My corporation owes back sales tax, litter tax, and withholding tax from years after I sold my ownership stake and resigned — can the Department come after me personally for it?

Plain-English summary

A Virginia corporation was assessed unpaid sales and use tax, litter tax, and withholding tax — plus penalty and interest — for the period July 2017 through February 2021. When the corporation failed to pay, the Department "converted" the assessments into a personal liability against the Taxpayer, one of its former corporate officers. The Taxpayer filed a correction request arguing he wasn't the "responsible officer" for these periods at all, because he had sold 95% of his ownership in the company and resigned as an employee, officer, and director back in 2015 — years before the delinquent tax periods even began.

The legal standard: willfulness. Virginia Code § 58.1-1813 A allows the Department to personally assess a corporate officer, partnership partner, or LLC member for a corporation's unpaid tax, but only if that person "willfully" failed to pay, collect, or truthfully account for and pay over the tax, or willfully attempted to evade or defeat it. This isn't automatic liability just for having once held an officer title — it requires the Department to show the person had both knowledge of the delinquency and some ability to prevent it.

What the evidence showed. The Taxpayer submitted a 2015 sales agreement, a sworn affidavit, and the corporation's own filings with the State Corporation Commission. Under the sales agreement, he sold 95% of the corporation to a buyer in August 2015 (retaining only a 5% interest as collateral until a promissory note was paid off), and when the sale closed in September 2015, he resigned as an employee, director, and president, handing over all financial responsibility to the buyer. His affidavit stated he had no knowledge of the delinquent taxes until the Department issued a lien against him personally. Critically, the corporation's own annual State Corporation Commission filings for 2016 through 2021 — spanning the ENTIRE period of delinquency — listed the buyer, not the Taxpayer, as the registered agent and new president.

Result: full abatement. Because the record showed the Taxpayer had neither the knowledge nor the authority to prevent the corporation's tax failures during the periods at issue — he was simply no longer involved with the company by the time those obligations arose — the Department found the willfulness requirement of § 58.1-1813 A wasn't met. The converted assessments against him were abated in full, across all three tax types: sales and use tax, litter tax, and withholding tax.

What this means for you

Anyone who sold a business and stepped away as an officer

If you're later hit with a "converted assessment" for taxes a company you used to run failed to pay, the key question is whether you had knowledge of and ability to prevent the failure DURING the periods at issue — not whether you were ever listed as an officer at some point in the company's history. Documentation showing exactly when your involvement ended (a sales agreement, resignation, and especially the company's own subsequent SCC filings naming a new officer) is what carries the day.

Business owners selling a company

This ruling is a reminder to formally and completely document a change of ownership and officer resignation — the taxpayer's win here rested heavily on the corporation's own annual filings continuously naming the new owner as registered agent and president for every year of the delinquency, corroborating his sworn account.

Accountants and tax professionals

If a client is personally assessed under Virginia's responsible-officer statute (§ 58.1-1813 A) for a period after they left a business, gather the sale documentation, resignation records, and — critically — the company's own subsequent state filings to establish they had no knowledge of or authority over the company's tax compliance during the assessed period.

Common questions

Q: Can the Department hold me personally liable for unpaid corporate taxes just because I was once an officer?
A: No. Virginia Code § 58.1-1813 A requires the Department to show you WILLFULLY failed to pay, collect, or account for the tax — meaning you had both knowledge of the failure and the ability to prevent it — not just that you held an officer title at some point.

Q: What if the delinquent tax period is after I sold my stake and resigned?
A: That's exactly the situation in this ruling — if you can document that you had no ongoing involvement, knowledge, or authority during the period the tax went unpaid, you may not be a "responsible officer" for that period at all.

Q: What evidence helped prove the Taxpayer wasn't responsible?
A: A signed sales agreement, a sworn affidavit describing his resignation and lack of knowledge, and — most persuasively — the corporation's own State Corporation Commission filings continuously naming the new owner as registered agent and president throughout the entire delinquent period.

Q: Does this kind of relief apply across different tax types?
A: Yes — this abatement covered all three tax types the corporation owed (sales and use tax, litter tax, and withholding tax), since the responsible-officer standard under § 58.1-1813 A applies the same way regardless of which specific tax the corporation failed to pay.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-1813 A — personal penalty against a corporate officer, partner, or LLC member who willfully fails to pay, collect, or account for a corporate tax, or willfully attempts to evade it

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-145

Original ruling text

December 18, 2024

RE: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the “Taxpayer”) in which you seek relief from the litter tax, withholding tax, and sales and use tax assessed against the Taxpayer as an officer of *** (the “Corporation”) for the period July 2017 through February 2021.

FACTS

The Corporation was assessed taxes, penalty, and interest for unpaid sales and use taxes, litter taxes, and withholding taxes for various periods from July 2017 through February 2021. When the Corporation failed to satisfy the assessments, the Department issued converted assessments to the Taxpayer for the delinquent taxes. The Taxpayer filed an application for correction contending he was not the responsible officer during the tax periods at issue because he had sold 95% of his ownership and resigned as an employee, officer, and director of the company.

DETERMINATION

Responsible Officer

Virginia Code § 58.1-1813 A provides that a corporate officer, partner of a partnership, or limited liability member “who willfully fails to pay, collect or truthfully account for and pay over any tax administered by the Department of Taxation, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty of the amount of the tax evaded, or not paid, collected or accounted for and paid over, to be assessed and collected in the same manner as such taxes are assessed and collected.”

With his application, the Taxpayer submitted a sales agreement, affidavit, and corporate filings to the State Corporation Commission indicating he was not a responsible party for the periods at issue. In August 2015, the Taxpayer entered into a sales agreement with *** (the “Buyer”) to sell 95% of the Corporation. The Taxpayer retained a 5% interest as collateral until the promissory note was paid in full. When the sale of the Corporation was finalized in September 2015, the Taxpayer resigned as an employee, director, and president and remanded all financial responsibility to the Buyer in accordance with the sales agreement. In his affidavit, the Taxpayer states he had no knowledge of the delinquent taxes until the Memorandum of Lien was issued against him by the Department. In addition, the annual filings for the Corporation for 2016 through 2021 list the Registered Agent as the Buyer, the new president and purchaser of the Corporation. As a result of the sale, the Taxpayer maintains that the Department has not shown that he willfully failed to pay, collect, or truthfully account for and pay over a state tax, or that the Taxpayer willfully attempted to evade making payment.

The Taxpayer asserts that the Department has not shown that he had knowledge of the Corporation’s failure to pay the state tax or that he attempted to evade or defeat the tax or its payment. Finally, the Taxpayer maintains that the Department has not demonstrated that the Taxpayer had the authority to prevent the failure of the Corporation to pay the tax or attempt to evade paying the state tax.

Because the conditions, as required under Virginia Code § 58.1-1813, have been met for the periods July 2017 through February 2021 for sales and use taxes, litter taxes, and withholding taxes, the converted assessments issued to the Taxpayer will be abated in full.

The Code of Virginia sections, regulations, and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department’s website. If you have any questions about this response, you may contact * in the Department’s Office of Tax Policy and Legislative Affairs, Tax Adjudication and Resolution Division, at () ****.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

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