Posted on Jun 05, 2014

People are not generally allowed to play "shell games" with corporations to avoid the payment of sales taxes. But when the owners of a business have one business that fails, and they don't take any of the assets, but fund an entirely new company out of their own pocket, the Texas Comptroller of Public Accounts can't come after the new company, just because it has the same owners. At least that was what was ruled by U.S. Bankruptcy Judge David R. Jones in a recent chapter 11 court case. In re Suppies, Inc. Case No. 13-36616, SD Texas 2014.

I really liked the language in the opinion:

Under the Comptroller’s theory, the owners of an unsuccessful business could never start over. Instead, they would be bound to forever suffer under the Comptroller’s shackles until they were freed of their obligations. This state and this country were founded on contrary principles. So long as citizens follow the law, they are permitted to try and fail; only to hoist themselves back onto their feet to try again. The Court finds that (the individual owners and the new company) followed applicable law and are entitled to try again.

Companies should always pay sales taxes. If they don't that's a good way to be put out of business. And the Texas Comptroller can even go after the individual owners if they are the ones responsible for the non-payment. But the Court ruled that they just can't arbitrarily stick the liability for a prior company's sales taxes on a subsequently-formed company, at least not without evidence.

If you or a company that you own owes sales taxes, and the Texas Comptroller is trying to collect, it is possible to file chapter 11 or chapter 13 as appropriate and stop the Comptroller from shutting down the business. Then a plan can be proposed to pay off the taxes over a long period of time. If this is your situation and you are in the Houston, Texas are, give our office a call at 713-772-8037 and make an appointment to come see one of our attorneys.

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J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization