Starcher
CHARLESTON - Corporation officers seldom face liability for unpaid sales taxes, but the West Virginia Supreme Court of Appeals makes an exception in the case of Barry Schmehl.
The Court unanimously ruled Feb. 27 that Schmehl must pay $172,816.63 on behalf of a bar in the town of Ranson in Jefferson County.
The Justices affirmed Circuit Judge Booker Stephens, who ruled in 2006 that the state could collect from Schmehl as an individual. Schmehl tended bar and kept the books at Filly's of America, in Ranson.
"Mr. Schmehl was not a 'silent' corporate officer, but was directly involved with the business on a daily basis," Justice Larry Starcher wrote.
"Mr. Schmehl testified that he was generally aware that Filly's was collecting sales tax from customers and not remitting that tax money to the state," Starcher wrote.
"Schmehl did not resign or report the wrongdoing," he wrote.
Starcher softened the blow by implying that Filly's insurer would pay.
"If insurance or bonding covered Mr. Schmel in the instant case, it may be that only by legally establishing his personal liability could the proceeds thereof become available," he wrote.
Residents of other states formed a corporation to operate Filly's in 1999, with Schmehl as secretary.
Schmehl's job included taking sales information from a cash register and computing the sales tax.
The state tax commissioner assessed Filly's for unpaid sales taxes in 2000, but Filly's did not pay.
In 2004 the tax commissioner assessed Schmehl for the taxes.
Schmehl appealed to circuit court, but Stephens ruled against him.
For Schmehl, Michael Caryl of Charleston appealed.
On appeal, Attorney General Darrell McGraw represented tax commissioner Virgil Helton.
The Justices heard oral arguments Jan. 9, and reached a decision with little guidance from West Virginia law.
Starcher relied on laws and decisions from other states holding that an individual can't escape liability without proving that a tax assessment is arbitrary, capricious and unreasonable.
"Most of this statutory language has the decision ultimately resting on whether a person was to some degree 'responsible' for the taxes being paid, or had a 'duty' regarding the payment of the taxes," he wrote.
He wrote that it was not unfair to assume that Schmehl was paid at least in part with tax money that Filly's held in trust for remission to the state.
"Mr. Schmehl would have known that fact better than almost anyone," wrote Starcher, "because he was a person with a direct responsibility for computing and sending in the taxes."
Starcher added a footnote recalling that country store owners once dropped sales taxes into jars next to cash registers.
He wrote that storekeepers exclaimed, "That's for our governor."
He wrote, "Today, computers do this separation almost everywhere, but the principle that sales tax receipts are separately held in trust by the merchant for the state has not changed."
