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Individual Personally Liable for Company’s Unpaid Sale and Use Taxes

An individual was personally liable for a company’s unpaid sales and use tax liabilities because he was listed as president, secretary and treasurer of the company on its application for a seller’s permit and had electronically filed its sales tax returns.

In this matter, after the company terminated its operations, the California Department of Tax and Fee Administration (CDFTA) issued notices of deficiency and passed through some amount of the company’s tax liabilities to the taxpayer. The taxpayer unsuccessfully sought redetermination of the deficiency assessment. On appeal, the taxpayer asserted that he was not an active member of the company during the tax years at issue, but he failed to provide substantive documentation to establish his claim. Further, the taxpayer had actual knowledge that the company’s sales were underreported and that taxes were not paid despite him having had the authority and ability to pay them. Accordingly, the taxpayer’s protest was denied. Shafazand, California Office of Tax Appeals, No. 18011844, May 9, 2019, released July 2019

This case illustrates just how important it is for business and nonprofits to stay current with California sales and use tax rules and filing. Failure to meet your obligations under the law could expose individual corporate officers and board members to personal
financial obligations on behalf of the organization.

CMA recommends you work with your local CPA or tax advisor to determine if your activities and/or purchases are generating any sales or use tax obligations so that you can file and pay
the taxes in a timely manner.

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