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California: Individual Liable for Unpaid Business Taxes

  • Oct 23, 2012 | Gail Cole

The California Board of Equalization has ruled that an individual is personally liable for the unpaid taxes and penalties of an LLC that is no longer in business.

According to California Revenue and Taxation Code Section 6829,

"Upon the termination, dissolution, or abandonment of the business of a limited liability company, any officer … 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 is under a duty to act for the …. limited liability company in complying with any requirement of this part, shall … be personally liable for any unpaid taxes and interest and penalties on those taxes … ."

The case in question involves an auto dealership (HLS) that "collected sales tax reimbursement on the selling price of tangible personal property," but filed its sales and use tax return with no remittance.

The California Sales and Use Tax Department (Department) identified the taxpayer in question "as a person responsible for HLS's sales and use tax matters." It was also determined that "the taxpayer willfully failed to pay or cause to be paid HLS's tax liabilities because HLS had funds available at the time the taxes became due and chose to pay other creditors."

Given these determinations, the claims that the taxpayer only owned 20 percent of HLS and did not have control of the company finances are irrelevant. The BOE points out that "liability under section 6829 is not dependent on ownership." Rather, the "[t]axpayer is liable under section 6829 for the full amount due if he was a responsible person for sales and use tax compliance, and if he willfully failed to pay or to cause to be paid the taxes due."  (Emphasis mine).

The case in question regards sales and use taxes for the third quarter of 2008. Since that time, the taxes due have accrued more than $40,000 in interest and more than $20,000 in penalties. In other words, it doesn't pay to not pay sales and use taxes in California.

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.