Nebraska Court Holds Officer Personally Liable for Dissolved Company’s Use Tax

By: Camille Adams, SALT Senior Associate

At a glance

• Nebraska Supreme Court for the company’s use tax because the officer chose to pay other creditors rather than the state prior to the dissolution.
• Assess the impact: Corporate officers and individuals who have control over decisions related to a company’s state taxes must be aware of state tax obligations to avoid personal liability in certain circumstances.
• Take the next step: Aprio’s State and Local Tax (SALT) team can help you understand your state tax obligations and assist your business with audit defense and administrative protests.

Schedule a free consultation today to learn more!

The full story

On March 15, 2024, the Nebraska Supreme Court (the Court) issued an opinion upholding an assessment against an officer of a business that failed to pay use tax prior to its dissolution.[1]

A deeper dive into the case

Direct Media Marketing, Inc. (the Company), purchased products shipped to Nebraska from out- of-state vendors who did not collect sales tax, and the Company did not self-assess and pay use tax. In 2007, the Nebraska Department of Revenue (the Department) assessed a tax deficiency against the Company, and the Company appealed that assessment. In 2011, the Company ceased operations, paid other creditors (but not the Department), and dissolved. For reasons unknown, the appeal remained dormant until 2021, when the Department issued a demand for payment to Allen Crow (Crow) personally as a responsible officer.   

Crow served as the Company’s president, vice president, secretary, and treasurer. He had significant ownership in the Company and oversaw its financial affairs, which included check-signing authority as well as control over bank accounts, the disbursement of funds, and payment of creditors.

Crow’s first argument was that the Company did not owe the use tax. Under Nebraska law, each sale of tangible personal property is taxable unless the item is specifically excluded from tax, and in cases where an out-of-state vendor does not collect the tax at the time of the transaction, the purchaser is responsible for self-assessing and remitting use tax.[2] As a general rule, in proceedings disputing a tax assessment, the burden of proof is on the taxpayer to show that tax is not otherwise due.[3]

In this case, Crow failed to show that the Company did not owe use tax. The Department relied on the Company’s invoices which showed that no tax had been collected by the vendors, and Crow offered no evidence showing that the tax was otherwise paid.

Crow’s second argument was that his decision to not pay the Company’s use tax was reasonable and not a “willful failure” because he had protested the deficiency on behalf of the Company back in 2007.

Nebraska law regarding the liability of responsible officers provides that:

Any officer or employee with the duty to collect, account for, or pay over any taxes imposed upon a corporation or with the authority to decide whether the corporation will pay taxes imposed upon a corporation shall be personally liable for the payment of such taxes in the event of willful failure on his or her part to have a corporation perform such act.[4]

Nebraska defines willful failure as, “that failure which was the result of an intentional, conscious, and voluntary action.”[5] Willfulness is shown where a responsible party is aware of taxes due but pays other creditors.

The ruling explained

The court found that Crow willfully failed to have the Company pay its taxes. As the officer with control over finances, Crow was personally involved in paying vendors and was aware of the Company’s tax debt in 2007, yet he chose to pay other creditors over the next four years, including the payment of a bank loan right before the Company dissolved in 2011.

Of note, the Court refused to provide Crow any relief despite the fact that the state took no action on the Company’s protest for fourteen years. While not condoning the Department’s delay and calling it “extreme” and “troubling,” the Court explained that “a taxpayer cannot ignore ongoing proceedings to redetermine assessed taxes in the hope that the tax assessment may be relieved by the negligence of government employees.” In addition, the Court found that Crow was not prejudiced by such delay.

Therefore, the Court upheld the assessment against Crow.

The bottom line

This decision illustrates a couple of important points. First, corporate officers and other individuals having control over decisions related to a company’s state taxes should be especially aware of the company’s obligations and the potential for personal liability in certain circumstances. Second, a taxpayer should not bury its head in the sand when a governmental agency is proceeding slowly (or even ignoring) in adjudicating the taxpayer’s tax claim; it is not likely to just go away.  

Aprio’s SALT Team has experience advising businesses on all state tax matters including making you aware of state tax obligations so your business does not incur unexpected tax liabilities and penalties. Our team can also assist with audit defense and administrative protests, and can help to ensure that your controversy matters are resolved timely. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

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[1] Allen Crow v. Nebraska Department of Revenue, 316 Neb. 154 (2024).

[2] Neb. Rev. Stat. § 77-2703; See Big Blue Express v. Nebraska Dept. of Rev., 309 Neb. 838 962 N.W.2d 528 (2021)

[3] Neb. Rev. Stat. § 77-2781.

[4] Neb Rev. Stat. § 77-1783.01(1).

[5]  Neb. Rev. Stat. 77-1783.01(7).