Igel v. Commissioner of Revenue

• Decision Date: 17 July 1997
• Docket Number: No. C3-96-1951,C3-96-1951
• Citation: 566 N.W.2d 706
• Parties: David IGEL, Relator, v. COMMISSIONER OF REVENUE, Respondent.
• Court: Minnesota Supreme Court

Page 706

566 N.W.2d 706

David IGEL, Relator, v. COMMISSIONER OF REVENUE, Respondent.

No. C3-96-1951.

Supreme Court of Minnesota.

July 17, 1997.

Syllabus by the Court

An individual who was vice president of a corporation at the time sales tax was collected, but not paid to the state, and who possessed check signing authority, participated in hiring and firing employees, signed financial and other documents on behalf of the corporation, held an entrepreneurial stake in the company and took part in meetings to discuss how creditors would be paid, is personally liable for the unpaid sales tax. Minn.Stat. § 270.101 (1992).

Rachel A. Igel, Minneapolis, for Relator.

Hubert H. Humphrey III, Minnesota State Atty. Gen., Craig R. Anderson, Asst. Atty. Gen., Tax Litigation Div., St. Paul, for respondent.

Considered and decided by the court en banc without oral argument.

OPINION

GARDEBRING, Justice.

This case comes to us from the Minnesota Tax Court on a writ of certiorari. Relator David Igel, formerly vice president of Recreational Concepts, Inc. ("the Company"), seeks reversal of the tax court's decision that he is personally liable for the sales tax owed, but not paid, by the Company for the months of January and February 1994. We affirm.

Igel and Greg Love incorporated Recreational Concepts, Inc. in April 1993, to operate a charter boat operation on Lake Minnetonka. In the fall, the Company expanded its services to offer snowmobile rental in northern Minnesota. The Company was run by Love, who held the title of president, and Igel, who was vice president. The Company hired about two dozen employees to handle operations, including Patrick Reese, who served as the general manager and was primarily responsible for all financial record-keeping. Reese prepared all sales tax and withholding tax returns and was responsible for submitting them to the tax authorities.

In January 1994, the Company began having financial problems and a secured creditor exercised the right to take control of the Company. Because Reese had indicated that all sales and withholding tax had been paid, Igel and others involved in managing the company discussed ways to pay creditors other than the Internal Revenue Service and the Minnesota Department of Revenue.

The Company's financial reports and records corroborated what Reese was reporting. They showed that all sales tax had been paid and that the Company had timely filed monthly sales tax returns. However, the checks that accompanied the January and February tax returns were not signed and the state subsequently returned them to the Company.

Igel left the Company June 2, 1994. It was not until after that time that he learned that the checks sent with the various tax returns had not been signed. Igel testified at the tax court hearing that he was not sure when the checks were returned to the Company, indicating that Reese "either didn't open them or decided not to tell us about it * * *." Igel also testified that he personally understood the importance of paying taxes. He was in his early twenties when he formed the company and sought advice from family members who stressed the need to keep current on tax obligations.

In September 1994, the Commissioner of Revenue assessed personal liability against Igel in the amount of $13,261.83 for the Company's unpaid sales and withholding tax for the taxable periods ending December 31, 1993, January 31, 1994 and February 28, 1994. ¹ Igel administratively appealed the commissioner's order and that appeal was denied by the commissioner in a December 9, 1994 order.

On appeal, the tax court held that Igel was personally liable for the unpaid sales tax. In its order for judgment in favor of the commissioner, the tax court did not specify the judgment amount, but as of the date of hearing, March 12, 1996, the balance due, including tax, penalty, interest and other charges, was $12,620.26.

This court reviews findings of fact of the tax court to determine whether there was sufficient evidence to support the tax court's decision. Benoit v. Commissioner of Revenue, 453 N.W.2d 336, 339 (Minn.1990). Conclusions of law, including interpretations of statutes are, however, subject to de novo review. Carlson v. Commissioner of Revenue, 517 N.W.2d 48, 51 (Minn.1994).

When a corporation collects sales tax from third parties, the corporation does so under an obligation to hold the tax in trust for and to pay it over to the state of Minnesota. Benoit, 453 N.W.2d at 339. When sales tax goes unpaid by the corporation, personal liability may be imposed on certain parties involved in the corporation. The authority for the imposition of personal liability for the payment of tax is found in Minnesota Statutes:

Subdivision 1. Liability imposed. A person who, either singly or jointly with others, has the control of, supervision of, or responsibility for filing returns or reports, paying taxes, or collecting or withholding and remitting taxes and who fails to do so, or a person who is liable under any other law, is liable for the payment of taxes, penalties, and interest arising under chapters 296, 297, 297A [sales tax statute], and 297C, or sections 290.92, 349.212, and 349.2121.

Subdivision 2. Person defined. The term "person" includes, but is not limited to, a corporation, estate, trust, organization, or association, whether organized for profit or not, an officer or director of a corporation, a member of a partnership, an employee, a third party (including but not limited to, a financial institution, lender, or surety), and any other individual or entity.

Minn.Stat. § 270.101, subds. 1, 2 (1992). Section 270.101 was enacted in 1990 effective for tax due on or after August 1, 1990. Act of Apr. 24, 1990, ch. 480, art. 2, §§ 2, 19, 1990 Minn. Laws 1033, 1098, 1107.

The question presented is whether Igel was "a person" who had "control of, supervision of, or responsibility for filing returns or reports, paying taxes, or collecting or withholding and remitting taxes" and failed to do so.

While this case is the first involving sales tax liability under this new statute, we are guided by our recent analyses concerning the imposition of personal liability for delinquent sales tax under section 270.10, subd. 4 (1988) (repealed 1990) (assessing liability on corporate officers, directors, or employees who fall within personal liability provisions of "trust fund" taxes, including chapter 297A for unpaid sales tax) and under section 297A.01, subd. 2 (1988) (defining person responsible for paying sales tax). These two provisions, taken together, were the predecessor statutory scheme for the imposition of personal liability for sales tax. See Krech v. Commissioner of Revenue, 557 N.W.2d 335, 339 (Minn.1997); Benoit, 453 N.W.2d at 340.

Specifically, in Benoit, we developed a multi-factor analysis for establishing the existence of personal liability for unpaid sales tax under sections 270.10, subd. 4 and 297A.01, subd. 2. We conclude that in the instant case, when imposition of liability on a corporate officer for a sales tax deficiency is at issue, the Benoit factors can likewise be used to govern our analysis under section 270.101. They are:

(1) The identity of the officers, directors and stockholders of the corporation and their duties;

(2) The ability to sign checks on behalf of the corporation;

(3) The identity of the individuals who hired and fired employees;

(4) The identity of the individuals who were in control of the financial affairs of the corporation; and

(5) The identity of those who had an entrepreneurial stake in the corporation.

Benoit, 453 N.W.2d at 344.

As a corporate officer of the Company, Igel was a "person" within the meaning of the personal liability statute. Minn.Stat. § 270.101, subd. 2. The question is whether he had "control of, supervision of, or responsibility for" the payment of taxes. Before the tax court, Igel conceded that he satisfied all of the Benoit factors. He admitted he had been an officer and shareholder since the Company's inception; that he had check signing authority; that he took part in hiring and firing employees; that he signed financial and other documents on behalf of the Company; that he was involved in meetings to discuss how creditors would be paid; and that he had an entrepreneurial stake in the Company. He argued, nevertheless, that he should not be held personally liable for the unpaid sales tax because he did not know that the sales tax was unpaid until after he left the company and he no longer had check signing authority at that time. The tax court rejected the...