The legal term responsible party for NYS sales tax purposes often arises when a sales tax obligation is not paid, and the State of New York is attempting to hold a person other than the company liable for the unpaid sales tax. The legal term itself, under NYS tax law, relates to defining an individual or group of individuals who have a level of control over the assets of the entity. Typically, this would either be an owner of the company or an officer/ managing member of the company (or LLC). Therefore, the logic is that since they made the financial decisions of the company, they should be liable when those debts are not paid.
Under NYS Tax Law a responsible person is jointly liable (with the company) for the unpaid sales tax owed (or any of the business’s other responsible persons).
In the case of a partnership or LLC, section 1131(1) of the NYS Tax Law provides that each partner or member is a responsible person regardless of whether the partner or member is under a duty to act on behalf of the partnership or LLC entity. This means that these persons can be held responsible for 100% of the sales and use tax liability of a business in addition to the company. The New York State Tax Department recognizes that this situation can result in severe consequences for certain partners who have no involvement or control of the business’s financial issues. Accordingly, the NYS Tax Department has developed a policy that gives some protection from per se personal liability for unpaid sales taxes for certain limited partners and members of the LLC.
Nevertheless, entities should consider alerting NYS of a change in identity of their responsible party and contacting a NY Tax Attorney if you have been held liable for the unpaid sales taxes of a company to see if your are eligible for this relief.