SALT Report 2111 – The Texas Comptroller ruled that an individual limited partner in an auto dealership could not be held liable for the partnership’s sales tax liabilities because the Taxpayer did not maintain control of the business. In 2004, the limited partnership was audited by the Comptroller for its motor vehicles sales and use tax compliance. A Texas Notification of Audit Results was issued to the partnership and included an assessment for penalties and interest for the partnership’s unpaid taxes.
In 2010, the Comptroller issued a Texas Notice of Tax/Fee Due in which the Taxpayer was identified as the general partner who was liable for the partnership’s unpaid assessment. The Taxpayer appealed the assessment claiming that because he was merely a limited partner and he cannot be held liable for the tax obligations of the partnership as provided in Subsection 3.03(a).
Subsection 3.03(a) of the Act states that “a limited partner is not liable for the obligations of a limited partnership unless the limited partner is also a general partner or, in addition to the exercise of the limited partner’s rights and powers as a limited partner, the limited partner participates in the control of the business.”
The Comptroller’s position was that although the Taxpayer was designated a limited partner in the partnership agreement, he was in fact a general partner because his signature identified him as a general partner on two periodic reports that were filed with the Secretary of State, as well as on several franchise tax reports, and several audit-related documents.
The Taxpayer argued that he was incorrectly listed as a general partner on the preprinted periodic reports and was statutorily prohibited from correcting the preprinted designation. Further, the Taxpayer notes that the Comptroller could have determined who the general partner was by reviewing the two periodic reports and the Certificate of Limited Partnership, both of which were posted on the Secretary of State’s website. Also, the Taxpayer argued that the franchise tax reports identified him as a limited partner and that a corporation was identified as the general partner.
Based on the above, the Comptroller issued a decision in the Taxpayer’s favor and revised the original assessment to indicate that the Taxpayer was not liable for the partnerships tax liabilities.
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