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  • WisBar News
    January 07, 2013

    No Equal Protection Problem with Sales Tax Statute, Appeals Court Says

    Jan. 7, 2014 – A sales tax statute that has no limitations period is constitutional, a state appeals court has ruled, meaning business owner Elijah Rashaed will have to pay nearly $200,000 in back sales taxes relating to his clothing business operations.

    In 2009, the Wisconsin Department of Revenue sought to hold Rashaed personally liable for sales taxes his business entities did not pay between 1998 and 2000.

    While a general sales tax statute puts a four-year limitations period on determinations of sales tax deficiencies against individuals, there is no limitations period when the sales tax involves a person who is required to collect the taxes owed by business entities.

    Specifically, Wis. Stat. section 77.60(9), says “any person who is required to collect, account for or pay” a sales tax and who “willfully fails” to do so becomes personally liable for such amounts, including interest and penalties,” if the principal doesn’t pay.

    Rashaed was required to collect and pay sales tax on behalf of his businesses, but he didn’t do that. The Wisconsin Department of Revenue said Rashaed dodged these business sales taxes willfully by repeatedly changing his name, among other things.

    Rashaed challenged section 77.60(9) on equal protection grounds. He said there is no rational basis for an unlimited limitations period against individuals or business officers who fail to collect or pay sales tax on behalf of entities. The appeals court did not agree.

    In Rashaed v. Wisconsin Department of Revenue, 2013AP366 (Dec. 27, 2013), a three-judge panel for the District IV Court of Appeals rejected Rashaed’s equal protection arguments and upheld a circuit court order that holds Rashaed personally liable.

    “Rashaed never comes to grips with the proposition that different treatment may be rationally based on a different in culpability,” wrote Judge Paul Lundsten. “Persons who merely fail to pay taxes are not as culpable as persons who willfully fail to pay.”

    The appeals court also explained that a statute without a limitations period is not “inherently irrational,” and the statute at issue survives rational basis review.

    “The legislature created a substantial and real distinction between a class of taxpayers that are merely deficient in paying their taxes and a class of persons who willfully breach their tax-related obligations,” Judge Lundsten wrote. 

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