A New York State Division of Tax Appeals Administrative Law Judge (ALJ) held a managing member of a limited liability company (LLC) personally liable for the sales tax liability originally assessed against Eden Ballroom, LLC (Eden) after the member failed to disprove his responsibility as a managing member.
“... the question is not whether a person exercised the requisite powers but, rather, if the person possessed such powers.”
responsible person liability
Similar to other states, New York’s current law provides that a member of a partnership or limited liability company may be individually liable for unpaid tax of the company as a “responsible person”. As a responsible person, the individual is jointly and severally liable for the tax owed, along with the business entity or any of the business’ other responsible persons and their personal assets could be taken by the Department of Taxation and Finance to satisfy the sales tax liability of the business once that liability is fixed and final.
burden of proof
Although NY’s current law is as set forth above, the ALJ’s decision in Petitioner’s appeal was based on a prior statute that included a burden of proof standard. Accordingly, a managing member of Eden, Anthony Piacquadio (Petitioner), had the burden of proof to show that he should not be held liable.
In support of its position, the Division of Taxation (Division) provided several documents that established Petitioner was a member. The documents included Eden’s sales tax examination questionnaire signed by Petitioner and identified him as a managing member, as well as a responsible person questionnaire that identified him as a stock owner and managing member. Additionally, Petitioner was identified on a sales tax certificate registration application as a responsible person and member.
pivotal question
As part of the analysis, the ALJ asserted the pivotal question was whether Petitioner had “sufficient authority and control” over the affairs of the corporation to be considered a person liable for the sales tax. Relevant factors considered included the ability to sign corporate checks, an economic interest in the corporation, as well as knowledge and control of the corporation’s finances.
Although Petitioner claimed that during the period in question he had delegated authority to other members, the ALJ determined it was not about who “exercised” the authority, but instead who “possessed” the authority. Accordingly, Petitioner delegating his powers did not relieve him from the tax liability. As such, and in the absence of other evidence to overcome the burden of proof, the ALJ ruled Petitioner was responsible for the almost $400,000 sales tax due, plus any outstanding interest and penalty.
identification comfirmation
In several states, sales tax registration applications require companies to identify a responsible person as the individual who will be held personally liable for unpaid sales tax of the company. Thus, it is incumbent upon every member of an LLC, partner of a partnership, and officer and employee of a corporation to be familiar with their state’s definition of “responsible person” or “responsible officer”. Of note, an employee can be considered the responsible officer without having “officer” in their title.
If you are concerned about whether your current role and responsibilities makes you a responsible person or officer of your corporation and thereby personally liable for any assessed and unpaid indirect tax, we can help.