California—Sales & Use Tax: Individual Must Pay Defunct LLC’s Unpaid Taxes

CA: An individual was held liable for the unpaid California sales and use tax of a defunct limited liability company (LLC) because he was responsible for the LLC’s tax affairs during the years in question. In this case, the California Department of Taxes and Fees Administration (CDTFA) issued a declaratory judgment against the LLC to recover sales tax collected on its taxable sales but not remitted to the CDTFA. Upon review, the Office of Tax Appeals determined that the LLC’s tax liability fell on the individual because:

  1. The LLC was terminated.
  2. The LLC had collected but not remitted taxes.
  3. The person was responsible for the liability of the LLC.
  4. The person has willfully failed to pay those obligations.

In addition, the taxpayer requested an exemption from various penalties, arguing that the failure to file the statements was due to the financial crisis affecting the LLC. The CDTFA agreed to lift only the finality penalty and denied relief on the other penalties as unfortunate financial issues and economic downturn were not valid reasons. The taxpayer also argued that he was entitled to a waiver of interest payments because the CDTFA Settlement Bureau delayed the appeal, resulting in interest accrual. CDTFA found that the delay was due to an extended leave of absence taken by a staff member at the Settlement Office dealing with the case. Therefore, the waiver was limited to that period only.


About Davis Davis & Harmon LLC – Sales Tax Experts: Headquartered in Dallas, Texas, Davis Davis & Harmon LLC – Sales Tax Experts specializes in sales/use tax refund recovery and audit defense. Our team of consultants is comprised of former Big 4 sales tax consultants and state sales tax auditors. Each of our consultants has 15 to 20 years of experience, providing our clients with access to a highly specialized team of sales/use tax professionals. At Davis Davis & Harmon, LLC, we are committed to maintaining the highest standards in our talent pool. We work hard to meet our clients’ needs by ensuring that you view our firm as an extension of your company and a member of your team.

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