NYS – RESPONSIBLE PERSON ASSESSMENTS
Not all business owners understand that sales tax money is NOT revenue when collected and a deduction when remitted to tax authorities. In fact, any sales tax money collected does not belong to the businesses or owner at all. When you register to collect sales tax (by applying for a certificate of authority) you become a trustee of New York State. As a trustee, you are PERSONALLY RESPONSIBLE (you can replace the word RESPONSIBLE with LIABLE) to collect and remit the proper amount of sales tax to the state and municipalities. Since an individual collecting sales tax is a trustee of the state and the money collected is being held in trust – collecting and not remitting sales tax is a crime.
NYS imposes personal liability on any responsible person. SO, WHO IS A RESPONSIBLE PERSON?
*According to NYS a responsible person generally includes anyone who does any of the following:
- Is actively involved in operating the business on a daily basis
- Is involved in deciding which financial obligations are paid
- Is involved in personnel activity (such as hiring or firing employees)
- Has check signing authority
- Prepares tax returns
- Has authority over business decisions
- Is a tax manager or general manager
In addition, the following are automatically considered responsible persons:
*Source New York State Form: DTF-17.1
If you fall into the generally category above, responsible person status will depend on the specific facts and circumstances.
A responsible person is held jointly and severally liable for any outstanding sales tax obligations of the business.
*Jointly and severally liable means NYS can collect the complete outstanding sales tax balance from any single individual responsible person. This makes collecting the balance in full easier for the state. The responsible person who paid the amount in full may later chase down the other responsible persons for their share of the sales tax obligation.
If the business can come up with the money to pay the outstanding sales tax the responsible person(s) are in the clear. It is only when the business cannot or will not come up with the money to satisfy the sales tax obligations that NYS looks to collect from the responsible person(s).
Why is knowledge of New York State Responsible Person Assessments important? BECAUSE:
“AN OUNCE OF PREVENTION IS WORTH A POUND OF CURE”
Responsible Persons will do their best to ensure that the proper sales tax is being collected and remitted. This may be achieved by setting up internal controls to safeguard the collected sales tax. It is safe to assume that if you are the only responsible person with substantial money and/or assets, that NYS will be going after you personally to collect any outstanding sales tax obligations.
Additionally, if you are operating a business that collects sales tax and finds the business does not have enough funds to satisfy all current liabilities… PAY THE SALES TAX FIRST!(1) Sales tax collected does not belong to the business (2) It is a crime to collect and not remit sales tax (3) you may be held personally liable for the sales tax obligations (but not the other business obligations).
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If you have any questions about responsible person assessments, please contact us.
Disclaimer: This article is offered for general information and educational purposes only and not intended to be tax or legal advice.
Peter Alizio is a CPA and Tax Attorney. When he is not solving IRS and NYS tax problems he likes football and playing amateur chef. He also enjoys meeting new people, preferably over coffee, whiskey or cigars.