Under New York State Tax Law, each and every limited liability company member has 100% personal responsibility for the LLC’s New York State sales tax liability, including tax, interest, and penalties, regardless of the member’s involvement with the business’s affairs, or lack thereof.
This strict liability for sales tax applies to members of a LLC. The responsible person assessments determination is based on the particular facts and circumstances.
Recognizing the unfortunate and likely unintended consequences facing LLC members, New York State issued TSB-M-11(6)S, providing the possibility of much needed relief in this area. Under the policy described in the TSB-M, which took effect March 9, 2011, qualified LLC members would not be personally liable for penalties on the business’s unpaid sales tax. In addition, personal liability for the LLC’s unpaid sales tax and interest is limited to the extent of the member’s proportionate share, based on ownership interest or percentage of the distributive share of the LLC profits and losses, whichever is greater. LLC members are eligible for relief under the policy only if:
• Their ownership interest and percentage share of the profits and losses of the LLC are less than 50%.
• They were not under a duty to act on behalf of the company in complying with the sales tax law.
Members seeking relief must also cooperate with NYS tax authorities by identifying individuals involved in the day-to-day business affairs, to the extent reasonably possible. Of course, New York State understands passive investors may not have access to this information.
We represent taxpayers facing responsible person assessments and as appropriate will challenge the state’s assertion that a taxpayer was responsible. Do not hesitate to contact us if you are facing responsible person assessments.
Karen Tenenbaum, Esq. is founder and partner of Tenenbaum Law, P.C., Melville, N.Y.