SALES TAX – Challenging an Assertion of Personal Liability for the Wisconsin Sales Tax.

In previous posts on Wisconsin Sales Taxes, I have written about how a person responsible for making sure that Wisconsin Sales Taxes are paid can become personally liable for the taxes.

Wisconsin Statute Section 77.60(9) imposes personal liability through the following language:

“any person who is required to collect, account for or pay the amount of sales tax imposed and who willfully fails to collect, account for or pay to the Department, shall be personally liable for such amounts, including interest and penalties thereon, if that person’s principal is unable to pay such amounts to the Department.”

If the Wisconsin Department of Revenue is asserting that a person should be personally liable for the sales tax, that person can look to this rule to determine how to challenge the potential liability. For purposes of challenging the assertion of personal liability for Wisconsin sales tax, this rule can be broken down into many parts.

1. Who is a person?

2. Is that person required to collect, account for or pay the amount of sales tax to the State?

3. If that person failed to collect, account for or pay the amount of sales tax to the State, did they do so willfully?

4. Is that person’s principal unable to pay the amount to the Department of Revenue?

Any one of these items can form the basis for challenging a personal liability assessment or at least provide an opportunity for a resolution short of the person dipping into their own pocketbook.

Friday's Tax Quote

“Pothinus: Is it possible that Caesar, the conqueror of the world, has time to occupy himself with such a trifle as our taxes?

Caesar: My friend, taxes are the chief business of a conqueror of the world.”

- George Bernard Shaw (“Caesar and Cleopatra”).

SALES TAX - Payment/Collection of the Sales Tax

In a previous post, I wrote about the imposition of the Wisconsin sales tax on retail sales of tangible personal property and certain services (click here). Generally, business owners are at least loosely familiar with the rules concerning the imposition of the sales tax and the fact that the sales tax exists. Further, they are aware that when the retailer charges the sales tax, the consumer is the one ultimately must pay the tax. Obviously, the tax is not paid by the consumer directly to the State of Wisconsin but is collected by the retailer at the time of the sale. Thereafter, it becomes the retailers obligation to make sure the sales tax that is collected (or was supposed to be collected) is paid over to the State of Wisconsin.

The trouble arises, however, when a retailer has, in fact, collected the sales tax, but has failed to pay that amount to the State. The sales tax collected can be considered to be held in trust by the retail business that collected the tax in the first instance. The funds in that trust belong to the State. If they are not paid to the State, the business will become responsible for making up those amounts plus corresponding penalties and interest when the payments are made, whether they are made following an audit or voluntarily. (The same problem arises where the business fails to collect sales tax.)

Liability for the Wisconsin sales tax, however, does not stop with the business. Wisconsin Statute §77.60(9) provides for personal liability for unpaid sales taxes by the owners, operators or employees of a business that are connected with the sales tax function. That is, if a business does not pay what it is supposed to pay, the people involved with the business that are responsible for making sure that the tax gets paid, can become personally liable for the debt.

The official rule is that “any person who is required to collect, account for or pay the amount of sales tax imposed and who willfully fails to collect, account for or pay to the Department, shall be personally liable for such amounts, including interest and penalties thereon, if that person’s principal is unable to pay such amounts to the Department.”

Therefore, if you are responsible for making payments of sales tax to the State of Wisconsin, do what you can to make sure that the tax gets paid. If not, the Department of Revenue may look directly to your pocket book if they can't collect from the business

"Business Solutions" with Diane Chamness: Avoid Personal Liability for Your Business Taxes

Back in May 2008, I was invited to talk with Diane Chamness on her radio program "Business Solutions" with Diane Chamness. The topic was potential personal liability for Wisconsin Sales Taxes. During the program, Diane and I also took calls concerning any tax issues about which listeners had questions. Many callers had questions concerning employee vs. independent contractor issues.

I have previously written on both of these topics on this blog. For personal liability for Wisconsin Sales Tax issues, click here. For employee vs. independent contractor issues, click here.

Diane Chamness has begun posting recordings of her program online as podcasts. Click the link below to listen to the May program and to hear a variety of other programs covering topics which may be of interest.

"Business Solutions" with Diane Chamness: Avoid Personal Liability for Your Business Taxes

SALES TAX – Wisconsin Sales Taxes are Imposed on Retail Sales of Tangible Personal Property and Certain Services.

The State of Wisconsin, through Wisconsin Statute 77.52 imposes a sales tax on retail sales. The sales tax is imposed at a rate of 5% under the Statute. Certain local municipalities also impose additional sales taxes to create a variation among counties.

The tax applies to the sale of all tangible personal property (that is, anything that is not real property) unless there is a specific exemption that excludes the item of tangible personal property from the sales tax. Exemptions include items such as caskets and burial vaults, food products (unless specifically excluded from the exemption), newspapers, items falling under an occasional sales exemption and more. As a general rule if a business sells tangible personal property, sales tax should be charged unless the Wisconsin Statutes specifically provide otherwise.

Conversely, only certain services are subject to the Wisconsin. These services are specifically identified in the Wisconsin Statutes (in Chapter 77). Examples include cable TV services, landscaping, dry-cleaning or photography services. Therefore, a service business must only collect sales taxes on the services that it provides if that service is specifically identified as taxable in the Wisconsin Statutes.

Whether a business sells tangible personal property or provides a service, the business owners should always check the sales tax statutes to confirm whether the item or service is subject to the sales tax. Failing to do so can result in severe financial consequences (tax, penalty and interest) to the business and its owners, officers and employees if sales tax is due and not paid.

The complete chapter of the Wisconsin Statutes governing the sales tax can be found by clicking here.