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September 24, 1987.



Author: Fisher


Walter Dunkerson appeals the final determination of the Indiana Department of Revenue, denying his protest of taxes assessed against him under IC 6-2.5-9-3 and IC 6-3-4-8(d). The department assessed taxes against the petitioner, as the responsible officer of Route 31 Service Plaza, Inc., to recover the corporation's unpaid balance of sales and withholding taxes. The petitioner filed an original tax appeal and a petition for injunction in this Court. The injunction was granted and a trial on the merits followed.

The question presented by this case is whether the petitioner is under a duty to remit sales and withholding tax to the department.

The petitioner was president, a shareholder, and a director of Route 31 since its incorporation in 1965. Since Route 31 was in financial difficulty, the petitioner was urged by Route 31's accountant to seek outside investors. In August 1979, Route 31 and Knightsbridge Realty & Mortgage Co., Inc. entered into an agreement whereby Knightsbridge would provide an influx of capital and management assistance in return for fifty percent of Route 31's stock. When the agreement was made, the petitioner was president of Route 31, his wife, Irene Dunkerson, was secretary-treasurer, and his brother-in-law, Carl Hirschle, was vice-president. The president of Knightsbridge, Ned Hansen, was never made an officer of Route 31, although he was in the Route 31 offices on a regular basis and exercised substantial managerial authority until April 1981. On April 9, 1981, the petitioner filed a petition for bankruptcy on behalf of Route 31. The department billed petitioner for Route 31's unpaid sales tax under IC 6-2.5-9-3 for the periods ending July 31, 1980 and April 30, 1981, and for the unpaid withholding tax under IC 6-3-4-8(d) for the same periods.

IC 6-2.5-9-3 provides:

An individual who:

(1) is an individual retail merchant or is an employee, officer, or member of a corporate or partnership retail merchant; and (2) has a duty to remit state gross retail or use taxes to the department of revenue; holds those taxes in trust for the state and is personally liable for the payment of those taxes to the state. If the individual knowingly fails to remit those taxes to the state, he commits a Class D felony.

The pertinent part of IC 6-3-4-8(d) provides:

(d) . . . [A]ny amount deducted or required to be deducted and remitted to the department under this section shall be considered to be the tax of the employer and with respect to such amount he shall be considered the taxpayer. In the case of a corporate or partnership employer, every officer, employee, or member of such employer, who, as such officer, employee or member is under a duty to deduct and remit such taxes shall be personally liable for such taxes, penalties and interest.

To decide whether the petitioner is a responsible officer, that is, under a duty to remit, the statutes are indistinguishable.

An officer is personally liable under both statutes if he has a duty to remit those taxes to the department. The case law in Indiana which addresses the issue is limited to Van Orman v. State (1981), Ind. App., 416 N.E.2d 1301. Here the Court of Appeals found a president of a corporation personally liable for its unpaid sales and use tax. Van Orman, who was the president, general manager, and majority shareholder, admitted that under ordinary circumstances he would be a responsible officer under the statute. He argued that due to the effects of a debilitating cerebral hemorrhage, he was incapacitated and therefore relieved of his legal duty to remit the tax. To this end, Van Orman tried to establish that he had no control over the management of the corporation during the relevant time period. The Court found:

The evidence, nonetheless, indicated that, during the relevant time, Van Orman continued as president, general manager and majority shareholder of Van Orman Enterprises, Inc. During this time period, he went "down (to the Hotel Van Orman) maybe once or twice in a couple of months," signed "at the most three or four" checks a year and withdrew a sizeable amount of food and beverage from the corporation for his personal use. The ...

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