In the May 2011 issue of New York Tax Insights, we discussed a new policy memorandum of the Department of Taxation and Finance that provided partial relief from personal liability from sales tax for qualifying limited partners and members of limited liability companies. TSB-M-11(6)S (N.Y.S. Dep’t of Taxation & Fin., Apr. 14, 2011). The policy was an attempt to mitigate the harsh effects of the strict liability imposed by the Tax Law on every partner of a partnership and member of an LLC for the business’s sales tax liability, regardless of whether the partner or member was under a duty to act for the business. Under that Technical Memorandum, the Department limited the liability of qualifying “eligible” persons based on their pro rata share of the partnership’s or LLC’s liability for sales and use tax and interest.
The Department has now issued a revised Technical Memorandum (“New Policy Relating to Responsible Person Liability under the Sales Tax Law,” TSB-M-11(17)S (N.Y.S. Dep’t of Taxation & Fin., Sept. 19, 2011)), which continues the partial relief policy in all material respects, but includes a few additional requirements:
- Under the prior Technical Memorandum, eligible limited partners and LLC members were required to “cooperate with the [D]epartment …in identifying persons who were involved in the day-to day affairs of the business.” Moreover, in the case of a tiered ownership structure, the Department “expect[ed] the [eligible] member’s assistance in detailing the overall ownership structure . . .” Under the revised Technical Memorandum, the eligible partner or member must enter into a written agreement with the Department, which will include the above-described “cooperation” requirement, as well as the partner/ member’s agreement to compute the pro rata share of the tax liability in the manner described in the new memorandum.
- The revised Technical Memorandum now contains stepby- step instructions on how to compute the eligible person’s reduced responsible person liability. The earlier memorandum stated that each person’s pro rata percentage should be multiplied by the total sales tax liability, including interest, of the business. Under the revised policy, the interest component is computed using the minimum statutory interest rate, rather than the full statutory rate.
The revised policy makes clear that the tax and interest amount against which the pro rata ownership percentage is applied for each eligible person is reduced by payments made by the business, by responsible persons not eligible for relief (e.g., general partners in a partnership), and by qualifying responsible persons who did not request relief when they made their tax payments.
- The Department continues the policy that payments made by eligible persons are not credited against the liability of other responsible persons who are also eligible for relief. However, under the revised policy, tax payments made by eligible responsible persons are credited against the business’s own sales tax liability, but penalties and interest at the full statutory rate continue to accrue against the business.
The revised Technical Memorandum states that TSB-M-11(6)S is now obsolete.