The CDTFA can attempt to assess the sales tax liability to owners of the business. This is often called a dual determination. If you have a business with a tax liability, you could be at risk. Moreover, if you have received a notice of personal assessment, you can appeal the CDTFA’s determination.
Per the Sales Tax Code, any responsible person who willfully fails to pay any taxes due from a corporation, partnership, limited partnership, limited liability partnership, or limited liability company may be personally liable for any unpaid taxes, interest and penalties on those taxes upon termination, dissolution, or abandonment of the business of the corporation, partnership, limited partnership, limited liability partnership, or limited liability company.
Like the concept of the IRS trust fund penalty assessment, the CDTFA will attempt to assess personal liability of a business sales tax liability if the CDTFA can establish that while the person was a responsible person, the corporation, partnership, limited partnership, limited liability partnership, or limited liability company:
- sold tangible personal property in the conduct of its business and collected sales tax reimbursement on the selling price (whether separately itemized or included in the selling price) and failed to remit such tax when due; or
- consumed tangible personal property and failed to pay the applicable tax to the seller or the Board; or
- issued a receipt for use tax and failed to report and pay the tax.
Only responsible persons can be potentially assessed personally for the business tax liability. A “responsible person” is defined as:
- any officer, member, manager, employee, director, shareholder, partner, or other person
- having control or supervision of, or who is charged with the responsibility for, the filing of returns or the payment of tax; or
- who has a duty to act for the corporation, partnership, limited partnership, limited liability partnership, or limited liability company in complying with any provision of the sales tax code.
The term “responsible person” does not include any person who would otherwise qualify but is serving in that capacity as an unpaid volunteer for a non-profit organization.
The responsible party must have acted willfully. As a result, the Sales Tax Code defines the term “willful” as voluntary, conscious and intentional. Additionally, a failure to pay or to cause to be paid may be willful even though such failure was not done with a bad purpose or evil motive.
If the CDTFA assesses a responsible party, the CDTFA will issue a notice of determination. You will have 30 days from the date of the notice to file an appeal.
CDTFA Sales Tax Personal Assessment Statute of Limitations
When issuing a deficiency determination to a responsible person of a terminated, dissolved, or abandoned corporation, partnership, limited partnership, or limited liability company, the CDTFA may issue a billing within the earlier of:
- Three years after the last day of the calendar month following the quarterly period in which we obtain actual knowledge of the entity’s termination, dissolution, or abandonment. (Knowledge is obtained through CDTFA audit activities, compliance activities, or written communication by the business to the CDTFA.)
- Eight years after the last day of the calendar month following the quarterly period in which the entity was terminated, dissolved, or abandoned. If the business files a notice of termination, dissolution, or abandonment of the entity with a state or local agency other than the CDTFA, that filing will not constitute actual knowledge by the BOE of the filing. For more information, please see Regulation 1702.5, Responsible Person Liability.
Contact a CDTFA Sales Tax Attorney
The CDTFA can be aggressive in assessing personal liabilities and attempting enforced collection actions such as levying bank accounts. There are steps you can take to prevent a personal assessment and any subsequent bank levies. Moreover, if you are planning on buying a business, you may want to consider obtaining a CDTFA tax clearance. If you are subject to a potential personal liability assessment from the CDTFA, contact a sales tax attorney at Disparte Tax Law today for a free consultation.