Thursday, August 14, 2008

SALES TAX - Payment/Collection of the Sales Tax

In a previous post, I wrote about the imposition of the Wisconsin sales tax on retail sales of tangible personal property and certain services (click here). Generally, business owners are at least loosely familiar with the rules concerning the imposition of the sales tax and the fact that the sales tax exists. Further, they are aware that when the retailer charges the sales tax, the consumer is the one ultimately must pay the tax. Obviously, the tax is not paid by the consumer directly to the State of Wisconsin but is collected by the retailer at the time of the sale. Thereafter, it becomes the retailers obligation to make sure the sales tax that is collected (or was supposed to be collected) is paid over to the State of Wisconsin.

The trouble arises, however, when a retailer has, in fact, collected the sales tax, but has failed to pay that amount to the State. The sales tax collected can be considered to be held in trust by the retail business that collected the tax in the first instance. The funds in that trust belong to the State. If they are not paid to the State, the business will become responsible for making up those amounts plus corresponding penalties and interest when the payments are made, whether they are made following an audit or voluntarily. (The same problem arises where the business fails to collect sales tax.)

Liability for the Wisconsin sales tax, however, does not stop with the business. Wisconsin Statute §77.60(9) provides for personal liability for unpaid sales taxes by the owners, operators or employees of a business that are connected with the sales tax function. That is, if a business does not pay what it is supposed to pay, the people involved with the business that are responsible for making sure that the tax gets paid, can become personally liable for the debt.

The official rule is that “any person who is required to collect, account for or pay the amount of sales tax imposed and who willfully fails to collect, account for or pay to the Department, shall be personally liable for such amounts, including interest and penalties thereon, if that person’s principal is unable to pay such amounts to the Department.”

Therefore, if you are responsible for making payments of sales tax to the State of Wisconsin, do what you can to make sure that the tax gets paid. If not, the Department of Revenue may look directly to your pocket book if they can't collect from the business

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