Holds a person who willfully fails to collect, account for, and pay tax liable; defines "passive investor" to mean an investor who does not play an active role in the business.
TITLE OF BILL: An act to amend the tax law, in relation to the failure of a responsible person to collect and pay over withholding tax
PURPOSE: To eliminate a disparity in the collection of trust fund taxes for which there is no known policy or legislative basis.
SUMMARY OF PROVISIONS: Section 1131 of the tax law is amended to add a new subdivision (1) dealing with those people who are not responsible for payment of sales tax and therefore exempting them from such unpaid sales tax liability.
EXISTING LAW: None.
JUSTIFICATION: As currently written, Section 1131(1) appears on its face to impose absolute liability for unpaid sales taxes on all members of an LLC and on all limited partners of a limited partnership, without regard to whether the member or limited partner had an active role or significant involvement in the financial affairs or management of the business.
This amendment to the NYS Tax Law, section 1133, liability for the tax, will allow the responsible person concept to be applied uniformly to the determination of who is responsible for unpaid trust fund taxes owed by a business, without regard to the type of tax (sales or withholding tax) or the form of the business entity.
Section 121-303 of the NY Partnership Law similarly insulates limited partners from the debts of a partnership. This change would eliminate a disparity in the collection of trust fund taxes for which there is no known policy or legislative basis.
If not corrected, Section 1131 (1) exposes mere passive investors in the LLCs and limited partnerships to personal liability for unpaid sales taxes of a business.
LEGISLATIVE HISTORY: S.7922 of 2010 - Referred to Investigations & Government Operations
FISCAL IMPLICATIONS: None.
EFFECTIVE DATE: Immediately.
STATE OF NEW YORK ________________________________________________________________________ 2438 2011-2012 Regular Sessions IN SENATE January 21, 2011 ___________Introduced by Sen. ALESI -- read twice and ordered printed, and when printed to be committed to the Committee on Investigations and Govern- ment Operations AN ACT to amend the tax law, in relation to the failure of a responsible person to collect and pay over withholding tax THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subdivision 1 of section 1131 of the tax law, as amended by chapter 576 of the laws of 1994, is amended to read as follows: (1) "Persons required to collect tax" or "person required to collect any tax imposed by this article" shall include: every vendor of tangible personal property or services; every recipient of amusement charges; and every operator of a hotel. Said terms shall also include any officer, director or employee of a corporation or of a dissolved corporation, any employee of a partnership, any employee or manager of a limited liabil- ity company, or any employee of an individual proprietorship who as such officer, director, employee or manager is under a duty to act for such corporation, partnership, limited liability company or individual proprietorship in complying with any requirement of this article; and any member of a partnership or limited liability company EXCEPT, THOSE PASSIVE INVESTORS, AS DEFINED, ARE EXEMPT. FOR THE PURPOSES OF THIS SUBDIVISION, THE TERM "PASSIVE INVESTOR" SHALL MEAN AN INVESTOR WHO DOES NOT PLAY AN ACTIVE ROLE IN THE BUSINESS. Provided, however, that any person who is a vendor solely by reason of clause (D) or (E) of subpara- graph (i) of paragraph (8) of subdivision (b) of section eleven hundred one shall not be a "person required to collect any tax imposed by this article" until twenty days after the date by which such person is required to file a certificate of registration pursuant to section elev- en hundred thirty-four OF THIS PART. S 2. This act shall take effect immediately.EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD08250-01-1