The New York Court of Appeals , the state’s highest court, upheld a decision by the state Tax Appeals Tribunal holding a former company president personally liable for the company’s unpaid taxes. The former president of New England Construction Company, Inc. (NECC), is responsible for paying withholding tax liabilities dating back to 2014 and 2015.
“Whether someone had some ‘control and authority over the affairs of a corporation’ does not necessitate a determination that they had the effective power, actual authority, or actual ability to pay the corporation’s taxes.” ”
background
As president and majority shareholder, former company president Christopher Black represented NECC on tax matters with the Department of Taxation and Finance (Department). Court records showed that Black signed quarterly withholding, wage reporting and unemployment insurance returns. He also signed sales tax registrations as the person who “oversees all” of NECC’s “business activities.” He identified himself as a responsible person on several occasions, including a “responsible person questionnaire”, in which he claimed responsibility for remitting sales tax, participating in significant business decisions, controlling NECC’s financial affairs, and more.
However, Black argued to the Tribunal that Anthony Nastasi, a minority shareholder, actually managed the company's financial matters and should be held responsible. Black, a person of color, stated that he only identified himself as a responsible person to maintain the company’s Minority Business Enterprise certification. At the time, NECC was a certified minority business enterprise eligible to secure government contracts with minority participation requirements.
liability for tax
The Tribunal determined that Black did have control and authority over the affairs of the company, while recognizing that determining an individual’s status as a responsible party is fact-specific. On appeal, the New York Court of Appeals identified that whether a person has “control and authority” over the affairs of a company may be an ambiguous standard as it could be interpreted to mean control over the “daily field operations” of the company. Therefore, the Court narrowed the standard to whether an individual has authority over the company’s financial records.
In this case, Black filed tax returns for the company and held himself out to be a responsible person to third parties, including the Department. Other factors that the Court considered were that Black was a majority shareholder, he derived significant income and tax benefits from the company, and he had full authority to sign checks.
Willfull neglect
In affirming the Tribunal’s decision against Black, the Court cited “documented proof” which provided “substantial evidence” that Black should be held personally liable. Despite Black’s argument regarding the truthfulness of the documents, the Court has ultimate authority to make credibility determinations. Further, the Court said that Black “expressly placed his credibility – along with that of Natasi – into issue by insisting that their prior representations of [Black’s] authority and control were intended only to create the false impression that [Black] controlled NECC in order to obtain lucrative state contracts.” Black also “admitted to lying to the Department when it suited him.”
The Court additionally ruled that Black “willfully” withheld tax because he was aware that neither he nor Natasi were complying with tax laws. This willful neglect allowed the corporation to stay afloat, which allowed Black to keep his salary, allocate business losses and hire his daughter as an employee. Based on these factors, the court also cited willful neglect as a reason to hold Black liable.
Personal liability
In many states, responsible officers assume personal liability for certain taxes of their company. If the business fails to register, file, pay or remit tax, states have the authority to hold a responsible officer personally liable.
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