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Corporate Officers’ Joint & Several Liability for Corporate Sales Tax

Posted & filed under Corporation, Ownership Interest.

home-imageIf you are a corporate officer, beware, as you may be responsible for your corporation’s unpaid sales and use taxes. In a recent Georgia Court of Appeals case, Georgia Department of Revenue v. Moore, No. A12A0216, 2014 WL 3610795 (July 16, 2014), the majority shareholder of a corporation paid the corporation’s sales and use taxes. Thereafter, in the majority shareholder’s refund action, the Georgia Department of Revenue voluntarily refunded a portion of the tax payment to the majority shareholder. While the corporation’s other officer was not a party to the refund action, the Georgia Department of Revenue sought to recoup the refunded portion of the taxes from the corporation’s other corporate officer. The Court found that as “responsible persons” (i.e., an officer or employee of a corporation (or member/manager/employee of LLC or partner or employee of a limited liability partnership) who has control or supervision of collecting taxes, and who willfully fails to collect the taxes, truthfully account for and pay amounts owed, or who willfully attempts to evade a tax obligation, shall be personally liable for the unpaid amount), both the majority owner (that first paid the taxes) and the corporate officer (who did not originally pay the taxes) were jointly and severally obligated to pay the corporation’s sales and use taxes. The Court found that under Georgia law, a jointly and severally liable person is not a “necessary” party to a lawsuit involving another jointly and severally liable person. As a result, the Court held that because the corporate officer who did not originally pay the corporation’s taxes was not a “necessary” party to the refund action, the Georgia Department of Revenue could still pursue such officer for the additional amount of taxes refunded (even though the corporate officer was not a party to the refund action). As this case illustrates, corporate officers and other responsible persons need to be aware that they could be held personally liable for their company’s unpaid sales and use taxes.

This article is not intended to establish an attorney-client relationship and is not intended to confer legal advice. No attorney-client relationship should be inferred in the absence of a written and executed engagement agreement that expressly indicates the creation of an attorney-client relationship.

Written by: Heather Wagner