In a recent decision, the Nebraska Supreme Court (Court) held a company officer personally liable for over $56,000 in unpaid use tax, penalties and interest. The officer was the former president of Direct Media, Inc. (Media) a direct mail processing company which ceased operations in 2011. The Court’s ruling affirmed the lower court’s determination that the officer was the company’s responsible officer in charge of managing the business’ finances and thereby responsible for the unpaid tax.
“... equitable estoppel will not
be invoked against a governmental entity except under compelling
circumstances where right and justice so demand ...”
background
Media conducted business in Nebraska from the 1980s until 2011 when it ceased all business operations. During an audit covering the years 2001 to 2007, the Nebraska Department of Revenue (Department) discovered unpaid use taxes and issued an assessment against the company. Media appealed the assessment, but action in the appeal stopped after a hearing officer recused herself from the proceedings. No further action was taken by the Department or Media until 2021.
Allen Crow, identified as a "corporate officer," was informed of the outstanding taxes at the time of the assessment. Crow held various positions within Media, including president, vice president, secretary, and treasurer. He had “significant ownership of the company,” authority to hire and fire employees, control over bank accounts, and check-signing authority. When the company ceased operations in 2011, Crow was tasked with selling company assets to pay off creditors.
company officer responsibility
Nebraska law holds responsible officers liable for ensuring tax payments are made by the corporation, stating that "[a]ny officer or employee with the duty to collect, account for, or pay over any taxes ... shall be personally liable for the payment of such taxes in the event of willful failure on his or her part to have a corporation perform such act." Consequently, when the assessment went unpaid, the Department held Crow personally responsible for the company's tax liabilities.
However, Crow asserted that the assessment appeal filed by Media has not been resolved in over 10 years, and he could not reasonably have been expected to make a payment while the protest was pending. Further, Crow disputed the court's determination of "willful failure," arguing again that his actions were reasonable given the ongoing protest. Nebraska statute defines "willful failure" as "that failure which was the result of an intentional, conscious, and voluntary action."
Ultimately, the Court concluded that Crow's actions met the definition of willful failure based on evidence that he consciously chose to prioritize paying other creditors instead of the Department for several years. Thus, the Court upheld the tax, penalties and interest imposed.
a reasonable delay?
As for the 10 year ongoing appeal, the Court described the delays and “the government’s neglect” as “troubling,” asserting it did “not condone” the Department’s actions. However, the Court also stated that there was no evidence demonstrating that Crow was prejudiced by the Department’s “lengthy delays” because Crow did not have any evidence to rebut the accuracy of the original assessment.
The Court further stated that a taxpayer “cannot ignore ongoing proceedings to redetermine assessed taxes in the hope that the tax assessment may be relieved by the errors or negligence of government employees.” Here, Crow could not reasonably rely on the Department’s delay and hope that the tax assessment would go away with time.
your responsibilities
This decision emphasizes the importance for company officers to understand their tax responsibilities, even when a company is no longer in operation. Further, all taxpayers should familiarize themselves with their state’s Taxpayer Bill of Rights, which explains the rights of a taxpayer and obligations with the Department of Revenue for the states with which the company does business.
If you have any questions or need guidance on your potential liability as a responsible officer, contact us and schedule a complimentary consultation.