Ohio State Tax Blog

Responsible Party Developments: Paper Involvement Sufficient to Impose Personal Liability; Independent Contractor Not Enough

April 23, 2015    •    2 min read

In Leishman v. Testa, Ohio BTA, Dkt. No. 2013-6262 (02/03/2015), the Ohio BTA affirmed the Tax Commissioner’s determination that even an “on paper” partner is a responsible party for unpaid sales tax. The taxpayer contended that the company was being managed by another individual who independently determined the sales tax due and reported that amount to the taxpayer, who then paid the stated amount. The taxpayer indicated her only involvement was “merely on paper” and the result of pressure from her then-husband. She was not involved in day-to-day operations. Despite being sympathetic to the taxpayer’s situation regarding coercion by her ex-husband, the BTA was unable to conclude that the taxpayer met her burden to prove error in the Tax Commissioner’s determination. The taxpayer “clearly had financial responsibility” for the company, as evidenced by her signing checks, filing sales tax returns, and being listed as president of the store’s ownership entry. Moreover, the BTA affirmed that “delegation of the day-to-day business responsibilities to another . . . does not relieve one of responsibility under R.C. 5739.33.” She still had the relevant authority/responsibility.

Alternatively, in Kingery v. Testa, Ohio BTA, Dkt. Nos. 2012-887; 2012-888; 2012-889; 2012-890 (01/27/2015) the Ohio BTA reversed the decision of the Tax Commissioner and determined the taxpayer met her burden to show she was not a responsible party. The taxpayer testified that she was “not an Officer, Stock Holder, or an employee,” but was instead hired as an independent contractor, working part-time on financial matters, and presented a consulting service agreement confirming such arrangement. Despite being the secretary/treasurer and vice president of the company at one point, the BTA found that she was not a responsible party because the corporate minutes clearly showed she resigned well before the years at issue. Furthermore, the BTA found she was not an employee, having not received compensation for services performed.

Any person asserted to be a responsible party must work on parallel fronts to protect his/her interests by: (a) making sure the corporation’s liability is correct before it becomes final; (b) making sure the Department of Taxation pursues all responsible parties; and (c) of course, fully defending the assertion of his/her responsible party status. If you have any questions regarding whether you are a responsible party or how to protect your interest, please contact Steve Dimengo, Rich Fry, or Casey Davis.

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