Who is Personally Liable for Sales Tax at Your Company?
Who do the states consider as the responsible parties for sales tax remittance and recovery? Is it only the owner of the company? States are allowed to pierce the corporate veil and can hold a number of different individuals in a company accountable for remitting sales tax, including CEOs, CFOs, Directors and other individuals who control or have authority over the company’s tax and accounting processes.
With the current pandemic and downturn in the economy, states are seeking ways to generate cash and many revenue departments are turning to sales tax in an attempt to fill their coffers. Sales tax is a trust tax, meaning that the taxpayer is entrusted with the responsibility of collecting the tax on behalf of the state. With the passing of economic nexus laws, the states have shifted the responsibility for sales tax remittance to the sellers and ultimately to the responsible parties.
Download Cherry Bekaert's nexus charts to see economic nexus requirements by state.
Common Criteria of Responsible Parties
Each state defines responsible party differently. Some of the more common criteria includes a person who fulfills at least one of the following roles at the company:
- actively involved in operating the business on a regular basis;
- involved in deciding which financial obligations are paid;
- involved in personnel activity (such as hiring or firing employees);
- check signing authority;
- tax return preparation;
- authority over business decisions;
- tax manager or general manager; and/or
- corporate officer.
Personal Information Requirement
States can ask for a variety of personal information about the responsible parties of the company including social security numbers, driver’s license numbers, home address and birth date. This information is required in order for states to issue sales tax permits.
In many states, responsible party laws allow the state to pursue an individual for the full amount of sales tax owed by the company. Sales tax liability is also not dischargeable in bankruptcy, a fact that responsible parties need to keep in mind when becoming accountable for the collection of sales tax.
It is important that sellers educate themselves on what it means to be a responsible party for sales tax. If your business is collecting and remitting sales tax in accordance with the law, there is nothing to fear from being a responsible party.
Consult with a sales tax advisor to understand sales tax liability and responsibility requirements by state. Visit our website for more information. Contact Cherry Bekaert if you have questions.