Ador v. Action marine/randall

SUPREME COURT OF ARIZONA
En Banc
THE ARIZONA DEPARTMENT OF ) Arizona Supreme Court
REVENUE, ) No. CV-07-0288-PR
)
Plaintiff-Appellee, ) Court of Appeals
) Division One
v. ) No. 1 CA-TX 06-0006
)
ACTION MARINE, INC., an Arizona ) Arizona Tax Court
corporation; MELVIN G. RANDALL ) No. TX2004-000656
and MARTHA RANDALL, husband and )
wife; M. DANIEL RANDALL and LISA )
RANDALL, husband and wife; JOHN )
D. RANDALL and BELINDA RANDALL, ) O P I N I O N
husband and wife, )
)
Defendants-Appellants. )
_________________________________ )
Appeal from the Arizona Tax Court
The Honorable Mark W. Armstrong, Judge (Retired)
VACATED AND REMANDED
________________________________________________________________
Opinion of the Court of Appeals, Division One
215 Ariz. 584, 161 P.3d 1248 (2007)
VACATED
________________________________________________________________
TERRY GODDARD, ARIZONA ATTORNEY GENERAL Phoenix
By Anthony S. Vitagliano, Chief Counsel
Tax, Bankruptcy & Collections Section
Paula S. Bickett, Chief Counsel,
Civil Appeals Section
Attorneys for Arizona Department of Revenue
TROMPETER, SCHIFFMAN, PETROVITS, FRIEDMAN,
& HULSE, L.L.P. Phoenix
By Jack B. Schiffman
Attorneys for Action Marine Inc., Melvin G. Randall,
Martha Randall, M. Daniel Randall, Lisa Randall,
John D. Randall, and Belinda Randall
________________________________________________________________
B E R C H, Vice Chief Justice
¶1 We have been asked to decide whether a corporate
officer or director may be held personally liable under Arizona
Revised Statutes (“A.R.S.”) section 42-5028 (2006) for failing
to remit to the Arizona Department of Revenue money collected
from the corporation’s customers to pay transaction privilege
taxes. We hold that § 42-5028 provides for such personal
liability.
I. FACTS AND PROCEDURAL HISTORY
¶2 Melvin, John, and Daniel Randall were shareholders and
directors of Action Marine, Inc., an Arizona corporation that
sold boats and other marine products. John and Daniel were also
officers of Action Marine. In July 2002, Action Marine filed
for reorganization under Chapter 11 of the Bankruptcy Code.
Five months later, the bankruptcy court converted the case to
one for liquidation under Chapter 7 and ordered Action Marine to
file post-petition transaction privilege tax (“TPT”) returns for
June through November 2002.
¶3 The returns showed that during that period, Action
Marine’s gross receipts totaled $812,294.00, resulting in a TPT
liability of $51,174.52. In October 2004, the Arizona
Department of Revenue (“ADOR”) filed a complaint in the tax
court seeking to recover unpaid TPTs, penalties, interest, and
costs pursuant to A.R.S. § 42-5028. ADOR and the Randalls each
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moved for summary judgment. The tax court granted ADOR’s
motion, holding the Randalls personally liable for unpaid TPTs,
penalties, interest, and costs.
¶4 The court of appeals reversed, reasoning that
corporate officers cannot be personally liable because such
officers are not listed as “persons” in A.R.S. § 42-5001(8)
(2006) and no other statute imposes a duty to remit the
corporation’s TPTs. Ariz. Dep’t of Revenue v. Action Marine,
Inc., 215 Ariz. 584, 587, ¶ 16, 161 P.3d 1248, 1251 (App. 2007).
¶5 We granted ADOR’s petition for review because this
case presents an issue of statewide importance, see ARCAP
23(c)(3), and ADOR has averred that resolution of this issue may
affect many cases, both pending and planned. We have
jurisdiction pursuant to Article 6, Section 5(3) of the Arizona
Constitution and A.R.S. § 12-120.24 (2003).
II. DISCUSSION
¶6 “The transaction privilege tax . . . is an excise tax
on the privilege or right to engage in an occupation or business
in the State of Arizona.” Ariz. Dep’t of Revenue v. Mountain
States Tel. & Tel. Co., 113 Ariz. 467, 468, 556 P.2d 1129, 1130
(1976). The TPT is not a sales tax, Ariz. State Tax Comm’n v.
Garrett Corp., 79 Ariz. 389, 391, 291 P.2d 208, 209 (1955), but
rather is a tax on the gross receipts of a person or entity
engaged in business activities. A.R.S. § 42-5008 (2006).
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¶7 The liability for TPT falls on the taxpayer, not on
the taxpayer’s customers. A.R.S. § 42-5024 (2006). Taxpayers
may pay the TPT themselves or charge customers a separately
itemized amount to cover TPTs. See A.R.S. § 42-5002(A)(1)
(2006). If the taxpayer chooses to impose a separate charge, it
must remit all money collected to ADOR, even if it collects more
than the taxpayer owes for TPTs. Id.; Garrett, 79 Ariz. at 392-
93, 291 P.2d at 210.
¶8 The TPT is not technically a trust tax because
taxpayers are not required to collect TPT from customers or hold
the money in a trust account for the state. See Joseph
DiGiuseppe, What Every Tax Practitioner Needs to Know About
Trust Fund Taxes and Responsible Person Liability in Bankruptcy,
17 Prac. Tax Law. 7, 8 (2002). When, however, the taxpayer
elects to separately charge customers a “tax” to cover the TPT,
§ 42-5002(A)(1) operates to achieve a similar result by
requiring that any amounts so charged be fully remitted to the
state. These collected “taxes” do not belong to and are not for
the use of the taxpayer. See DiGiuseppe, supra, at 10-11
(noting that trust fund taxes are not the property of the
retailer and are not dischargeable in bankruptcy); Marvin A.
Kirsner, Richard S. Miller & David Neier, Officers’ and
Directors’ Nightmare: Being Held Personally Liable for Debtor
Company’s Unpaid Taxes, N.Y.L.J., Aug. 27, 2001, at 7 & n.7
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(noting that charges for taxes should be considered the
“property of the taxing authority”).
A. Liability Under A.R.S. § 42-5028
¶9 The question before us is whether corporate officers
or directors may be held personally liable if the corporation-
taxpayer fails to remit to ADOR the additional amount charged to
customers to cover TPT liability. The resolution of the issue
turns on A.R.S. § 42-5028, which provides as follows:
A person who fails to remit any additional charge
made to cover the [TPT] or truthfully account for and
pay over any such amount is, in addition to other
penalties provided by law, personally liable for the
total amount of the additional charge so made and not
accounted for or paid over.
(Emphases added.) The parties dispute the meanings of “person”
and “additional charge” as those terms are used in this statute.
¶10 We review the interpretation of statutory provisions
de novo. State ex rel. Ariz. Dep’t of Revenue v. Capitol
Castings, Inc., 207 Ariz. 445, 447, ¶ 9, 88 P.3d 159, 161
(2004). Our primary goal is to “discern and give effect to
legislative intent.” Id. (quoting People’s Choice TV Corp. v.
City of Tucson, 202 Ariz. 401, 403, ¶ 7, 46 P.3d 412, 414
(2002)). “We ‘construe the statute as a whole, and consider its
context, language, subject matter, historical background,
effects and consequences, [and] its spirit and purpose.’” Id.(quoting People’s Choice, 202 Ariz. at 403, ¶ 7, 46 P.3d at
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414). We construe related statutes together, State ex rel.
Larson v. Farley, 106 Ariz. 119, 122, 471 P.2d 731, 734 (1970),
and avoid interpretations that render statutory provisions
meaningless, unnecessary, or duplicative, see, e.g., Kriz v.
Buckeye Petroleum Co., 145 Ariz. 374, 379, 701 P.2d 1182, 1187
(1985).
1. Meaning of “Person” in A.R.S. § 42-5028
¶11 The TPT statutory scheme defines both “person” and
“taxpayer.” Unless the context otherwise requires, the term
“person” “includes an individual . . . [or] corporation,” A.R.S.
§ 42-5001(8), and “taxpayer” “means any person who is liable for
any tax which is imposed by this article,” id. § 42-5001(18).
ADOR maintains that the legislature intended “person” in § 42-
5028 to include corporate officers or directors as well as the
taxpayer, while the Randalls assert that “person” means only the
taxpayer-entity.
¶12 For several reasons, we agree with ADOR. As a textual
matter, although the statutory definition of “person” does not
explicitly include corporate officers or directors, the
definition is certainly broad enough to encompass the
individuals who hold such offices. Moreover, had the
legislature meant to limit liability under § 42-5028 to the
taxpayer-entity, as the Randalls and court of appeals maintain,
it likely would not have said “person,” but would have used the
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term “taxpayer,” as it did, for example, in A.R.S. § 42-5024, a
related TPT statute.1
¶13 Several aspects of the statutory scheme also suggest
that, by using the term “person” in § 42-5028, the legislature
meant to include persons in addition to the taxpayer. Even
before the legislature enacted § 42-5028, other statutes already
made TPT the “personal debt of the taxpayer,” A.R.S. § 42-5024,
and required taxpayers “who impose[d] an added charge to cover
the [TPT]” to remit to ADOR all of “the amount so collected,”
A.R.S. § 42-5002(A)(1).
¶14 For at least twenty-five years before § 42-5028 was
enacted in 1980, these two statutes, §§ 42-5002(A)(1) and 42-
5024, worked in tandem to obligate the taxpayer to pay TPT,
interest, and penalties, and to remit to ADOR all amounts
collected from customers to cover TPT liability. See 1935 Ariz.
Sess. Laws, ch. 77, § 18(b) (Reg. Sess.) (enacting the current
substantive version of A.R.S. § 42-5024); 1954 Ariz. Sess. Laws,
ch. 136, § 1 (2d Reg. Sess.) (enacting the current substantive
version of A.R.S. § 42-5002(A)(1)); 1980 Ariz. Sess. Laws, ch.
220, § 8 (2d Reg. Sess.) (enacting the current version of A.R.S.
§ 42-5028). Therefore, reading the word “person” in § 42-5028
to mean only “taxpayer” would duplicate liability already
1
The legislative history for A.R.S. § 42-1336, the original
section number for A.R.S. § 42-5028, provides little guidance on
the meaning of the word “person.”
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imposed on the taxpayer by §§ 42-5002(A)(1) and 42-5024. We
generally construe statutes to avoid rendering provisions
duplicative. See City of Tucson v. Clear Channel Outdoor, Inc.,
209 Ariz. 544, 552, ¶ 31, 105 P.3d 1163, 1171 (2005). Because
taxpayers were already liable for TPT, interest, and penalties
before 1980, the legislature must have intended to impose some
different or additional obligation when it enacted § 42-5028.
¶15 The legislature’s enactment of A.R.S. § 43-435 (2006)
in the same bill in which it enacted § 42-5028 also suggests
that the legislature intended “person” to include others in
addition to the “taxpayer.” 1980 Ariz. Sess. Laws, ch. 220,
§ 18 (2d Reg. Sess.). Section 43-435 imposes personal liability
on persons required to withhold income tax who fail to collect
or remit the taxes:
Any person required to collect, truthfully
account for and pay over any [withholding] tax imposed
by this title who fails to do so is, in addition to
other penalties provided by law, personally liable for
the total amount of the tax not collected or accounted
for and paid over.
A.R.S. § 43-435.
¶16 Before § 43-435 was enacted in 1980, two sections of
the 1978 income tax code made the employer responsible for
remitting to ADOR withholding taxes “required to be deducted and
withheld,” see A.R.S. §§ 43-414, -415 (2006), just as §§ 42-5008
and 42-5024 did for TPTs. The enactment of § 43-435 extended
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liability beyond the employer; it made any “person required to
collect, . . . account for and pay over” income taxes to ADOR
personally liable. The concurrent enactment of §§ 42-5028 and
43-435 indicates that the legislature similarly intended the
word “person” in § 42-5028 to extend personal liability to
persons other than the taxpayer.2
¶17 Moreover, interpreting “person” to include corporate
officers or directors assuages concerns that such persons might
abuse the privilege of limited liability protection by
collecting money from customers under the guise of a state-
imposed tax, using such monies for other purposes, forcing the
taxpayer into bankruptcy, and later claiming limited liability
protection. Cf. Garrett, 79 Ariz. at 392-93, 291 P.2d at 210(noting legislature’s intent to preclude taxpayers from
profiting by collecting money under the guise of a tax). It
also encourages those charged with remitting separately
collected TPT funds to remit them promptly to ADOR.
¶18 Finally, we note that of the states that have a sales,
transaction privilege, or similar tax, a supermajority
statutorily imposes personal liability on corporate officers.3
2
ADOR has been pursuing withheld taxes from corporate
officers and directors under this interpretation of § 43-435.
3
E.g., Ark. Code Ann. § 26-18-501 (1997); Cal. Rev. & Tax.
Code § 6829(a) (1998); Colo. Rev. Stat. § 39-21-116.5 (2007);
Conn. Gen. Stat. § 12-414a (2000); Del. Code Ann. tit. 30,
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While including corporate officers within the definition of
“person” in § 42-5001(8) would have unmistakably established our
legislature’s intent and forestalled this lawsuit,4 we conclude
that by enacting § 42-5028, the legislature meant to bring
Arizona within the national trend of imposing personal liability
on those individuals who fail to remit such taxes.
¶19 Nonetheless, the Randalls argue and the court of
appeals held that “person” does not include corporate officers
or directors because no statute imposes a duty on them to remit
TPTs. See Action Marine, 215 Ariz. at 587, ¶ 16, 161 P.3d at
1251. As support for this position, the court of appeals relied
§ 535(e) (1997); Fla. Stat. § 213.29 (2005); Ga. Code Ann. § 48-
2-52 (1999); Idaho Code Ann. § 63-3627 (2007); 35 Ill. Comp.
Stat. 735/3-7(a) (1996); Ind. Code § 6-2.5-9-3 (2003); Iowa Code
§ 421.26 (2006); Kan. Stat. Ann. § 79-3643 (1997); Ky. Rev.
Stat. Ann. § 139.185 (2006); Me. Rev. Stat. Ann. tit. 36, § 177(1990); Md. Code Ann., Tax-Gen. § 11-601(d) (2004); 830 Mass.
Code Regs. 62C.31A.1 (2008); Mich. Comp. Laws § 205.27a(5)
(2001); Minn. Stat. § 270C.56 (2007); Miss. Code Ann. § 27-65-55(2005); Mo. Rev. Stat. § 144.157 (2006); Mont. Code Ann. § 15-
68-811 (2007); Nev. Rev. Stat. § 360.297 (2007); N.J. Stat. Ann.
§§ 54:32B-2(w) & 54:32B-14(a) (2002); N.Y. Tax Law § 1133(2004); N.D. Cent. Code § 57-39.2-15.2 (2005); Ohio Rev. Code
Ann. § 5739.33 (2007); Okla. Stat. tit. 68, § 1361(A) (2001); 72
Pa. Cons. Stat. §§ 7201(e) & 7237(b) (2000); R.I. Gen. Laws §
44-19-35 (2005); S.D. Codified Laws § 10-45-55 (2004); Vt. Stat.
Ann. tit. 32, § 9703(a) (2001); W. Va. Code § 11-15-17 (2005);
Wis. Stat. § 77.60(9) (2004).
4
Some states impose liability on officers directly, e.g.,
Ga. Code Ann. § 48-2-52, while others impose liability on “any
officer, member, manager, partner, or other person,” Cal. Rev. &
Tax. Code § 6829(a). In addition, some states impose liability
on persons, but define “person” to expressly include officers.
E.g., Wis. Stat. § 77.60(9).
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on State v. Angelo, 166 Ariz. 24, 800 P.2d 11 (App. 1990), and
In re Inselman, 334 B.R. 267 (Bankr. D. Ariz. 2005).
¶20 In Angelo, the court of appeals addressed whether
corporate officers could be held criminally liable for failing
to file a corporation’s TPT returns. 166 Ariz. at 25, 800 P.2d
at 12. The court declined to impose criminal liability because
no statute imposed a duty on corporate officers to file such
returns. Id. at 27-28, 800 P.2d at 14-15. The court
recognized, however, that “disregarding [the] corporate form
might conceivably be appropriate in the context of civil tax
liability.” Id. In Inselman, the bankruptcy court denied
ADOR’s claim against a debtor who was the managing member of a
limited liability company that failed to pay its TPTs. 334 B.R.
at 268, 271. Relying on the reasoning in Angelo, the bankruptcy
judge found no personal liability because the TPT statutory
scheme does not impose a statutory duty on anyone other than the
taxpayer to pay the company’s TPT. Id. at 270-71.
¶21 Angelo decided whether criminal liability could be
imposed for failure to file returns, an issue not before us, and
we decline to follow Inselman. For purposes of imposing
personal civil liability, the issue is not whether corporate
officers or directors have a statutory duty to file the
corporation’s tax returns or pay the taxpayer’s TPT, but whether
those persons who have assumed a duty to remit monies collected
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to cover the taxpayer’s TPT may be civilly liable for failing to
remit them. The statutes permit corporate officers or directors
to make the business decision to either pay the tax directly
from the taxpayer’s funds or collect it from customers under the
guise of a “tax.” See Garrett, 79 Ariz. at 392-93, 291 P.2d at
210. In the latter case, an officer or director who holds,
maintains control over, or has responsibility for the money
collected separately as TPT assumes a duty to remit that is not
otherwise statutorily imposed. Such persons must accept both
the benefits and burdens of the decision to charge separately
for TPTs. The benefit of collecting the money from customers as
“tax” (money in hand) must be taken with the burden (exposure to
statutorily imposed personal liability for failing to remit the
money so collected). A.R.S. §§ 42-5002(A)(1), -5028. Section
42-5028 applies only after corporate officers or directors elect
to collect a separate TPT charge and then fail to remit the
money collected. The court of appeals erred in concluding that
the duty to remit must be statutorily imposed before civil
liability can be enforced.
2. Meaning of “Additional Charge” in A.R.S. § 42-5028
¶22 Having concluded that “person” under § 42-5028 may
include corporate officers or directors, we must determine the
meaning of the phrase “additional charge.” The Randalls argue
that “additional charge” in § 42-5028 means only the amount
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collected from customers that exceeds the taxpayer’s TPT
liability for a particular transaction. We disagree.
¶23 Section 42-5028 provides that a “person who fails to
remit any additional charge made to cover the [TPT] . . . [is]
personally liable for the total amount of the additional charge
so made” and not remitted (emphases added). The term
“additional charge” is defined by the text of the statute
itself. The statute provides that the “additional charge” is
that charge “made to cover the tax.” If “additional charge”
referred only to any amount that exceeds the TPT owed, as the
Randalls maintain, the charge would not be “made to cover the
[TPT]” because the TPT would have already been “covered.” See
State Tax Comm’n v. Quebedeaux Chevrolet, 71 Ariz. 280, 288, 226
P.2d 549, 554 (1951) (quoting with approval case recognizing
that “additional charge” refers to the entire amount collected
from customers).
¶24 The Randalls counter that Arizona Department of
Revenue v. Canyoneers, Inc., 200 Ariz. 139, 143, ¶¶ 14-15, 23
P.3d 684, 688 (App. 2001), has determined that “additional
charge” means only amounts in excess of the effective TPT for a
given transaction. Canyoneers, however, decided a different
issue. The court in Canyoneers decided whether under A.R.S. §
42-1118(A) (2006) a taxpayer was entitled to a refund of TPT
mistakenly paid to ADOR when the underlying business activity
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was not subject to the TPT. Id. at 140-41, ¶¶ 1-4, 23 P.3d at
685-86. The court decided only that a taxpayer entitled to a
refund of TPT that was never owed to ADOR was not also entitled
to a refund of any amount that exceeded the effective TPT for
any transaction. Id. at 143, ¶¶ 14-15, 23 P.3d at 688. The
court sought to prevent companies from adding an extra profit to
its sales under the guise of a compulsory tax. Id. ¶ 15 n.3.
Because Canyoneers is not on point, its passing “see” reference
to § 42-5028 provides no guidance. We conclude that the term
“additional charge” in § 42-5028 means the entire amount charged
to customers to cover the taxpayer’s TPT liability.5
3. Response to the Dissent
¶25 Our dissenting colleagues propose that § 42-5028
imposes an additional penalty on the taxpayer over and above the
liability for the TPT, interest, and penalties imposed under
§ 42-5024.6 This interpretation assumes that only the taxpayer
“who ‘imposes’ the additional charge” under § 42-5002(A) may be
5
We also reject the Randalls’ argument that “added charge,”
as that term is used in A.R.S. § 42-5002(A)(1), means something
different from “additional charge,” the term used in § 42-5028.
Both derive from the base verb “add” and both refer to charges
to customers to cover taxes — up to and exceeding the statutory
rate.
6
No party has advanced this interpretation in this court.
It presents a third potential meaning of A.R.S. § 42-5028. If
the legislature intended a construction that differs from that
set forth in this opinion, it is of course free to amend the
statute.
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held responsible to the state. Dissent at ¶ 37. Although this
is a plausible interpretation, we simply disagree that it is the
intended one.
¶26 Section 42-5002(A) requires the “person who imposes an
added charge to cover the tax” to remit the money collected to
ADOR. That person is likely to be the taxpayer. But § 42-5028,
the section at issue, imposes liability on “a person who fails
to remit any additional charge made to cover the tax.” While
such a person may be the taxpayer, it need not always be. It
could an accountant, corporate officer, or other person charged
with remitting the added charge to the taxing authority. See
DiGiuseppe, supra ¶ 8, at 10 (defining responsible parties
generally to be those who exercise a degree of control and
influence over the finances and disbursements of a corporation).
¶27 As our dissenting colleagues acknowledge, the
majority’s interpretation has the “practical virtue of
encouraging corporate officers and directors to be vigilant in
assuring that additional charges are remitted [to ADOR] and not
spent to discharge other corporate debt.” Dissent at ¶ 40; see
also Kirsner et al., supra ¶ 8, at 7 (noting that to protect
officers and directors from such personal liability for
unremitted charges, they should “have the debtor pay the
taxes”); cf. Kelly v. Lethert, 362 F.2d 629, 635 (8th Cir. 1966)
(concluding that the amount collected may be recovered only
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once, either from the taxpayer as tax or from the responsible
person as a penalty). We conclude that this is what the
legislature intended.
B. Remand
¶28 We conclude that “person” under § 42-5028 may include
corporate officers or directors who fail to remit an “additional
charge.” In this case, the tax court held the Randalls
personally liable for Action Marine’s unpaid TPTs, penalties,
interest, and costs, purportedly under the authority of A.R.S.
§ 42-5028. Because § 42-5028 does not provide for interest,
costs, or penalties (other than the additional charge itself),
it appears that the court erred by conflating the taxpayer’s
liability for TPT (and accompanying penalties and interest that
may be assessed against the taxpayer) and the non-derivative
personal liability for the “additional charge” imposable on
“persons” under § 42-5028.7 Because the record does not show
whether Action Marine separately charged its customers an
additional charge, we remand to determine whether it did, and if
so, which of the Randalls, if any, may be liable under § 42-
5028.
7
ADOR’s inclusion of Action Marine in its original complaint
and its claim for penalties and interest indicates its intent to
impose derivative liability on the Randalls. Indeed, the
complaint sought the exact sum from the Randalls that it sought
from Action Marine. The parties also referred to the Randalls’
liability as derivative during arguments before the tax court.
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¶29 For the remand, we note that a “person” liable under §
42-5028 must have a duty to remit the taxes. E.g., Inselman,
334 B.R. at 271 (expressing concern about imposing liability for
taxes too broadly). Other jurisdictions require the officer,
director, or responsible person to have had control over,
responsibility for, or supervision of the money collected to pay
the tax. E.g., Cal. Rev. & Tax. Code § 6829(a); 35 Ill. Comp.
Stat. 735/3-7(a); Minn. Stat. § 297A.61(2)(c); Mo. Rev. Stat. §
144.157(3); Ohio Rev. Code Ann. § 5739.33; see also N.J. Stat.
Ann. § 54:32B-2(w) (2007) (including any officer who is under a
duty to act); Purcell v. United States, 1 F.3d 932, 937 (9th
Cir. 1993) (finding that a person responsible under 26 U.S.C. §
6672 for collecting and remitting income tax withholding was one
who “‘had the final word as to what bills should or should not
be paid’ if such individual had the authority required to
exercise significant control over the corporation’s financial
affairs, regardless of whether he exercised such control in
fact”). Such tests assist in determining whether the person was
responsible for remitting or had assumed a duty to remit monies
collected to pay TPTs.
III. ATTORNEYS’ FEES
¶30 The Randalls requested their attorneys’ fees pursuant
to A.R.S. § 12-348. Because they have not prevailed, we deny
the request.
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IV. CONCLUSION
¶31 For the foregoing reasons, we vacate the opinion of
the court of appeals and the judgment of the tax court. We
remand this case for further proceedings consistent with this
opinion.
_______________________________________
Rebecca White Berch, Vice Chief Justice
CONCURRING:
_______________________________________
Ruth V. McGregor, Chief Justice
_______________________________________
Michael D. Ryan, Justice
H U R W I T Z, Justice, dissenting
¶32 The Court today holds that A.R.S. § 42-5028 imposes
personal liability on officers and directors of a corporation
that fails to remit additional charges collected from customers
to cover corporate liability for the transaction privilege tax
(“TPT”). This is a plausible reading of the statutory scheme
and has much to commend it as a matter of public policy.
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¶33 This interpretation, however, is not inexorably
compelled by the text of the relevant statutes. Indeed, three
judges of the court of appeals and an experienced Arizona
bankruptcy judge have arrived at precisely the opposite
conclusion. See Ariz. Dep’t of Revenue v. Action Marine, Inc.,
215 Ariz. 584, 161 P.3d 1248 (App. 2007); In re Inselman, 334
B.R. 267 (Bankr. D. Ariz. 2005). The problem, as is so often
the case, arises from a statutory scheme whose language is less
than pellucid and whose history is at best unilluminating.
Recognizing that this is a close case, I believe that the court
of appeals has the better reading of the statute.
¶34 The majority correctly describes the basic legislative
scheme, and I need not belabor its details here. There is no
question that the taxpayer, not its customers, is responsible
for paying the TPT under A.R.S. § 42-5014. Under § 42-5024, the
tax “and all increases, interest and penalties thereon” become a
“personal debt of the taxpayer” and may be collected by
appropriate legal action under § 42-1114. By enacting § 42-
5024, the legislature seemed to recognize that a taxpayer’s
failure to perform his statutory duty of remitting the TPT under
§ 42-5014 did not itself create an actionable liability to the
state. Otherwise, § 42-5024 would be surplusage.
¶35 In the real world, of course, taxes imposed on
businesses are passed on to their customers. Recognizing as
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much, the legislature provided in § 42-5002(A)(1) that “[a]
person who imposes an added charge to cover the tax levied by
this article or which is identified as being imposed to cover
transaction privilege tax shall not remit less than the amount
so collected to [ADOR].” Section 42-5002(A)(1), to be sure,
refers to a “person who imposes an added charge,” not simply to
a taxpayer. But when the relevant transaction is one between a
business and its customer, it can only be the business that
imposes the charge, so the word “person” in § 42-5002(A)(1) can
refer only to the putative taxpayer – whether a corporation,
individual, or other entity.8
¶36 Section 42-5028, the centerpiece of controversy in
this case, provides that
A person who fails to remit any additional charge made
to cover the tax or truthfully account for and pay
over any such amount is, in addition to other
penalties provided by law, personally liable for the
8
Before 1992, the statute now codified at § 42-5002(A)(1)
read: “In no event shall the person upon whom the tax is
imposed, when an added charge is made to cover the
[TPT] . . . remit less than the amount so collected to [ADOR].”
A.R.S. § 42-1302(A)(1) (1991) (emphasis added). The 1992
amendment required any “person who imposes an added charge” to
remit the amounts collected. 1992 Ariz. Sess. Laws, ch. 173,
§ 1 (2d Reg. Sess.) The current version of the statute thus has
the salutary effect of requiring remission of the added charge
even if it later turns out there was no TPT liability. The
putative taxpayer unsure of liability for the tax thus protects
itself against a penalty by remitting the added charge and can
then seek refund of the amounts remitted to ADOR. See Ariz.
Dep’t of Revenue v. Canyoneers, Inc., 200 Ariz. 139, 23 P.3d 684(App. 2001).
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total amount of the additional charge so made and not
accounted for or paid over.
The majority concludes that the use of the word “person” in this
statute means that personal liability is imposed on any
corporate officer or director who, as a matter of fact, fails to
engage in remission, payment over, or truthful accounting of the
additional charge. But the Court fails to identify whence the
obligation of such a “person” to pay the additional charge to
ADOR arises. Indeed, the only statute dealing with the
obligation to remit the additional charge is § 42-5002(A)(1).
And, as I have noted above, § 42-5002(A)(1) cannot be reasonably
read as imposing the duty to remit additional charges on anyone
other than the person or entity that imposes the charges.
¶37 Section 42-5028 also states that the relevant personal
liability is “in addition to other penalties provided by law.”
(Emphasis added.) The use of the term “other penalties”
strongly suggests that § 42-5028 is a penalty provision,
authorizing personal liability on someone who imposes an added
charge but fails to turn it all over. This penalty is entirely
separate from the tax liability for the TPT imposed by §§ 42-
5014 and -5024. Thus, § 42-5028 is not simply surplusage if
read as limited to imposing an additional penalty on the
taxpayer to the extent he has collected additional charges but
not paid them over. Indeed, if § 42-5024 was needed to impose
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personal liability on a taxpayer who failed to perform his duty
under § 42-5014 to remit the TPT, it logically follows that a
statute other than § 42-5002(A)(1) also was needed to impose
personal liability on a taxpayer who failed to perform his
statutory duty to remit added charges. That statute is § 42-
5028. The Court rejects this reading of § 42-5028 because the
term “person” is broadly defined in Title 42 to include all
manner of individuals and entities, see A.R.S. § 42-5001(8),
while “taxpayer” is limited to a person “who is liable for any
tax,” see id. § 42-5001(18). But the critical point is that
only a “person” who “imposes” the additional charge is required
to remit it under § 42-5002(A)(1). Thus, the only “person” who
can fail to remit (or pay over, or truthfully account for) the
additional charge is one who collected it. In this case, that
person can only be Action Marine.9
¶38 Indeed, if we read § 42-5002(A)(1) differently, we
create a statutory anomaly. As the Court notes, the statutory
duty to remit TPT falls solely on the corporate taxpayer, not
its officers and directors. Op. ¶ 21. It is difficult to
understand how, simply by use of the generic word “person,”
9
It is of course possible for a “person” to impose the
additional charge, yet not be a taxpayer – i.e., one liable for
the tax. See Canyoneers, 200 Ariz. 139, 23 P.3d 684. Section
42-5028 thus would impose a penalty on such a person, even if
not a taxpayer.
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§ 42-5002(A)(1) creates a general duty on the part of such
officers and directors to remit additional charges imposed to
cover the TPT.10
¶39 Nor do I find A.R.S. § 43-435 helpful to ADOR. That
statute imposes liability only on those “required to collect,
truthfully account for and pay over” withholding tax.11 Thus, if
10
As the majority notes, other states impose personal
liability on corporate officers for the corporation’s unpaid
taxes. Op. ¶ 18 n.3. As the majority also notes, however,
these states do so on the basis of statutes which, unlike A.R.S.
§ 42-5028, expressly provide for such personal liability. Op.
¶ 18 n.4. Any “national trend” is therefore of little utility
in interpreting the relevant Arizona statutes.
11
Employers who withhold income tax from their employees must
hold the funds in trust for the state. A.R.S. § 43-415. The
employee is the taxpayer, and the employer collects the tax on
behalf of the state. See A.R.S. §§ 43-401, 43-431. Section 43-
435 thus deals with the liability of those who improperly handle
trust funds.
As the majority notes, the TPT is not a trust fund tax
because the customer bears no tax liability but is instead an
excise tax on the entity engaged in business activity. Op.
¶¶ 6-7. See Joseph DiGiuseppe, What Every Tax Practitioner
Needs to Know About Trust Fund Taxes & Responsible Person
Liability in Bankruptcy, 17 Prac. Tax Law. 7, 14-15 (2002)
(noting that the critical distinction between a trust fund tax
and an excise tax turns on whether the ultimate tax liability
belongs to the collecting entity or the person from whom the
funds have been taken). Our previous decisions have attempted
to maintain this distinction. See, e.g., Ariz. State Tax Comm’n
v. Garrett Corp., 79 Ariz. 389, 392-93, 291 P.2d 208, 210
(1955). Today’s opinion unnecessarily blurs this previously
bright line by characterizing § 42-5028 as involving a trust-
like tax. Op. ¶ 8.
Another article cited by the majority operates from the
mistaken assumption that the TPT is a trust fund tax. Marvin A.
Kirsner, Richard S. Miller, & David Neier, Officers’ &
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we were to read § 43-435 in pari materia with § 42-5028, we
would impose personal liability only on those otherwise required
by law to remit, account for or pay over – the “person” who
“imposed” the added charge, in this case, Action Marine.12
¶40 The Court’s reading of § 42-5028 has the practical
virtue of encouraging corporate officers and directors to be
vigilant in assuring that additional charges are remitted and
not spent to discharge other corporate debt. Indeed, it is
difficult to excuse the Randalls’ failure to safeguard funds
which were taken from Action Marine’s customers on the
representation (either express or implied) that they were needed
to pay the TPT. But before we in effect pierce the corporate
veil and impose substantial liability on these individuals in
the name of good public policy, I would require that the
legislature more clearly enunciate its direction that we do so.
Directors’ Nightmare: Being Held Personally Liable for Debtor
Company’s Unpaid Taxes, N.Y.L.J., Aug. 27, 2001, at 7, 7 & n.7.
The article’s conclusion that directors of the taxpayer are
personally liable for unpaid TPT is therefore flawed.
12
It is conceivable that the Randalls had a duty to Action
Marine to remit the additional charges. But I am loath to read
a tax penalty statute as enforcing a duty owed to a private
corporation, as opposed to the state. If the legislature meant
to reach such a sweeping result, it could have said so
expressly. Cf. 26 U.S.C. § 6671(b) (defining “person” to
include corporate officers and employees “under a duty” to
perform a relevant act); 26 U.S.C. § 6672(a) (imposing personal
liability on persons “required to collect, truthfully account
for, and pay over” federal withholding tax).
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The current statutory scheme does not so specify. I would
affirm the opinion below, and therefore respectfully dissent.13
__________________________________
Andrew D. Hurwitz, Justice
CONCURRING:
_______________________________________
W. Scott Bales, Justice
13
I agree with the Court’s conclusion that the “additional
charge” referred to in A.R.S. § 42-5028 is the entire amount
charged to the customer to cover putative TPT liability. Op.
¶ 24.
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