Legislation was introduced legislation that would expand personal liability for a wider array of taxes paid by businesses. The bill was introduced yesterday (April 15 ironically tax day) with a hearing held at 8 a.m. the next day.
Under current law certain corporate officials and employees can be held liable for unpaid sales taxes. SB 6169 would make more officials potentially liable for unpaid taxes. Plus it would make these officials potentially liable for a much broader array of taxes than just the sales tax.
AGC members are encouraged to IMMEDIATELY contact the Legislature and express their opposition to this bill. This can be easily done via the AGC Grassroots Action Network.
AGC Legal Affairs Counsel Van Collins testified against the measure. Under this bill gone are the concepts of action just for sales tax revenues held in trust and action only against those bad actors which had responsibility for the collection care and custody of those revenues for the benefit of the state Collins said. His full testimony is copied below:
Current law limits personal liability to just sales tax held in trust and to those individuals who had a personal responsibility for the collection care and custody of those monies. Under that language there is a rationale basis for piercing the corporate veil because of the trust relationship involved in the collection of sales tax revenues at the point and time of sale and a potential bad actor involved. In such circumstances a breach of limited liability protection is probably warranted.
The proposed bill is entirely different. Both the scope of the type of taxes is expanded and the individuals against whom recourse may be had are expanded. Under this bill gone are the concepts of action just for sales tax revenues held in trust and action only against those bad actors which had responsibility for the collection care and custody of those revenues for the benefit of the state.
Instead as stated in Section 101 subsection 2 this bill would apply to sales tax B&O tax and anything else (and I quote) regardless of whether the tax is denominated a tax fee charge or some other term. This in of itself is a huge breach in our long history of corporate protection and which the AGC believes is without legal justification.
Unlike sales tax which is paid at the time of sale by the purchaser and held in trust for the state other taxes are accrued over time similar to other business debts. As such there is no similar legal theory upon which base lifting the veil of limited liability.
This bill further greatly expands the targets of opportunity for the state. Under this bill Chief Executive Officers and Chief Financial Officers are personally liable regardless of fault or whether the individual was or should have been aware of the unpaid tax. This is tantamount to making those individuals guarantors to the State. Here the State is placed in the same arrangement by the force of law as what lenders are in voluntarily negotiated commercial lending transactions. Again this is an immense expansion of scope and the elimination of any rational legal basis of culpability.
Lastly this bill also makes one other very important change from previous law and which imparts commercial lending type attributes to the State. It allows action against responsible individuals when the company is determined by the Department of Revenue to be insolvent. This means that the Department of Revenue can in essence call company tax debt due from private individuals when it sees fit.
In closing tax liability should not accrue to individuals for company debt without some rational nexus to culpability and tax collections should not be viewed as on par with commercial lending transactions.