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Officers Beware! Personal Liability for Unpaid Sales and Use Tax

Most business owners are familiar with the concept of "piercing the corporate veil" – that legal theory whereby owners and officers may be personally liable for the obligations of a corporation.  However, personal liability may also be imposed in the sales and use tax arena.

Let's start with the basics.  Michigan imposes a sales tax on persons engaged in the business of selling tangible personal property at retail and a use tax on persons using, storing, or consuming tangible personal property in this state.  In the case of the sales tax, the seller is liable for payment of the sales tax.  With regard to the sales tax, the user or consumer is liable for payment of the use tax.

If an entity, for any reason, fails to file a return or pay the use or sales tax due, personal liability is imposed on the entity's officers who have control or are charged with the responsibility for making returns or payments.  Moreover, an officer cannot delegate the responsibility for tax matters to third parties or non-officers.  For example, in Sova v. Department of Treasury, the Michigan Tax Tribunal held the owner/officer of a small business liable for unpaid sales and use taxes, despite the owner/officer's contention that responsibility for making returns and payments was delegated to a non-officer.

If you have questions regarding Michigan's sales or use tax, please contact me.

Categories: Sales Tax, Use Tax

Photo of Nicholas M. Oertel

focuses his practice in the areas of Michigan non-property tax disputes, business entity selection, corporate transactions, and information technology.

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