Recently, the Virginia Tax Commissioner reviewed two separate appeals from employees of different companies, both of whom had been deemed a “responsible officer” and thereby personally liable for their company’s withholding and sales and use taxes, as well as the related penalties and interest.
“...Taxpayer did not willfully fail to remit the taxes at issue...”
“RESPONSIBLE OFFICER” DESIGNATION
Generally, a responsible officer of a company has some level of involvement with paying the bills for the company, controlling the corporate bank accounts and is typically authorized to sign checks on behalf of the company.
As part of each appeal, the Virginia Tax Commissioner had to determine whether an employee was a responsible officer of their company and thereby personally responsible for remitting the unpaid tax of the company. In their defense, each employee maintained the position that they were not responsible for any of the required duties that would establish a responsible officer designation.
SHIFT MANAGER’S PERSONAL LIABILITY
In the case of the restaurant shift manager, the Department of Revenue deemed her to be a responsible officer and converted the delinquent assessment from the employing restaurant company to her personally. However, because she had neither ownership in the company nor authorization to perform any of the tasks associated with being a responsible officer, she appealed the transfer of the assessment to her.
In the appeal analysis, the Commissioner cited Virginia Code § 58.1-1813 B and also Angelson v. Commonwealth of Virginia, 25 Va. Cir. 319 (1991) in which the court established four conditions that must be met before an individual can be held personally responsible for taxes assessed against a corporation.
After reviewing the employee’s role, responsibilities and actions in her capacity as a shift manager as applied to the required conditions, the Commissioner concluded that she had not demonstrated a standard of willfulness. In reaching this determination, the Commissioner stated that the shift manager did not “willfully fail to remit the taxes at issue, nor did [she] have a duty to remit such taxes.” Moreover, he concluded she did not have the knowledge or authority to prevent the company’s failure to file and remit the tax. As a result, the tax assessment that had been converted from the company to her was abated.
CORPORATE OFFICER HELD PERSONALLY LIABLE
Similar to the shift manager’s situation, a corporate officer appealed a transferred assessment of unpaid withholding and sales and use taxes, penalties and interest from her employing company for which she was deemed a “responsible officer”. The corporate officer maintained that she did not participate in the day-to-day operations of the company and as such should not be considered a responsible officer as defined in Virginia statute and case law.
However, in contrast with the shift manager’s appeal, the Tax Commissioner determined that all four conditions required to be considered a responsible officer were met by the corporate officer during the years when she held majority shares of the company. Accordingly, the delinquent withholding and sales and use taxes, related penalties and interest assessment that was transferred to her personally was not abated.