Under California law, certain individuals—including officers, directors, managers, and even high-level accounting / clerical employees—can be held personally responsible for a business’s unpaid or unremitted California sales tax in proper circumstances. Although many officers / employees assume that any liability will remain with the corporation or LLC, the California Department of Tax and Fee Administration (CDTFA) may “pierce” the corporate veil in situations where someone had the authority to collect and remit sales tax but failed to do so. Recent administrative decisions illustrate how “responsible persons” can be found personally liable—even if they argue they were merely “only employees.”
Californian De Facto Chief Financial Officer Held Personally Liable for The Corporation’s Unpaid California Sales Tax Liabilities
On March 3, 2025, the California Office of Tax Appeals (OTA) issued an opinion holding Reynaldo T. Monzon personally liable for over $20,000 in unpaid sales tax, interest, and penalties owed by Prestige SNJ Xpress Auto Body of Lake Forest Inc. for the 2017–2018 period. Despite the company closing in 2019, Monzon was found to have acted as a de facto CFO—even though he claimed the corporation never formally gave him officer authority.
Monzon argued that he was not truly an officer and lacked the power to pay taxes. However, the OTA concluded he met the requirements for personal liability under R&TC § 6829, citing a number of decisive factors:
- He filed the seller’s permit application and was listed as treasurer and contact person for books and records.
- He signed documents as CFO and filed multiple sales and use tax returns for the liability period.
- He made electronic tax payments on behalf of the company.
- He communicated regularly with the CDTFA regarding sales tax compliance and arranged payment plans.
- He completed a Business Operations Questionnaire, identifying himself as “Accounting/CFO.”
Despite Monzon’s insistence that he had no final authority and functioned only as an “associate,” the evidence clearly showed he wielded substantial financial responsibility. By signing documents as CFO and performing officer-level duties, he crossed the threshold into “responsible person” status. Accordingly, the OTA held him personally liable for the unpaid sales tax.
Note: The CDTFA can charge and collect interest on the underlying unpaid sales tax from the Entity and anyone they deem a responsible party simultaneously and effectively collect intentionally duplicated interest income. This creates a financial incentive to name as many responsible parties as possible. I have even seen them go after the nephew of a business owner that was making $24,000 a year just to put pressure on the business owner.
Takeaway: The Monzon ruling reinforces that even if you do not hold a formal title, acting in an executive capacity—filing returns, making payments, and communicating with tax authorities—can make you personally responsible for corporate tax obligations. The OTA made clear that those who adopt such roles without ensuring tax compliance risk severe personal liability.
California’s Framework for “Responsible Person” Liability
Section 6829 of California’s Revenue and Taxation Code (RTC § 6829) and CDTFA Regulation 1702.5 (Responsible Person Liability) outline when a corporate officer, partner, manager, or other individual can be held personally liable for a business’s unpaid sales or use taxes. Although commonly associated with corporate officers, multiple individuals within a company may simultaneously be deemed “responsible persons,” depending on their roles and duties.
Under RTC § 6829(a), an individual “shall, notwithstanding any provision… to the contrary, be personally liable for any unpaid taxes and interest and penalties on those taxes” when the business has been dissolved, terminated, or abandoned, provided that all of the following key elements are met:
- The Business Has Terminated or Defaulted: The entity—be it a corporation, partnership, LLC, or otherwise—has ceased operations with outstanding sales or use tax liabilities.
- Sales Tax Was Collected (Trust Fund Taxes): The business collected sales tax reimbursement or had a legal obligation to do so under California’s Sales and Use Tax Law but failed to remit it to the California Department of Tax and Fee Administration (CDTFA).
- The Individual Had Control or Duty (Responsible Person Status): Under RTC § 6829(b), the taxpayer “had the control, supervision, responsibility, or duty to act for the corporation, partnership, limited partnership, limited liability partnership, or limited liability company” in overseeing tax compliance. This can extend to “any other person” who essentially functioned in a role requiring them to handle or pay the taxes.
- Willful Failure to Remit: The individual acted “willfully” by deliberately—or knowingly—failing to pay or cause the taxes to be paid. In other words, it was not merely negligent or accidental. As the statute specifies, if a taxpayer “willfully fails to pay or to cause to be paid any taxes due,” he or she can be held personally liable.
“De Facto” vs. Formal Officer Title
The Monzon decision demonstrates that formal corporate resolutions or titles are less important than actual behavior and authority. Even if corporate records do not officially name someone as CFO, signing returns, overseeing tax filings, and making or directing payments can establish de facto status, triggering personal liability. In severe cases where there is evidence of intentional fraud or tax evasion, an exponentially worse criminal tax liability may also be pursued.
Practical Tips to Mitigate Risk
- Clarify Roles and Responsibilities in Writing
If you are genuinely a lower-level employee without decision-making power, ensure your job title, official roles, and corporate documents reflect that reality. - Avoid Filing Returns Under a Misleading Title
If you have no authority to pay sales tax, do not sign or file forms as CFO, treasurer, or any officer. - Document Efforts to Remit
Keep records of emails or memos urging management to remit sales tax promptly or to address shortfalls. - Prioritize Trust Fund Taxes
Paying other creditors (e.g., rent or utilities) while ignoring sales tax obligations is a red flag that can bolster a finding of willfulness.
Under Regulation 1702.5(b)(2), willfulness does not necessarily require an evil motive or intent. Instead, it involves an intentional, conscious, and voluntary decision not to pay the taxes owed. CDTFA will often look for:
- Knowledge: Did you know sales tax funds were due and not being remitted?
- Authority: Did you actually have the power—formal or de facto—to make or direct payment?
- Financial Ability: Were there funds available to pay, but did you choose to use them for other purposes?
If the answer is “yes,” personal liability is likely. The Monzon case provides an important lesson: that corporate officers and other responsible parties must take their tax compliance duties seriously. Proper due diligence today can prevent a costly acquisition – and resulting tax audit or dispute – in the future.
Choose the Tax Law Offices of David W. Klasing If You Are Worried About Personal Liability for Unpaid California Sales Tax
If you suspect you have cheated on your sales taxes—or if tax authorities are already contacting you with concerns about underreported or unremitted amounts—your situation can escalate quickly. The California Department of Tax and Fee Administration (CDTFA), the IRS, and the Franchise Tax Board (FTB) actively look for “badges of fraud,” including destroyed records, unfiled returns, or a history of misstating taxes. Any of these warning signs can swiftly transform a routine audit into a high-risk “eggshell” or “reverse eggshell” audit—or even trigger a covert criminal tax investigation by the IRS’s Criminal Investigation Division (CID). Once the CDTFA finds evidence of possible fraud, it may share incriminating information with the IRS or other California state agencies, exposing you to steep fines, tax penalties, and, in severe cases, potential criminal tax prosecution. Moreover, individuals deemed “responsible persons” face additional personal liability, meaning they can be held accountable for substantial tax debts if they exercise control or decision-making authority over a company’s financial and tax matters.
At the Tax Law Offices of David W. Klasing, our award-winning dual-licensed Criminal Tax Defense Attorneys & CPAs bring decades of experience to defending businesses and individuals confronted by these high-stakes issues. We understand how the CDTFA, IRS, and FTB target and escalate matters involving suspected sales tax fraud, and we can develop a robust defense strategy tailored to your situation. Whether you are a corporate officer, director, manager, partner, shareholder, bookkeeper, or a “de facto” CFO, we are uniquely equipped to assess your exposure under California’s Sales and Use Tax Laws, challenge assertions of willful noncompliance, and guide you through administrative appeals and negotiations. Call us at (888) 310-3543 or schedule a reduced-rate
