Under New York State tax law, each and every limited liability company member has 100% personal responsibility for the LLC’s NYS sales tax liability under responsible person assessment rules.

This includes tax, interest, and penalties, regardless of the member’s involvement with the business’s affairs, or lack thereof.

Recognizing the unfortunate and likely unintended consequences facing LLC members, New York State law provides an exception to responsible person assessments for qualified LLC members. Individuals are eligible for relief under the law only if:

  • Their ownership interest and percentage share of the profits and losses of the LLC are less than 50%, and
  • They were not under a duty to act on behalf of the company in complying with the sales tax law.

If eligible and relief is granted, the individual’s liability is limited to the greater of their ownership interest or percentage share of profits and losses in the business. In addition to limiting their tax liability, individuals granted relief are also relieved of any penalties owed by the business.

Members seeking relief must also cooperate with NYS tax authorities by identifying individuals involved in the day-to-day business affairs, to the extent reasonably possible. Of course, NYS understands passive investors may not have access to this information.

We represent taxpayers facing responsible person assessments and as appropriate, will challenge the State’s assertion that a taxpayer was responsible. Do not hesitate to contact us if you are facing responsible person assessments.