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Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 3102
Experience:  18+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
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I was an officer in a closed business. After an audit the

Customer Question

I was an officer in a closed business. After an audit the boe charged for disputed interstate sales that were not taxed and no money was collected from the customers. They are trying to hold me personally responsible for all the uncollected tax, and penalties which they arbitrarily set at about $70K.
Everything I read says I'm not personally responsible as no money was ever collected and I received to benefit from the uncollected tax.
How do I answer them?
Submitted: 1 year ago.
Category: Tax
Expert:  Barbara replied 1 year ago.

Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

Unfortunately, in CA "Any responsible person who willfully fails to pay or to cause to be paid, under circumstances set forth below, any taxes due from a corporation, partnership, limited partnership, limited liability partnership, or limited liability company pursuant to Part 1, Division 2, of the Revenue and Taxation Code shall be personally liable for any unpaid taxes and interest and penalties on those taxes not so paid upon termination, dissolution, or abandonment of the business of the corporation, partnership, limited partnership, limited liability partnership, or limited liability company.

Personal liability shall apply if the Board establishes that while the person was a responsible person, the corporation, partnership, limited partnership, limited liability partnership, or limited liability company:

1. 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

2. consumed tangible personal property and failed to pay the applicable tax to the seller or the Board; or

3. issued a receipt for use tax and failed to report and pay the tax.

The following link contains excellent information which you will find helpful:

http://www.boe.ca.gov/lawguides/business/current/btlg/vol1/sutr/1702-5.html

I realize this is not the answer you were hoping for, but please come back to me here at your convenience if you require further information or clarification.

Thank you and best regards,

Barb

Customer: replied 1 year ago.
Clearly you did not read my request. The issue is the tax was not collected from the customer so obviously there was no benefit received. And according to 1702.6 the tax has to have been received. The issue is the boe not accepting the deductions claimed. And again, no taxes was collected from the customers involved at that time.
Expert:  Barbara replied 1 year ago.

I read and understood your question. However, there is also the duty/responsibility to collect sales tax on taxable transactions, and as an officer, you are considered to be a responsible person to make sure that such sales tax is collected. Further, California is one of the most aggressive regarding tax liability.

Best regards,

Barb

Customer: replied 1 year ago.
What about law 1702.6 that states in order for personal liability the tax has to have been collected and have established that there is a personal gain?
Expert:  Barbara replied 1 year ago.

Regulation 1702.6 pertains to suspended corporations.

http://www.boe.ca.gov/lawguides/business/current/btlg/vol1/sutr/1702-6.html

Expert:  Barbara replied 1 year ago.

Further to my previous answers, further research supports those answers.

State responsible person laws often apply to sales and use taxes. California holds responsible persons liable for “any unpaid [sales and use] taxes and interest and penalties on those taxes, if the [responsible person] willfully fails to pay [those] taxes.” In addition to liability for the California sales tax that should have been collected on a company’s sales, an individual may be responsible for sales and use taxes that the company was responsible for paying as a consumer on its purchases.

I realize this is not the answer you were hoping for, but as I previously mentioned, California applies the "responsible person laws" to its collection efforts.

Best regards,

Barb