Tax Law Blog

Restaurant Owner Held Personally Liable for Unpaid Sales and Use Taxes

On May 23^rd, the Michigan Court of Appeals upheld a tax tribunal decision that held a restaurant owner personally liable for unpaid taxes, even though that owner had minimal involvement in the preparation of those taxes. Griffin, Jr. v. Dep't of Treasury. The restaurant had failed to pay its sales and withholding tax liabilities for four months, resulting in bills for the unpaid taxes, penalties, and interest on the overdue amount. Based on MCL 205.27a, the Department of Treasury sought to hold the restaurant owner personally liable for the tax bill.

To hold an individual liable for the unpaid taxes of a business, one of three conditions must be met:

1. the individual has control over the making of the tax returns and payments,
2. the owner supervised the making of the tax returns or payments, or
3. the owner was charged with the responsibility for making the tax returns and payments.

Importantly, involvement with the financial affairs of the business is not enough. The person's involvement must be tax specific.

In Griffin, the owner provided evidence that he neither prepared the tax returns for the years in contention nor took any active role in the management of the business for that period. However, the Department of Treasury provided evidence that the owner signed all the tax returns, personally arranged for the accountant that prepared the returns, and personally reviewed the returns and signed to make the payment.

This case serves as a warning to small business owners to be careful in choosing an accountant. Even if an owner limits their involvement to hiring an accountant and signing the return, they may still be personally liable for mistakes that accountant makes that results in unpaid taxes.

Categories: Sales Tax, Use Tax