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Wisconsin Tax Appeals Commission
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STATE OF WISCONSIN | TAX APPEALS COMMISSION |
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STEVEN T. RICH 2140 West 9th Avenue, Apt. 2 Oshkosh, WI 54904, Petitioner, vs. WISCONSIN DEPARTMENT OF REVENUE P.O. Box 8907 Madison, WI 53708-8907, Respondent. |
DOCKET NO. 98-W-277
DECISION AND ORDER |
DON M. MILLIS, COMMISSIONER:
This matter came before the Commission for trial on December 8, 1999, in Fond du Lac. Both parties have submitted post-hearing briefs. Petitioner appears pro se. Respondent is represented by Attorney Michael J. Buchanan.
Based on the evidence received at trial, the submissions of the parties, and the record in this matter, the Commission hereby finds, concludes, and orders as follows:
FINDINGS OF FACT
1. From July of 1993 until November 14, 1995, petitioner was employed by Mark VII of Wisconsin ("Mark VII") to manage its operations.
2. At all times relevant to this matter, Mark VII--a Wisconsin corporation--was in the business of selling and servicing car wash equipment and selling car wash supplies.
3. At all times relevant, Mr. Robert Stevens was president and an owner of Mark VII. Mr. Stevens was also a principal of Stevens Electric, an enterprise with its headquarters in Bridgeview, Illinois.
4. Under the date of November 9, 1993, Mr. Stevens and petitioner signed an agreement which provided that petitioner would receive an ownership interest in Mark VII in increments of 15%, 15%, and 10% on June 1, 1994, 1995, and 1996, respectively, provided that he was employed by Mark VII into 1996. Petitioner was the only employee of Mark VII to enter into such an agreement
5. Petitioner never received an ownership interest in Mark VII and was never a director or officer of Mark VII.
6. During petitioner's employment with Mark VII, he was authorized to sign checks drawn on Mark VII's checking account at F&M Bank in Omro and had physical possession of the checkbook. Petitioner had general authority to expend funds in the operation of Mark VII.
7. Mr. Stevens, Mr. Stevens' wife, and Lisa Pruim, n/k/a/ Lisa Marino ("Ms. Pruim"), office manager of Stevens Electric, were also authorized to sign checks drawn on Mark VII's checking account at F&M Bank in Omro. However, only petitioner signed checks drawn on this account prior to the termination of his employment on November 14, 1995.
8. Petitioner prepared and signed sales and use tax returns on behalf of Mark VII.
9. Petitioner hired employees of Mark VII, including his father.
10. When Mark VII started up in 1993, it had limited cash flow. Therefore, Stevens Electric paid all payroll expenses, including payroll taxes and payroll processing fees. Mark VII's books were charged for these expenses incurred by Stevens.
11. Prior to the time that Stevens Electric financed the payroll expenses of Mark VII, Stevens Electric contracted with Automatic Data Procession ("ADP") to prepare its payroll. ADP would prepare checks that were provided by Stevens Electric, as well as tax forms. The checks were sent to Ms. Pruim for her signature.
12. When Stevens Electric began financing the Mark VII payroll, in essence the employees of Mark VII were treated as employees of Stevens Electric. ADP prepared checks to be drawn on the account of Stevens Electric, and these were sent to Ms. Pruim for her signature.
13. At some point, it was determined that Mark VII would be able to finance its own payroll expenses. Thereafter, Mark VII was obligated to pay not only the amounts for payroll and withholding taxes, but also ADP's fees for processing Mark VII's payroll.
14. In 1994, petitioner complained to Ms. Pruim about the amounts Mark VII had to pay to ADP for processing Mark VII's payroll. At petitioner's insistence, payroll responsibilities were turned over to him. Ms. Pruim sent to petitioner the necessary forms to calculate and pay federal and state withholding taxes. Petitioner was now responsible for preparing and paying payroll checks, as well as withholding tax checks and returns.
15. In 1995, petitioner prepared and filed at least one withholding tax return and paid at least one withholding tax payment to respondent. Petitioner also prepared and signed at least 19 payroll checks on behalf of Mark VII, including seven payable to himself.
16. Petitioner knew that he was responsible for paying federal and state withholding taxes once he assumed responsibility for Mark VII's payroll.
17. The ending balance and total amount of the checks drawn on Mark VII's checking account at F&M Bank in Omro for the months of June through September of 1995 were:
Month Ending Balance Checks Amount
June $ 20,756.64 $10,077.44
July 5,020.97 18,408.96
August 29,754.11 101,184.47
September 15,211.27 17,642.57
18. Petitioner underpaid Mark VII's withholding tax obligation for 1995 by $3,236.37. All but $107.17 of this obligation was attributed to the first nine months of 1995.
19. Under the date of March 30, 1998, respondent assessed petitioner as a person responsible for the withholding tax liability of Mark VII for calendar year 1995. The amount of the assessment was $3,236.37 in tax, plus interest ($1,639.43) and penalty ($809.09).
20. Petitioner filed a petition for redetermination objecting to the assessment. Respondent denied the petition for redetermination on October 1, 1998. Petitioner filed a timely petition for review with the Commission.
APPLICABLE WISCONSIN STATUTE
71.83 Penalties.
(1) CIVIL.
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(b) Intent to defeat or evade.
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2. 'Personal liability.' ... Any person required to withhold, account for or pay over any tax imposed by this chapter who intentionally fails to withhold such tax, or account for or pay over such tax, shall be liable to a penalty equal to the total amount of the tax, plus interest and penalties on that tax, that is not withheld, collected, accounted for or paid over. The personal liability of such person as provided in this subdivision shall survive the dissolution of the corporation.... "Person", in this subdivision, includes an officer, employe or other responsible person of a corporation ... who, as such officer, employee ... or other responsible person, is under a duty to perform the act in respect to which the violation occurs.
CONCLUSION OF LAW
Petitioner is a person responsible for the 1995 withholding tax liability of Mark VII because he had the authority and duty to pay the taxes and breached that duty by directing payment to other creditors, knowing that withholding taxes were unpaid. Wis. Stat. § 71.83(1)(b)2.
OPINION
It is well-established that, for personal liability to be established for withholding taxes under § 71.83(1)(b)2, respondent must show that petitioner had the authority to pay or direct payment of the corporation's taxes, a duty to pay them, and an intentional breach of that duty. See, Gerth v. Dep't of Revenue, Wis. Tax Rep. (CCH) ¶ 203-367 (WTAC 1992).
Authority
The evidence clearly shows that petitioner had the authority to pay Mark VII's withholding taxes for 1995. Not only did petitioner actively seek the ability to make these payments personally, but he possessed the means to do so: the checkbook and the relevant tax forms. As manager for Mark VII, he was responsible for directing payment of more than $145,000 in Mark VII funds to creditors and vendors from June to September of 1995, including respondent.
Petitioner argues that he had very little authority to manage the operations of Mark VII. Most of the assertions upon which he relies are credibly refuted by others. Petitioner claims that he could not hire employees, that he could incur no expense greater than $50, and that it was Mr. Stevens, not petitioner, who insisted that petitioner assume payroll duties. Each of these assertions was credibly refuted by the testimony of Mr. Stevens and Ms. Pruim. As a matter of fact, we find that Mr. Rich's assertions of his lack of authority are not credible.
The only assertion petitioner makes which is not contested is that Mark VII had no physical presence in Wisconsin other than a post office box and petitioner's cell phone. The fact that Mark VII had such a minimal physical presence in Wisconsin is not relevant to our finding that petitioner had authority to direct payment of Mark VII's tax obligations.
Duty
As a person with authority to manage the business affairs of Mark VII, petitioner had a duty to see that Mark VII's tax obligations are met. See, Noard v. Dep't of Revenue, 1998 Wis. Tax LEXIS 44, at 13 (WTAC 1998). Moreover, petitioner had a duty to pay the taxes at issue because he knew of the obligation to make withholding tax payments to respondent when he undertook to handle the payroll obligations of Mark VII. See, Gerth, at 15,590 (duty arises once a person with authority learns that taxes are due).
Intentional Breach of Duty
Consistent interpretations of both state and federal officer liability statutes have held that all that is necessary for intent to be proven is to show that there was a decision to use corporate funds to pay other creditors with knowledge that taxes are due. See, Gerth, supra; Garsky v. U. S., 600 F.2d 86, 79-2 USTC ¶ 9436 (7th Cir. 1979).
During the second and third quarters of 1995, petitioner directed at least $145,000 in Mark VII's funds to others while the taxes at issue went unpaid. Petitioner clearly breached his duty to pay the relatively modest tax obligation to respondent.
Petitioner argues that Mr. Stevens and maybe others should be responsible for the unpaid tax obligations of Mark VII at issue here. Perhaps they are or should be liable. However, the personal liability of others for this tax is not a defense to a finding that petitioner is liable.
ORDER
Respondent's action on the petition for redetermination is affirmed.
Dated at Madison, Wisconsin, this 26th day of January, 2001.
WISCONSIN TAX APPEALS COMMISSION
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Mark E. Musolf, Chairperson
___________________________________________
Don M. Millis, Commissioner
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Thomas M. Boykoff, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"