Corporate Officer Personally Liable for Sales Tax in New York

Thursday, April 17th, 2014

New York

A New York trial court recently ruled that a restaurant operator was personally liable for sales tax even if he only stepped in temporarily to act on behalf of his wife.

The taxpayer was the chairperson and chief executive officer of the corporation that ran a restaurant. In this capacity, the taxpayer participated in making business decisions, was responsible for preparing or supervising the preparation of sales tax returns, maintained and managed the business, owned corporate and voting stock, had the authority to hire and fire employees, and had the authority to manage financial affairs. The taxpayer argued that he was only temporarily in this position and acted through power of attorney for his wife, who was ill.

New York imposes sales tax on sales of prepared food. The person responsible for collecting the tax is personally liable. This includes any officer, director, or employee of a corporation who is under a duty to act on behalf of the corporation to comply with the sales tax law. To determine if a person is required to collect tax, New York courts look at whether the person has the authority to sign corporate checks, is responsible for managing the corporation and maintaining its books, can hire and fire employees, has status as a corporate officer, or receives substantial income from the corporation or stock ownership.

The court determined that the taxpayer was responsible for collecting the tax. The taxpayer had authority to sign corporate checks, manage the corporation, maintain its books, and hire or fire employees. It did not matter whether the taxpayer exercised any of these authorities. The taxpayer was therefore personally liable for sales tax from sales by the restaurant.

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