Current through Register Vol. 50, No. 3, March 20, 2024
A.R.S.
47:1561.1 provides an alternative means of
enforcing collection of income taxes withheld from wages of employees and sales
and use taxes collected from customers, should a corporation fail to file
returns or fail to remit such taxes, by holding certain officers or directors
of the corporation personally responsible. Three criteria must be met before a
corporate officer or director can be held personally liable:
1. the corporation must have failed to remit
the collected taxes;
2. the officer
or director must have direct control over or supervision of such taxes or must
be charged with the responsibility for filing returns and remitting the taxes;
and
3. the officer or director must
have willfully failed to remit or account for such taxes.
B. Failure to Remit by Corporation
1. A corporation must have actually withheld
income taxes from the wages of its employees or must have actually collected
sales or use taxes from customers or consumers and failed to account for or
remit these taxes to the secretary before a claim can be made against an
officer or director. Officers or directors cannot be held personally
responsible for sales and use tax amounts determined by audit to be due but not
actually collected by the corporation.
2. Taxes Actually Withheld or Collected
a. If a corporation pays net wages to its
employees, it will be deemed to have withheld any income taxes required to be
withheld.
b. If a corporation pays
wages in property other than money, it will be deemed to have withheld income
taxes on such payment.
c. Where a
corporation makes sales on credit or on open account and the sales tax is shown
on the invoice, some payment on the invoice must be received before the tax
will be deemed to have been collected.
i. Any
payment on open account will be applied to the oldest invoice first, unless
otherwise indicated.
ii. Any
partial payment on an invoice will be applied to the sales tax first, unless
otherwise indicated.
3. Reasonable efforts must be made to collect
the designated taxes from the corporation before proceeding against an officer
or director. It will be assumed that collection from the corporation cannot be
made if the corporation has filed bankruptcy, has discontinued business and has
no unencumbered assets, or has been liquidated.
4. Payments made by a corporation on its tax
account will be applied toward any non-trust fund taxes first, unless the
taxpayer designates in writing how a particular payment is to be applied at the
time the payment is made, or the facts and circumstances indicate otherwise.
For example, if a corporation owes, for a particular period, both sales taxes
which have been collected and use taxes on purchases, any partial payment will
be applied first to the use taxes owed by the corporation.
C. Responsible Officers or Directors
1. Definition. A responsible officer or
director is one who has the duty to perform or the power to direct the act of
collecting, accounting for, and paying over trust fund monies. He or she must
be an officer or director of the corporation which failed to remit the taxes
and must have sufficient control over funds to direct disbursement of such
funds.
2. Designation of
Responsible Officer or Director. The law provides that a corporation by
resolution of the board of directors may designate an officer or director
having direct control or supervision of withheld or collected taxes or charged
with the responsibility of filing returns and remitting such taxes, and such
resolution shall be filed with the Secretary of State. If such a designation
has been filed, the named officer or director shall be considered responsible.
If no designation has been filed, all acts and circumstances must be
considered. No one factor will determine whether the officer or director is
responsible. In all cases, there will be at least one corporate officer with
the responsibility for collection and payment of taxes. Some factors to be
considered are:
a. what the individual's
duties were as outlined by the corporate bylaws;
b. whether the individual had the authority
to sign company checks;
c. whether
the individual signed the tax returns of the company;
d. whether the individual paid or directed
payment to creditors other than the state of Louisiana;
e. whether the individual was a principal
stockholder;
f. whether the
individual hired and discharged employees;
g. whether the individual controlled the
financial affairs of the company in general; or
h. whether an officer or director was
designated as responsible for filing returns and remitting taxes even though no
resolution was filed with the Secretary of State. An officer or director to
whom such responsibility has been delegated cannot avoid his responsibility by
delegating it to a subordinate employee.
3. Multiple Responsible Persons. There may be
instances when more than one officer or director has responsibility for taxes.
If such a determination is made, the secretary may assess all responsible
officers and directors and may proceed to recover the entire amount from any
one officer or director or partial payments from any combination thereof. The
total amount of tax collected must not exceed the corporation's total
liability. For example, if the corporation pays the liability after an
assessment is made against a responsible officer, a corresponding credit should
be given to that officer.
D. Willfulness
1. The term willful means
intentional, deliberate, voluntary, and knowing, as distinguished from
accidental. Willfulness is construed to be the attitude of a person who, having
free will or choice, either intentionally disregards the law or is plainly
indifferent to the requirements of the law. Willfulness includes a "reckless
disregard for obvious or known risks" or a "failure to investigate or correct
mismanagement."
2. If an officer or
director permits withheld or collected taxes to be used to pay operating
expenses of the business, whether by direction or tacit approval, he has
willfully failed to account for or remit such taxes.
3. The determination of willfulness does not
require a finding of bad motives, such as intent to defraud.
E. Alternative Remedies for
Collection of Taxes. Any of the methods of collection provided by
R.S.
47:1561 may be used to collect taxes from
responsible officers or directors.
F. Prescription and Waivers. The prescription
period of the tax in question will also apply to any assessment under
R.S.
47:1561.1. A waiver of prescription executed
by the corporation will not be valid for assessments against officers or
directors. Separate waivers must be obtained.
AUTHORITY NOTE:
Promulgated in accordance with
R.S.
47:1561.1.