05.30.16 | SALT Chat
Steadfast readers of my blog have likely realized at least one thing about me by now: I am a dedicated music fan and will listen to anything once. Sometimes I’ll love something the first time I hear it (rarely); sometimes I’ll hate something the first time I hear it (fairly common); and other times, a second listen is all it takes.
So I was really stumped by Helen Shapiro. I had no idea who she was before I decided what this week’s blog would cover. But apparently Helen had some big hits in the early sixties and in 1963 the Beatles toured as her supporting act. The reason Helen is important to this week’s post is the fact that she has been crooning (not to the state tax authorities) since 1963, that she is “Not Responsible.”
I can’t sing, yet somehow my daughter turned out to be a gifted singer. You just never know. That said, I can’t count on my clients’ musical talents, so it is my job to teach them how not to be a responsible party when it comes to sales tax liability.
Sales tax is unique in that most jurisdictions impose some degree of a responsible party concept. This means that without having to “pierce the corporate veil” or exercising some other legal niceties to disregard the form of the business entity, states can and do collect sales tax from those individuals they deem responsible.
The sad stories outlined in the jurisprudence on responsible parties could easily take an entire career to review. But 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.
Knowing the sales tax rules is only the first step. We also constantly remind our clients that the taxing authorities, especially when it comes to sales tax, can’t be treated like other vendors. If cash flow is a little light this week, sales tax is definitely not the place to make it up until things level out.
If you have concerns or questions about sales tax and the concept of “responsible party,” contact me at firstname.lastname@example.org.
Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, New York Accountants, advises on the unique requirements of governments and municipalities across the nation.
 Feel free to send me your unwanted Compact Discs, care of Berdon.
 Hence my warning to clients about taking aggressive sales tax positions.