Are Members of an LLC Personally Liable for Their LLC’s Sales and Payroll Taxes?

Chief Administrative Law Judge Bill Thompson recently affirmed his 2010 ruling that the individual members of a multi-member LLC are not personally liable for withholding (payroll) or sales taxes owed by the LLC, unless they qualify as “responsible persons” under the state’s 100% penalty statute. That issue remains critically important to investors in LLCs that operate in Alabama. Box Family Restaurants, LLC v. State Department of Revenue, Admin. Law Div. Dkt. No. S. 11-375 (Prelim. Order on Taxpayer’s Appl. for Reh’g June 28, 2011).

In this new ruling, Judge Thompson initially dismissed the appeal because the LLC member’s notice of appeal was not filed within 30 days after entry of the final assessment. The member timely applied for rehearing and argued that he did not receive the final assessment until well after the mandatory 30 day appeal period had expired. He subsequently appealed within 30 days from his receipt of the final assessment, arguing that he had never been actively involved in his son’s business. Judge Thompson ordered the Alabama Department of Revenue (the “Department”) to notify the Administrative Law Division whether it properly mailed the final assessment at issue to the member’s last known address (vs. the LLC’s last known address) by certified mail.