Executives liable for state business taxes

A Hidden Risk

Gerald Capps, JD

Some States Now Holding Board Members & Senior Management Personally Liable For Business Taxes

By Jerry Capps
AGH Specialized Tax Solutions
August 8, 2014

The economic downturn and long road to recovery have left many businesses across the nation bankrupt or on the verge of bankruptcy. This has given rise to an unfortunate trend in particularly hard-hit states and industries − the activation of statutes allowing the states to levy against the personal assets of individuals deemed to be responsible parties when their business is unable to pay its entity-level taxes.

Depending on the state, responsible parties can include board members, upper-level management with general authority over the activities of the business, and anyone with specific authority over the business' taxes. Recent rulings in this area have shown that, within the framework of a state's rules, ultimate responsibility can fall on unlikely parties and can even be based on title and authority on paper rather than business reality.

For example, on April 10, 2014, the New York Supreme Court Appellate Division recently held that the titular chairman of a corporation that owned a restaurant could be held personally liable for the restaurant's unpaid sales and use tax because he had the authority to manage the corporation, regardless of the fact that the only time he ever exercised that authority was when his wife, the manager of the daily operations of the restaurant, was terminally ill. With these types of decisions becoming all too commonplace, it is important to consider this hidden risk.

For more information about how states holding board members and senior management personally liable for business taxes may affect you, please contact your AGH tax professional, or AGH senior vice president of state and local tax Jerry Capps at 1-844-787-2121 or jerry.capps@aghsts.com