Minnesota Sales Tax Responsible Person Legal Standard | Audit Tax Lawyer
In this article, I would like to discuss the legal definition of Responsible Person under Minn. Stat. § 270C.56 – I will refer to this term as Minnesota sales tax responsible person legal standard.
Minnesota Sales Tax Responsible Person: Background Information
Minnesota imposes a sales tax “on the gross receipts from retail sales.” Minn. Stat. § 297A.62, subd. 1 (2014). “The sales … tax required to be collected by the retailer under chapter 297A constitutes a debt owed by the retailer to Minnesota, and the sums collected must be held as a special fund in trust for the state of Minnesota.” Minn. Stat. § 289A.31, subd. 7(a) (2014).
If the sales tax is not collected or remitted to the Minnesota Department of Revenue (“DOR”) by the company, then Minnesota law imposes personal liability upon a person who “has the control of, supervision of, or responsibility for filing returns or reports, paying taxes, or collecting or withholding and remitting taxes and who fails to do so.” Minn. Stat. § 270C.56, subd. 1 (2014). In other words, the State of Minnesota will collect the sales tax liability incurred by a company from whoever is defined as a “responsible person” – this is what I mean by Minnesota Sales Tax Responsible Person.
Minnesota Sales Tax Responsible Person: Legal Test
In order for a person to be assessed with the personal liability for non-payment of a sales tax, Minnesota courts follow a two-prong analysis under the Legal Test that establishes whether a person is a Minnesota Sales Tax Responsible Person. The first prong is definitional and the second one is substantive. Yik C. Lo v. Comm’r of Revenue, 2016 Minn. Tax LEXIS 17, *24 (Minn. T.C. April 7, 2016).
Let’s deal with the definitional prong first. “The threshold definitional question is whether the assessed person qualifies as a ‘person’ for purposes of the personal liability statute.” Id.; also see Igel v. Comm’r of Revenue, 566 N.W.2d 706, 709 (Minn. 1997). For the purposes of this statute, the word “person” is defined broadly to include an officer of a company, a member of a partnership and even an employee. Minn. Stat. § 270C.56, subd. 2 (2014). Pretty much any stakeholder, officer or employee would be considered a “person”.
If the first question is answered positively, then, the second issue is whether the “person” was also a “responsible person” – i.e. whether the “person” had the requisite control over financial matters to be found personally liable for the company’s tax liabilities. Stevens v. Comm’r of Revenue, 822 N.W.2d 646, 652 (Minn. 2012).
The Minnesota Supreme Court adopted a five-factor test to determine who is a responsible person. Benoit v. Commissioner of Revenue, 453 N.W.2d 336, 344 (Minn. 1990). This test is “informative” while the statutory language of 270C.56 controls. Larson v. Comm’r of Revenue, 581 N.W.2d 25, 28-29 (Minn. 1998). In other words, the courts may and actually at other factors besides those listed in the test.
The five factors are:
“(1) The identity of the officers, directors and stockholders of the corporation and their duties;
(2) The ability to sign checks on behalf of the corporation;
(3) The identity of the individuals who hired and fired employees;
(4) The identity of the individuals who were in control of the financial affairs of the corporation; and
(5) The identity of those who had an entrepreneurial stake in the corporation.” Benoit, 453 N.W.2d at 344. The idea behind the test is to focus on “those persons who have the power and responsibility to see that the taxes are paid.” Id. Writing for a unanimous court, Judge Wahl also stated: “Control and influence over the ‘disbursement of funds and priority of payments to creditors’ are the most important elements.” Id. at 342.
Contact Sherayzen Law Office for Professional Help With Minnesota Statute § 270C.56
If the DOR found you personally responsible for a company’s sales tax liability under Minn. Stat. § 270C.56, contact Sherayzen Law Office for professional tax help.