New York State ALJ Determines Individual Member of LLC Personally Liable for Sales Tax
An Administrative Law Judge (“ALJ”) recently determined that an individual member of a limited liability company (“LLC”) was personally liable for an LLC’s sales tax deficiency, both because he was a member of the LLC, and because he was a person required to collect and remit tax under New York law. Matter of Ben-Zion Suky, DTA No. 829768 (N.Y.S. Div. of Tax App., Dec. 15, 2022).
The Facts: US Suite Management LLC (the “LLC”) failed to timely file a New York sales and use tax return for the period December 1, 2014, through February 28, 2015 (“period at issue”). Consequently, the Division issued a notice of estimated determination to Ben-Zion Suky, as a person responsible for the sales tax of the LLC.
The Division’s issuance of the notice to Mr. Suky was based on his membership in the LLC and his signature on multiple documents including his signature on a check payable to the Division, the LLC’s partnership return, a consent to extension of time for the audit, and a power of attorney form for the LLC which listed Mr. Suky as the “Managing Member,” among other documents. At the hearing, Mr. Suky testified that he was not the managing member of the LLC and described himself as a “limited partner” in the LLC. He testified that he acted on behalf of the LLC because he was authorized to do so by a company of which he was not a member called Aura U-Trend, which he testified was the actual managing member of the LLC.
The Decision: The tax statute applicable to the period at issue provided that every person “required to collect [sales] tax” shall be personally liable for the tax imposed. The statute further defined the “persons required to collect tax” to include any employee or manager of an LLC that is under a duty to act for such LLC to comply with the sales tax, or that has so acted, and any member of a partnership or limited liability company.” Tax Law § 1131 (1). The ALJ held that Mr. Suky was liable for the sales tax because the applicable law during the period at issue imposed strict liability for the sales tax upon all members of LLCs and he admitted that he was a limited partner in the LLC. The ALJ also determined that regardless of whether Mr. Suky was a member of the LLC, the record demonstrated that he had sufficient control and authority over the affairs of the LLC so as to be an individual personally liable on the grounds that he was person who was under a duty to act for the LLC to comply with the sales tax.
While the Tax Law was amended effective April 12, 2018, to provide relief from liability for limited partners and members of LLCs and partnerships that hold a minority interest and are not under a duty to act by limiting their share of the liability to the percentage of their interest in the LLC or partnership, this provision was not in effect during the period at issue. Regardless, this amendment would not have helped Mr. Suky as the ALJ determined he was under a duty to act to comply with the sales tax law.
This article is one in a series of articles written for the January 2023 edition of The BR State + Local Tax Spotlight.