As noted in past advisories, due to the current economic climate, states are becoming increasingly aggressive in the enforcement of their regulatory and tax obligations. As a result, some states are now going so far as to hold the principles of limited liability entities personally responsible for the regulatory and tax liabilities of their businesses. Two recent cases from New York and New Jersey provide clear examples of this trend.
In the Matter of Santo, the New York State Tax Appeals Tribunal (“Tribunal”) upheld a New York Tax Department (“Tax Department”) finding that Joseph P. Santo (“Santo”) who had entered into a business venture structured in the form of an LLC was personally liable for unpaid sales taxes of the business venture. In spring of 2006, the Tax Department issued a Notice of Determination to Santo finding him liable for almost $200,000 of the LLC‘s unpaid sales tax which the Tribunal confirmed – holding that members of an LLC are subject to an absolute liability standard and subject to per se liability for the taxes due from the LLC.
Similarly, in Allen v. V and A Brothers, Inc., the Court held that principals of a corporation who personally participate in the violation of a regulation can be held individually liable for the regulatory violations of their company under the New Jersey Consumer Fraud Act even without a showing of knowledge about the alleged unlawful practice. The Court reasoned that principals of a company are presumed to be familiar with the regulations affecting their company and that plaintiffs do not have to prove intent in order for there to be individual liability.
Clients who would like additional information regarding these two cases may review the full text of both court decisions at the following links:
If you have any questions regarding the above court cases and how they might affect your personal liability as a principle of a limited liability entity, please contact the attorney assigned to your account. Alternatively, you may reply to this message via e-mail, and someone will promptly respond to your inquiry.