Overview of Texas Sales Tax Personal Liability
The Texas Court of Appeals has ruled that a manager of a convenience store was personally liable for the store’s delinquent sales and use taxes, and engaged in a fraudulent scheme to evade payment of the taxes.
In Texas, an individual who controls or supervises the collection of tax from another person holds the amount collected in trust for the benefit of the state. If the individual willfully fails to pay or cause to be paid the tax, then the individual is liable as a responsible individual.
Further, the dissolution of the business entity does not affect the responsible individual’s liability.
Facts of the Case
In this case, there is legally and factually sufficient evidence that shows the individual was at least the manager of the store, including:
- Drafting of incorporating documents
- Overseeing of day-to-day operations
- Use of corporate email
- Sole authority for writing checks for the store
- Authority over the store’s bank accounts
- Interaction with tax regulators on audits
- Preparation of the store’s tax returns
Findings of Fraudulent Conduct
The manager also willfully failed to pay the store’s sales and use taxes and engaged in a fraudulent scheme to evade payment of the taxes by:
- Knowingly underreporting taxes by 25%
- Preventing the taxing authorities from properly calculating the taxes during the audits
- Delaying collection proceedings by terminating the company and selling the store during the audit
Case Citation:
(Elesawi v. The State of Texas et al., Tex. Ct. App. (7th Dist.), No. 07-20-00182-CV, 04/20/2022.)
Need Legal Help?
Facing a sales tax audit in Texas?
Contact our attorney for a consultation.
Frequently Asked Questions
What does it mean to be personally liable for sales tax in Texas?
In Texas, if you manage or control the collection of sales tax for a business and willfully fail to remit those taxes, you can be held personally liable. This applies even if the business entity is later dissolved.
Can a business manager be liable for tax debts if the business closes?
Yes, the closure or dissolution of the business does not eliminate a responsible individual’s personal liability for unpaid sales and use taxes owed during their time of control.
What kind of evidence establishes someone as a responsible party for sales tax?
Evidence such as managing daily operations, handling finances, signing checks, communicating with tax authorities, and preparing tax returns can establish someone as a responsible individual for tax obligations.
What constitutes a fraudulent scheme to evade sales tax in Texas?
Fraudulent conduct may include knowingly underreporting taxes, obstructing tax audits, or transferring or dissolving the business during an audit to avoid payment of tax liabilities.
What legal precedent supports personal liability for sales tax in Texas?
The Texas Court of Appeals decision in Elesawi v. The State of Texas confirmed that individuals in control of tax processes can be held personally and fraudulently liable for unpaid taxes, even after business dissolution.