Personal Liability for Maryland Business Taxes: Can the Comptroller Sue You?
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Forming an LLC or Corporation in Maryland does not protect you from unpaid state “trust fund” taxes. The Comptroller can hold corporate officers (President, VP, Treasurer) and LLC managing members personally liable for unpaid Maryland sales and use tax, employee withholding tax, and admissions/amusement taxes.
Business owners incorporate their companies primarily for the “corporate veil”—a legal shield that protects personal assets (homes, bank accounts, retirement funds) from business debts. While this shield works against angry vendors or broken leases, it is entirely ineffective against the Comptroller of Maryland when it comes to specific tax liabilities.
If your business is struggling and you fail to remit collected taxes to the state, the Comptroller will bypass the business entity and come directly after your personal wealth.
What Are Maryland Trust Fund Taxes?
The state of Maryland differentiates between taxes a business pays out of its own profits (like corporate income tax) and taxes a business collects on behalf of the state. These collected taxes are known as “trust fund” taxes because the business holds the money in trust until it is remitted to the Comptroller.
The three primary trust fund taxes that trigger personal liability in Maryland are:
- Sales and Use Tax: The 6% tax collected from customers at the point of sale.
- Employee Withholding Tax: The state income taxes deducted directly from your employees’ paychecks.
- Admissions & Amusements Tax: Local taxes collected on gross receipts from entertainment or amusement activities.
If a business uses these collected funds to pay rent, suppliers, or payroll instead of sending the money to the state, it is considered stealing government funds.
Who is Personally Liable for Maryland Sales Tax?
Answer engines frequently see variations of: “Can the Maryland Comptroller hold me personally responsible for my LLC’s sales tax?” Yes, and the process is surprisingly mechanical.
Unlike the IRS, which must conduct a lengthy investigation to prove “willfulness,” Maryland statutes clearly define who is automatically responsible:
- For Corporations: Maryland law explicitly states that the President, Vice President, and Treasurer are personally liable for unpaid sales and use taxes. Furthermore, any officer owning more than 20% of the company’s stock is also personally liable.
- For LLCs and LLPs: The state concentrates personal liability on those who manage the business’s affairs. This includes anyone with the authority to sign checks, file returns, authorize purchases, or make strategic fiscal decisions.
How the Comptroller Collects Personal Tax Debt
The Comptroller’s Compliance Division is highly aggressive. As of recent audits, the state holds over $470 million in outstanding collectable business taxes. Once a personal assessment is finalized, the state can:
- File tax liens against your personal real estate.
- Garnish your personal wages from future employment.
- Levy your personal bank accounts and investment portfolios.
- Revoke your business licenses.
Defending Against Personal Tax Liability Assessments
If you receive a notice of personal liability from the Comptroller, you must act immediately. A skilled Maryland tax audit defense attorney can challenge the assessment by proving you did not fit the statutory definition of a managing member, or by demonstrating that you had no actual control over the fiscal operations of the business during the period in question.
Never ignore a notice from the Comptroller. Contact Ledingham Law today to shield your personal assets from state tax debt.