Legal Question in Tax Law in Indiana

Behind on Taxes

I work for an establishment which is behind in both filing and

paying both state sales tax and food and beverage tax. They have

been trying to get caught up with filing. They have also made a

major payment in trying to get caught up as well as monthly

payments. The IN Department of Revenue has put a protest

against their liquor license. Each month they have to apply for a

30-day extension. This last time they were told the entire amount

had to be paid in full before an extension could be granted. How

do they expect this to be paid if they do not grant the license

extension in order for the business to earn money. Any advice

would be appreciated. Can they just kill a business this way?

Asked on 7/15/04, 4:42 am

2 Answers from Attorneys

John Cook Dunn & Cook

Re: Behind on Taxes

What you have to remember is that the taxes that were not turned over to the Indiana Dept of Revenue ("IDOR") are trust taxes. In essence, they were never the property of the business to begin with, it just acted as a collecting agent for the state. Accordingly, you can look at the firm using those taxes as a form of theft, which puts IDOR's stance in a more favorable light. I do not know of any taxing authority (state or federal)that does not aggressively respond when it finds out that trust taxes have not been turned over.

The importance of a tax being deemed a "trust tax" is brought home by the fact that a trust tax is never dischargeable in bankruptcy, and the taxing authority can go after those people who were responsible for collecting but not remitting those taxes.

In short, if the taxes owed by the business were other than "trust" taxes, such as income, IDOR would not have been nearly as agressive in its approach. In fact, I am surprised that it gave your business month to month relief. My clients who are bar owners have never received that type of leniency - the total amount has always had to have been paid prior to them getting their license renewal.

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Answered on 7/15/04, 12:47 pm
Burton Haynes Burton J. Haynes, P.C.

Re: Behind on Taxes

In a word, "yes." Both the federal and state tax authorities can take actions which to those on the receiving end seem illogical. But try to look at it from the government's side. There are rules regarding one's tax obligations. The rules are clear (well, really not, but that's a different story), and it is unfair for one business to pay its taxes while the one next door does not. Furthermore, often failing businesses are "pyramiding" liabilities, making the problem worse day by day. In that situation, the government is often better off forcing the business to fold or at least sell to someone who could operate it better. But hey, at least they no longer put tax delinquents in debtors' prison, so things are better than they once were.

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Answered on 7/15/04, 9:19 am

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