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Changes to New York Responsible Person Law

Publisher: Day Pitney Alert
April 29, 2011
Day Pitney Author(s) Michael James Guerriero


On April 14, 2011, the New York Department of Taxation & Finance (the "Department") issued a new policy under which certain limited partners and limited liability company members will be provided relief from per se personal liability as a responsible person under the New York sales and use tax law (the "Tax Law"). TSB-M-11(6)S. The policy was effective March 9, 2011.

Under the Tax Law, a responsible person includes any partner of a partnership or member of a limited liability company regardless of whether the partner or member is under a duty to act on behalf of the business. The Tax Law imposes joint and several personal liability for the payment of sales tax on responsible persons of a business with an outstanding sales tax liability. As such, the Department can use a responsible person's personal assets to satisfy the sales tax liability of the business even if the business is a corporation or a limited liability company.

The Department's new policy provides relief for a limited partner of a limited partnership and a limited liability company member with less than a 50% interest who can demonstrate that he or she was not under a duty to act in complying with the Tax Law on behalf of the limited partnership or limited liability company. In addition, the limited partner or limited liability company member must cooperate with the Department in providing information regarding the business. A person who qualifies for relief will not be responsible for any penalty owed by the business, and such an individual's sales tax liability will be limited to his or her percentage of ownership or share of profits and losses in the business.

The policy includes the following example: An LLC owes $10,000 of sales tax and interest. Member X is a 4% passive member of the LLC and receives 4% of the profits and losses of the LLC. Member X has also been assessed the $10,000 on the grounds that member X is a responsible person of the LLC. If qualified for relief, member X would be expected to pay $400 ($10,000 x 4%) to settle his or her responsible person liability.

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