Florida law generally provides robust liability protection for LLC members through the Florida Revised Limited Liability Company Act, which states that debts or liabilities of an LLC are solely those of the company. However, this protection is not absolute, as Florida recognizes exceptions under Federal Tax and Florida Sales and Use Tax laws. Specifically, section 213.29, Florida Statutes, imposes personal liability on individuals responsible for collecting and remitting sales tax if they willfully fail to do so. This provision applies to officers or directors with administrative control over tax compliance and creates significant exposure for LLC members.
The Florida Department of Revenue (FDOR) treats sales tax as state funds at the time of collection, viewing businesses as custodians of these funds rather than owners. Failure to remit collected sales tax can pierce the liability shield typically protecting LLC members from business debts. FDOR has pursued collection actions against individual LLC members, including liens on personal bank accounts, and in more egregious cases where taxes were collected but not remitted, has made criminal referrals to the State Attorney.
To establish personal liability, FDOR must prove "willful" failure to collect or remit taxes. This determination often involves questioning former officers or managers about their roles in tax compliance and financial decision-making. Individuals deemed "responsible persons" with authority over financial priorities face the greatest risk. Personal liability is asserted through a Notice of Assessment Personal Liability (NOAPL), which gives individuals 20 days to file an informal protest. Failure to respond promptly can result in severe financial consequences, including penalties equal to twice the unpaid tax amount.
The concept underlying this liability mirrors the "trust fund" tax approach seen in other jurisdictions, where businesses collecting sales tax are considered trustees of government funds. A notable 2022 New York Administrative Law Judge decision illustrates how strict liability could apply even without direct involvement in daily operations. In that case, an LLC member's signature on documents and status as a member sufficed for personal liability. While not binding in Florida, this reasoning could influence similar cases under Florida's statutory framework.
Given these risks, LLC members with signature authority or control over financial decisions should prioritize sales tax compliance to avoid personal liability. The FDOR may assess penalties and initiate collection actions against individuals who fail to remit taxes properly. Prompt response to any notices is critical because defaulting on a NOAPL makes reopening protest rights nearly impossible.
Marini & Associates’ tax attorneys offer assistance in mitigating these risks through voluntary disclosure agreements, audit defense, administrative appeals, and negotiated settlements. Their expertise can help LLC members abate or waive penalties and address assessments before liens or criminal referrals occur.
Mr. Sweeney is a Tax Attorney with 40 years of experience in the areas of Tax Law, both Federal & State, including Representation before the IRS and various State Taxing Agencies.
Read more at: Tax Times blog
