HIGI, JOSEPH R. III (1993)(F)(O)(W/H)

Topic Code: R241Responsible Party (W/H)(I)(C)          Document Reference:

IN THE MATTER OF: JOSEPH R. HIGI, III 1632 Dell Cove Drive Fort Wayne, IN 46804

Department of Revenue and Finance

iowadrf

90-25-1-0597

STATEMENT OF THE CASE

The Iowa Department of Revenue and Finance ("Department") issued a Notice of Assessment to Joseph R. Higi III for withholding tax, penalty and interest in the total amount of $13,860.00 for the taxable periods beginning January 1, 1989 through September 30, 1989, as a responsible party for Line Haul Dispatch.

On about November 27, 1990, a Protest was filed on behalf of Mr. Higi; and on September 17, 1992, the Department filed its Answer. A Notice of Time, Place and Nature of Hearing was issued on September 24, 1992, scheduling an evidentiary hearing for December 18, 1992. Attached to the reverse side of the hearing notice is a domestic return receipt indicating certified mail delivery of the notice to J. R. Higi on September 26, 1992.

This matter proceeded to an evidentiary hearing as scheduled with Robert J. Egge, Attorney at Law, appearing on behalf of the Department, along with Dale Thede, Revenue Examiner IV. The Protestor, Joseph R. Higi, III did not appear, nor did anyone appear on his behalf.

As provided in Iowa Code § 17A.12(3) this matter proceeded to hearing in the absence of the Protestor. During the course of the hearing, Mr. Thede testified; and the Department introduced Exh. A - Copy of the Department's Notice of Assessment that was issued to Protestor; and Exh. B - Questionnaire Relative to Iowa Tax Assessment signed by Protestor on February 6, 1991.

At the conclusion of the evidentiary hearing the Department presented oral arguments and submitted as written and legal factual arguments, a Letter of Findings issued to Protestor by the Department on August 14, 1992.

Now having fully considered the entire record presented in this matter along with the Department's oral and written arguments, I make the following:

FINDINGS OF FACT

1.          Protestor, Joseph R. Higi, III, at all times relevant to this Protest, was a resident of Fort Wayne, Indiana.

2.          During the assessment period under consideration, January 1, 1989, through September 30, 1989, Protestor conducted business in Iowa as Line-Haul Dispatch, Inc.

3.          Line-Haul Dispatch, Inc. is an Indiana corporation; and Protestor was the founder of the corporation, sole stockholder, sole director, and treasurer of the corporation.

4.          Protestor had the power to hire and fire personnel; and he had the general oversight responsibilities for the operation of the corporate business.

5.          Protestor hired employees in Iowa and paid wages to Iowa employees during the assessment period.

6.          On September 28, 1990, the Department assessed Protestor for withholding tax, penalty and interest in the total amount of $13,860.00. Protestor challenged the assessment, asserting that the Department had overestimated the amount of withholding tax due and had assessed tax for periods when Line-Haul Dispatch, Inc. was not doing business in Iowa. The Department reviewed the records and adjusted its assessment accordingly.

7.          Protestor was presented with revised figures by letter dated March 25, 1991; and has failed to raise any further objections.

CONCLUSIONS OF LAW

The Department has jurisdiction of this matter pursuant to Iowa Code § 422.28. All subsequent references to the Iowa Code are to the 1989 Code and these provisions were in effect at all times relevant to this Protest.

The issue presented for consideration is whether the Department erred in assessing withholding tax to Joseph R. Higi, III, as a responsible party for the payment of withholding tax liability owed by Line-Haul Dispatch, Inc. for the taxable period 1/31/89 to 9/30/89.

Iowa withholding tax is assessed pursuant to Iowa Code 422.16(1) as follows:

Every withholding agent and every employer as defined in this chapter and further defined in the Internal Revenue Code, with respect to income tax collected at source, making payment of wages to a nonresident employee, working in Iowa, or to a resident employee, shall deduct and withhold from the wages an amount which will approximate the employee's annual tax liability on a calendar year basis, calculated on the basis of tables to be prepared by the department and schedules or percentage rates, based on the wages, to be prescribed by the department.

(Emphasis added.)

Iowa Code § 422.4(13) defines the term "withholding agent," in relevant part, as meaning

"any individual ... corporation... or association in whatever capacity ... or any of the above-designated entities making payment or having control of making such payment of any taxable Iowa income to any nonresident. The term "withholding agent" shall also include a officer or employee of a corporation or association, or a member or employee of a partnership, who as such officer, employee, or member has the responsibility to perform an act under section 422.16 and who subsequently knowingly violates the provisions of section 422.16.

And Iowa Code 422.4(15) defines "employer" as meaning and including "those who have a right to exercise control as to how, when, and where services are to be performed."

Implementing the foregoing statutory provisions is Department Rule 701 IAC 38.1(8) as follows:

38.1(8) The term "responsible party" shall have the same meaning as withholding agent as defined in Iowa Code section 422.4. A withholding agent includes an officer or employee of a corporation or association, or a member or employee of a partnership, who has the responsibility to perform acts covered by Iowa Code section 422.16. An individual who is a "responsible party" by law cannot shift that responsibility to someone else by attempting to delegate the responsibility to another corporate officer or employee.

Every business which is an employer must have some person who has the duty of withholding and paying those taxes which the law requires an employer to withhold and pay. There may be more than one person, but there must be at least one. The fact that any individual may not have been the only responsible person would not excuse that person from the responsibility of paying withholding taxes. Any withholding agent as defined in the subrule, who knowingly violates the statutory provisions of Iowa Code § 422.16 will be held liable for the tax due: Pacific National Insurance Co. v. United States, 1970, 9th Cir., 422. F.2d 26, cert. denied, 398 U.S. 937; R. E. Dougherty v. United States, 1971, 327 F. Supp. 202; Gefen v. United States, 5th Cir. 1968, 400 F.2d 476.

Protestor contends that he was not a withholding agent for Line-Haul Dispatch, Inc. who had responsibility to withhold wages. Protestor seeks relief from the tax assessment levied against him; and the burden of proof is on the party seeking relief from the tax assessment to show that it was erroneous. See generally, Richards v. Iowa Dept. of Revenue, 360 N.W.2d 830, 831 (Iowa 1985); City of Ames v. State Tax Comm'n., 246 Iowa 1016, 1025, 71 N.W.2d 15, 21 (1955); Dain Mfg. Co. v. Iowa State Tax Comm'n., 237 Iowa 531, 533, 22 N.W.2d 786, 788 (1946).

Federal authority is given great weight in determining the interpretations of Iowa revenue statutes. Under federal law, it is well settled that five criteria are central to the determination of whether or not a person is a "responsible party" under these withholding statutes. The factors are:

1.          The duties of the officer as outlined by the corporate by-laws.

2.          The ability of the individual to sign checks for the corporation.

3.          The identity of the officers, directors, and shareholders of the corporation.

4.          The identity of the individuals who hired and fired employees.

5.          The identity of the individuals who are in the control of the financial affairs of the corporation. Braden v. The United States, 318 Fed. Supp. 1189, 1193-94 (DC Ohio 1970) affirmed, 442 Fed 2dn 342; In the matter of Woodson, 15 Bankr. 185, 187 (1981).

So long as a person has ultimate authority over expenditures of corporate funds and effective power to see that employment taxes withheld by employer are paid, he or she qualifies as "responsible person" who may be held liable when corporate employer fails to pay over federal employment taxes withheld from its employees. Commonwealth National Bank of Dallas v. United States, 82-1 U.S.T.C. P 9149, 665 F.2d 743 (CA 5th Tex., 1982). Liability attaches to those with power and responsibility within the corporate structure for seeing that taxes withheld from various sources are remitted to the Government. Scott v. United States, 354 F.2d 292, 296, 173 Ct. Cl. 650 (1965); see also Gefen v. U.S., supra.

In this case, Joseph R. Higi, III, was the sole stockholder, sole director, and treasurer of the corporation. Protestor had the power to hire and fire personnel; and he had general oversight responsibilities for the operation of the corporation's business. For all these reasons, Protestor was a "responsible party" and a "withholding agent" who had the obligation to withhold tax pursuant to Iowa Code § 422.16(1). Protestor did not appear at the hearing and failed to sustain his burden of proving that the tax assessment was erroneous.

DECISION

The Department correctly and lawfully assessed withholding tax to Joseph R. Higi, III as a responsible party for the payment of withholding tax liability owed by Line-Haul Dispatch, Inc.; and the revised assessment is AFFIRMED.

No affidavit has been filed by the Protestor under 701 IAC 7.9 seeking the deletion of identifying details in this case, if any.

Pursuant to Iowa Code § 17A.15(3) (1991), this Proposed Order becomes the final order of the Iowa Department of Revenue and Finance without further proceedings unless there is an appeal to, or review on motion of, the Department within thirty (30) days of the issuance of this Proposed Order.

Issued this 22nd day of December, 1992.

IOWA DEPARTMENT OF REVENUE AND FINANCE

Elizabeth W. Duncan Administrative Law Judge