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SALT TALK:  Year-End Planning Tips – Sales Tax and Revisiting Responsible Person Liability

Wayne Berkowitz CPA, J.D., LL.M. 12.19.2016 | SALT TALK

I’m not a big fan of donuts, but this time of year they just seem to proliferate around the office.  So while eating a glazed chocolate donut and reading the state tax dailies, I couldn’t help but notice that the United States District Court for the Northern District of Illinois dismissed a class action suit against Dunkin’ Donuts.  I was really enjoying my donut, so I couldn’t imagine why anyone would want to bring a consumer fraud suit with the potential to ruin one of the nation’s leading guilty pleasures.  Wouldn’t you know the suit had absolutely nothing to do with the quality of the donuts, but to the sales tax collected on certain coffee purchases as compared to what was charged on food for on-premises consumption.

Since we all have year-end issues on our minds, of course my thoughts turn to sales tax and how can we help our clients rest a little easier while enjoying the holidays.  In the very first SALT TALK, we issued the following advice:

We generally tell our clients that if you are going to take an aggressive position on sales tax collection, consider that you are paying someone else’s tax (the purchaser) plus interest and penalties.  Not only that, but sales tax obligations are virtually impossible to walk away from as personal liability generally attaches to “responsible parties.” So think long and hard in deciding whether or not collecting and remitting sales tax is really giving you a competitive advantage.

In the May 30, 2016 SALT TALK  we outlined the general parameters of who a responsible person might be:

… what the general concepts states look to in deciding whether to pursue an individual (whether an officer, director, shareholder or even just an employee) are as follows:

  • Responsibility for preparing and signing tax returns;
  • Involvement in the day-to-day operations of the business;
  • Knowledge (or control, even without actual knowledge) of financial affairs;
  • Control over which creditors are paid and when;
  • Authority to sign checks and tax returns.

This is far from an all-inclusive list. Perceived authority plays an important role as well. To make matters worse, in many jurisdictions, the liability extends not only to collected and unremitted tax, but also to tax that should have been collected, but never was.

Year-end, as always, is a great time to reevaluate sales tax collection obligations. It’s difficult enough to pay your own taxes, but by failing to properly collect the sales tax, both you and your business can be picking up the bill for someone else. 

Questions on your year-end tax planning? Contact me at WBerkowitz@BerdonLLP.com or your Berdon advisor.

Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.

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