Risk is significant for finance leaders,\u00a0and\u00a0it\u2019s\u00a0important to distinguish trust fund taxes from ordinary business liabilities to\u00a0properly assess\u00a0accountability, oversight responsibilities, and personal risk.<\/span>\u00a0<\/span><\/p>\n Fiduciary taxes such as sales taxes, payroll taxes, and other trust fund taxes are required to be collected by a company, held in trust, and remitted to taxing authorities. These funds do not legally belong to the company, and failures in collection or remittance can expose corporate officers and other responsible individuals to personal liability. Unlike traditional business liabilities, fiduciary tax obligations are subject to statutory personal liability provisions that override traditional corporate liability protections.<\/span><\/p>\n Paying vendors, lenders, or employees instead of satisfying fiduciary tax obligations can be sufficient to\u00a0<\/span>establish<\/span>\u00a0willfulness under both federal and state law.<\/span>\u00a0<\/span><\/span>\u00a0<\/span><\/p>\n The risk does not disappear when a company enters a sale process, restructures, or ceases operations. In fact, exposure often becomes more visible during these transition points.\u00a0Even in situations where a business sells or seeks relief through bankruptcy proceedings, personal liability for unpaid fiduciary taxes typically survives.\u00a0In bankruptcy,\u00a0trust fund\u00a0tax debts are\u00a0generally\u00a0classified\u00a0as non-dischargeable under the Bankruptcy Code, meaning corporate officers cannot\u00a0eliminate\u00a0them through personal bankruptcy filings.\u00a0In many cases, bankruptcy shifts the financial burden from the business entity to its responsible officers rather than\u00a0eliminating\u00a0it altogether.<\/span>\u00a0<\/span><\/p>\n Similarly, contractual agreements in which a purchaser assumes company liabilities\u00a0generally do\u00a0not shield responsible individuals from statutory personal assessment. For CFOs navigating transactions or wind-downs, this distinction is\u00a0critical\u00a0and\u00a0understanding the Federal and State Law is pivotal for performance\u00a0before liquidity or ownership transitions occur\u2014not after.\u00a0<\/span>\u00a0<\/span><\/p>\n Both federal and state authorities actively enforce personal liability provisions, often focusing on individuals with functional authority over cash management and compliance.<\/span>\u00a0<\/span><\/p>\n At the federal level, the Internal Revenue Code authorizes the Internal Revenue Service to impose personal liability through the Trust Fund Recovery Penalty (TFRP). Under Internal Revenue Code \u00a7 6672(a), any individual who\u00a0is responsible for\u00a0collecting, accounting for, and paying over trust fund taxes\u00a0and who willfully\u00a0fails to\u00a0do so\u00a0may be held personally liable for the unpaid tax.\u00a0Some of these key considerations\u00a0include: The TFRP\u00a0represents\u00a0one of the IRS\u2019s most powerful enforcement tools against finance leaders and operational decision-makers.<\/span>\u00a0<\/span><\/p>\n At the state level,\u00a0most impose similar personal liability regimes for unpaid sales and use taxes. These statutes\u00a0generally hold\u00a0corporate officers, directors, and other responsible\u00a0people who are\u00a0personally liable for\u00a0sales\u00a0tax liabilities arising during periods in which they had authority or control over tax compliance.\u00a0In many\u00a0jurisdictions, liability extends to sales tax that\u00a0was required\u00a0to be collected, even if the business\u00a0failed to\u00a0charge the tax to customers.<\/span>\u00a0<\/span><\/p>\n Because these statutes are broadly written and aggressively applied, finance leaders overseeing cash management and compliance cannot assume that unpaid sales tax\u00a0remains\u00a0solely a corporate obligation. Several states\u2014including New York, California, and Illinois\u2014have reinforced this position through enforcement actions that reach individual officers.<\/span>\u00a0<\/span><\/p>\n New York provides\u00a0particularly\u00a0clear authority on personal liability for sales tax that was never collected. Under New York Tax Law \u00a7 1133(a), any person under a duty to act for a corporation in collecting and remitting sales tax is personally liable for the tax imposed, regardless of whether the tax was collected from customers.\u00a0From the state\u2019s perspective, the\u00a0duty\u00a0to collect and remit sales tax\u00a0are\u00a0inseparable, and a breach of either obligation exposes responsible individuals to personal assessment.<\/span>\u00a0<\/span><\/p>\n In\u00a0D & W Auto Service Center, Inc. & Paul Wehr (DTA No. 801484),<\/span>\u00a0<\/span><\/b>the New York State\u00a0Tax Appeals\u00a0Tribunal\u00a0attributed personal liability for sales tax\u00a0owed\u00a0to a responsible person\u00a0required\u00a0to collect tax\u00a0citing\u00a0NY Tax L \u00a7 1133(a).\u00a0The Tribunal treats requisite but\u00a0unpaid\u00a0sales\u00a0tax as an obligation of the business that can be enforced against responsible\u00a0individuals.<\/span>\u00a0<\/span><\/p>\n Other states similarly impose personal liability on corporate officers for unpaid sales and use\u00a0taxes\u00a0though the statutory frameworks\u00a0vary.<\/span>\u00a0<\/span><\/p>\n Revenue and Taxation Code \u00a76829 authorizes\u00a0personal liability against corporate officers and other responsible persons for unpaid sales and use taxes,\u00a0interest\u00a0and penalties\u00a0when\u00a0a\u00a0business\u00a0terminates, dissolves, or ceases operations\u00a0and\u00a0taxes\u00a0remain\u00a0unpaid.\u00a0Responsible\u00a0people\u00a0include officers, members, managers, and others who had\u00a0the\u00a0duty to act on behalf of the business\u00a0regarding\u00a0tax compliance. California courts have upheld personal assessments against officers based on their authority and responsibility for tax compliance, regardless of whether the tax was separately charged to customers.<\/span>\u00a0<\/span><\/p>\n The California Office of Tax Appeals (OTA) upheld a personal liability determination against a corporate officer, Dean Woerner, for his company\u2019s unpaid California sales tax\u00a0obligations. Despite the business having ceased operations\u00a0and\u00a0a contractual agreement for the buyer to assume the company\u2019s liabilities, the OTA agreed with the California Department of Tax and Fee Administration (CDTFA) that Woerner was personally liable for the unpaid taxes for the period during which he was an officer responsible for tax compliance. The OTA found that Woerner\u00a0was responsible for\u00a0the company\u2019s sales and\u00a0use\u00a0tax compliance during the liability period,\u00a0was aware of the outstanding tax liabilities, and\u00a0had the authority to cause the company to pay them.\u00a0The OTA rejected arguments that the purchaser of the business should instead be liable, noting that contractual assumptions do not absolve a responsible person under tax law.\u00a0<\/span>\u00a0<\/span><\/p>\n 35 ILCS 735\/3-7\u00a0states that\u00a0any officer or employee who has control, supervision, or responsibility for filing returns and making payment of sales and use tax can be held personally liable if they willfully\u00a0fail to\u00a0file or pay the tax. Illinois administrative hearing rulings do affirm personal liability for unpaid sales tax against individuals in officer roles when statutory elements are met.<\/span>\u00a0<\/span><\/p>\n In an\u00a0Illinois Department of Revenue administrative hearing, the Department issued a Notice of Penalty Liability (NPL) to an individual\u00a0identified\u00a0as a responsible officer or employee of Anywhere Tavern, Inc. for failure to pay sales taxes that were collected and due to the state. The hearing officer upheld the Department\u2019s determination that\u00a0\u201cMary Doe\u201d\u00a0had authority to sign checks and pay company bills,\u00a0was involved in preparation of sales tax returns, and\u00a0willfully\u00a0failed to\u00a0pay the sales taxes that were shown to be due, even though funds were available. As a result, she was held personally liable for the penalty under Section 3-7 of the Uniform Penalty and Interest Act.\u00a0States can find that payments to vendors rather than the\u00a0state can be construed as\u00a0willful\u00a0failure.<\/span>\u00a0<\/span><\/p>\n Taken together, these state enforcement actions reflect a consistent theme: when trust fund taxes go unpaid, liability often shifts from the entity to the individuals with authority over financial decisions.<\/span>\u00a0<\/span><\/p>\n The consequences\u00a0of noncompliance can be significant and personal.\u00a0Responsible individuals may face personal assessments, wage garnishments, bank levies, and asset seizures, regardless of the company\u2019s solvency or legal structure. Fiduciary tax liabilities are not protected by corporate liability shields and are\u00a0generally not\u00a0dischargeable in bankruptcy.\u00a0<\/span>\u00a0<\/span><\/p>\n Exposure is driven less by title and more by functional authority. Courts\u00a0and taxing authorities\u00a0determine\u00a0who controlled cash, approved payments, signed returns, and had visibility into back accounts, or was aware of compliance gaps.\u00a0<\/span>\u00a0<\/span><\/p>\n For finance leaders, this is\u00a0ultimately a\u00a0governance issue. Strengthening the Office of the CFO requires embedding fiduciary tax oversight into core cash management processes, particularly when liquidity is constrained. Clear accountability, real-time visibility into tax status, and disciplined payment prioritization are not merely compliance safeguards\u2014they are foundational to\u00a0sustain\u00a0performance while protecting leadership from avoidable risk.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":" Where Compliance Becomes Personal Risk is significant for finance leaders,\u00a0and\u00a0it\u2019s\u00a0important to distinguish trust fund taxes from ordinary business liabilities to\u00a0properly assess\u00a0accountability, oversight responsibilities, and personal risk.\u00a0 Fiduciary taxes such as sales taxes, payroll taxes, and other trust fund taxes are required to be collected by a company, held in trust, and remitted to taxing authorities. … Continued<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[39],"tags":[114,138],"service":[],"solution":[],"content_type":[],"industry":[],"class_list":["post-393332","post","type-post","status-publish","format-standard","hentry","category-insights","tag-cash-flow","tag-office-of-the-cfo"],"acf":[],"_links":{"self":[{"href":"https:\/\/newriveron.ituldev.com\/index.php?rest_route=\/wp\/v2\/posts\/393332","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/newriveron.ituldev.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/newriveron.ituldev.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/newriveron.ituldev.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/newriveron.ituldev.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=393332"}],"version-history":[{"count":0,"href":"https:\/\/newriveron.ituldev.com\/index.php?rest_route=\/wp\/v2\/posts\/393332\/revisions"}],"wp:attachment":[{"href":"https:\/\/newriveron.ituldev.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=393332"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/newriveron.ituldev.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=393332"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/newriveron.ituldev.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=393332"},{"taxonomy":"service","embeddable":true,"href":"https:\/\/newriveron.ituldev.com\/index.php?rest_route=%2Fwp%2Fv2%2Fservice&post=393332"},{"taxonomy":"solution","embeddable":true,"href":"https:\/\/newriveron.ituldev.com\/index.php?rest_route=%2Fwp%2Fv2%2Fsolution&post=393332"},{"taxonomy":"content_type","embeddable":true,"href":"https:\/\/newriveron.ituldev.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcontent_type&post=393332"},{"taxonomy":"industry","embeddable":true,"href":"https:\/\/newriveron.ituldev.com\/index.php?rest_route=%2Fwp%2Fv2%2Findustry&post=393332"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Exposure During Transactions and Restructuring<\/h2>\n
Federal and State Enforcement Frameworks<\/h2>\n
\n<\/span><\/p>\n\n
State Law\u00a0Personal Liability for Sales and Use Taxes:\u00a0Key Considerations for Corporate Officers, Finance Leaders, and Tax Advisors<\/h2>\n
Liability for Sales Tax Never Collected\u00a0\u2013New York<\/h2>\n
Failure to Remit\u00a0\u2013\u00a0California\u00a0and\u00a0Illinois<\/span><\/b>\u00a0<\/span><\/h2>\n
California<\/span><\/b>\u00a0<\/span><\/h3>\n
Illinois<\/span><\/b>\u00a0<\/span><\/h3>\n
Governance in Action: Protecting Performance and Personal Accountability<\/h2>\n