity is dissolved or otherwise terminated owing retail sales tax to the state, and the Department issues a tax warrant for the collection of the unpaid retail sales tax . . . , the Department may pursue collection of the entity’s unpaid trust fund taxes, including penalties and interest on those taxes, against certain “responsible individuals,” including the imposition of a [TFAA]. RCW 82.32.145(1). Det. No. 17-0127, 36 WTD 601 (2017). Personal liability under RCW 82.32.145 may be imposed for state and local trust fund taxes. RCW 82.32.145(2). Here, the Department issued Tax Warrant No. . . . against Entity on June 8, 2012, which included amounts for collected and unremitted retail sales tax. Entity was terminated on December 31, 2013 while the warrant was still unpaid. . . . [T]he Department properly determined that Entity was terminated, and that personal liability could be properly imposed under RCW 82.32.145 against any or all of the responsible individuals. A “responsible individual” is “any current or former officer, manager, member, partner, or trustee of a limited liability business entity, with an unpaid tax warrant issued by the department.” RCW 82.32.145(9)(g)(i). RCW 82.32.145 imposes personal liability for unpaid trust fund taxes on those specified individuals, in relevant part, as follows: For a responsible individual who is the current or former chief executive or chief financial officer, liability under this section applies regardless of fault or whether the individual was or should have been aware of the unpaid trust fund tax liability of the limited liability business entity. RCW 82.32.145(3)(a). “Chief executive” means the president of a corporation. RCW 82.32.145(9)(a). . . .
. . . was the President of Entity, he was the chief executive of Entity and therefore a responsible individual subject to personal liability under RCW 832.32.145(1). . . . Under RCW 82.32.145(3)(a), it does not matter that Taxpayers’ accountant gave them bad advice, Taxpayers are liable for the collected and unremitted retail sales tax.

Det. No. 18-0139, 37 WTD 254 (October 31, 2018)

256

Taxpayers make several arguments related to the assessment against Entity. However, the period in which Entity could have challenged the assessment has passed. “If no [petition for review] is filed within the thirty-day period covered by the assessment the assessment shall become final.” RCW 82.32.160. The Department’s longstanding position is that Taxpayers subject to a [TFAA] may only challenge matters as to the issuance of the trust fund accountability itself, and not the underlying tax assessment. Det. No. 14-0340, 34 WTD 244 (2015); Det. No. 03-0066R, 23 WTD 243 (2004); see also Det. No. 87-39, 2 WTD 189 (1987); Det. No. 86-268, 1 WTD 245 (1986). Accordingly, we decline to consider Taxpayers’ arguments related to the underlying assessment.2 DECISION AND DISPOSITION Taxpayer's petition is denied. Dated this 24th day of May 2018.

2

Under RCW 82.32.060(1), Taxpayers may pay the assessment and challenge the underlying assessment within four years of the payment, following the procedures of WAC 458-20-100 and/or RCW 82.32.180.