Home / Personal Liability for Business Taxes
Texas Comptroller · Personal Liability
The LLC does not protect you from tax you collected.
Sales tax paid by your customers was never the company's money. Texas law treats it as held in trust for the state, and it names the people who can be made to pay when the company does not.
Under Texas Tax Code section 111.016, a person who collects tax holds it in trust for the state. An individual who controls or supervises the collection of the tax, or the accounting for and paying over of it, and who willfully fails to pay it, is personally liable as a responsible individual. Separate rules make officers and managers liable when a business fraudulently evades tax, make a buyer of a business liable for the seller's unpaid tax, and make officers liable for company debts after a franchise tax forfeiture.
Four ways a business tax becomes your tax
1. Responsible individual liability
This is the Texas counterpart to the IRS trust fund recovery penalty. It applies to collected taxes such as sales tax, and it reaches the individual who controlled or supervised collecting the tax or accounting for and paying it over, and who willfully failed to pay. Titles do not decide the question. Signature authority on the bank account, who decided which bills got paid, and who signed the returns do. In practice, "willfully" is argued from knowledge and choice: you knew the tax was due and paid other creditors instead.
2. Fraudulent evasion
When a business entity is liable for a fraud penalty, Texas law allows the Comptroller to hold officers, managers, and directors who took part in the fraudulent conduct personally liable for the tax, the penalty, and interest.
3. Buying a business
A buyer of a business or its inventory is required to withhold enough of the purchase price to cover the seller's unpaid state taxes until the seller produces a Comptroller certificate showing no tax is due. A buyer who does not is liable for the seller's tax up to the purchase price. Requesting a certificate of no tax due before closing is the protection, and it is often skipped in small deals.
4. Franchise tax forfeiture
If the company's privileges are forfeited for a missed franchise tax report or payment, directors and officers become liable for company debts incurred during the forfeiture period.
How it usually unfolds
The business falls behind, often after a slow season or a lost customer. Returns are filed without payment, or stop being filed. The Comptroller estimates liabilities, files liens, and freezes the business account. When the company cannot pay, the Comptroller sends the individual a notice of personal liability. That assessment can be contested through the redetermination process, and the same 60-day deadline applies.
What can be contested
- Whether you were a responsible individual for the periods at issue. Liability is period by period, and people join and leave companies.
- Willfulness. What you knew, when you knew it, and whether you had the authority to direct payment.
- The underlying amount. Many business assessments are estimates. Filing accurate returns or challenging the audit lowers the personal number too.
- Payments and credits that were not applied where they should have been.
What happens if you ignore it
A personal assessment that becomes final is collected like any other state tax debt: a lien that attaches to your property, a freeze and levy on personal bank accounts, and referral to the Attorney General for suit. Failing to remit collected sales tax can also be prosecuted as a criminal offense, with the grade depending on the amount.
When a lawyer matters
Before you talk to the Comptroller about who ran the company. Statements made in an interview or on a questionnaire about your role are evidence of responsibility and willfulness. Because there is potential criminal exposure, that first conversation should be with an attorney, where it is privileged. It also matters before closing the business, selling it, or buying one, when a certificate of no tax due and the order of payments can prevent the problem entirely.
Official sources
The rules described on this page come from these primary sources. Check them, or the notice you received, for current figures and dates.
When to call
Talk to a lawyer before anyone else if:
- Your business collected sales tax and used it to cover payroll, rent, or suppliers.
- The Comptroller sent you, personally, a notice of liability for a company's taxes.
- The Comptroller asked you to complete a questionnaire about your role in the business.
- You are an officer or manager on paper but did not control the money.
- You are buying a business or its inventory and have not requested a certificate of no tax due.
- The same business is also behind on IRS payroll taxes.
Common questions
Direct answers.
Can I be personally liable for my LLC's Texas sales tax?
Yes. Under Texas Tax Code section 111.016, an individual who controls or supervises the collection of tax, or the accounting for and paying over of it, and who willfully fails to pay it, is personally liable. The entity's limited liability does not protect against that.
What does willfully mean for Texas responsible individual liability?
It does not require bad motive. It is generally shown by evidence that the individual knew the tax was due and used the money for something else, such as paying other creditors, or recklessly disregarded whether the tax was being paid.
Am I liable for the previous owner's sales tax if I buy a business in Texas?
You can be. A purchaser of a business or its stock of goods must withhold enough of the purchase price to pay the seller's tax debt until the seller provides a Comptroller certificate showing no tax is due. A purchaser who fails to do so is liable up to the amount of the purchase price.
Can I contest a personal liability assessment from the Comptroller?
Yes. A responsible individual assessment can be contested through a redetermination hearing if the request and statement of grounds are received by the deadline on the notice, generally 60 days after the statement date.
Is not paying collected sales tax a crime in Texas?
It can be. Texas law makes the intentional or knowing failure to remit collected tax a criminal offense, with the severity depending on the amount. Most cases are handled civilly, but the possibility is a reason to get legal advice before making statements.
Does closing the business end the tax debt?
No. The company's liability remains, liens stay in place, and the Comptroller can still assess responsible individuals and pursue successors. Closing without a plan often makes personal assessments more likely, because nothing remains in the company to collect from.
Related problems
State tax problems tend to travel together.
Comptroller Liens, Freezes & Levies
The Comptroller can freeze a bank account for 60 days and levy it at any point in that window, without going to court. The account freeze is usually the first time an owner takes the debt seriously.
Read more →Texas Sales Tax Audit
The Comptroller audits four years at a time, tests a sample, and projects the error rate across everything. The sample and the records you produce decide the number.
Read more →Redetermination Hearings & SOAH
Sixty days to contest a Comptroller assessment in writing. The case goes to a Comptroller attorney first, then to an administrative law judge if it does not settle.
Read more →Texas Franchise Tax
A missed franchise tax report can forfeit your company's right to do business and make its officers personally liable for company debts. It is usually fixable.
Read more →Next step
Your role in the company is the whole case. Discuss it where it is privileged.
Tell Patrick what the business owes, to whom, and what you did there.