A Wisconsin Circuit Court judge upheld a decision of the state’s Tax Appeals Commission, finding a concert “co-promoter” liable for unpaid taxes. The decision highlights how businesses can be held responsible for unpaid taxes even if they had no role in collecting the taxes.
The Riverside Theatre in Milwaukee is a popular venue for concerts. Many national acts have performed there. Cellar Door is a concert promoter affiliated with Clear Channel Communications. According to an agreement between both companies, Cellar Door lined up performers while Riverside ran the theatre. They both agreed to share any profits.
Somewhere along the way, Riverside stopped remitting sales tax to the Wisconsin Department of Revenue. Even though taxes were collected on ticket and merchandise sales, none of the tax money was paid over to the state. When the state couldn’t collect from Riverside, it transferred the debt for the unpaid taxes to Cellar Door. (The state also imposed a 25% penalty too!)
Cellar Door appealed but lost before the Tax Appeals Commission which ruled that the Cellar Door was liable as a co-promoter.
Wisconsin, like many states, imposes a sales tax on amusements and concerts. Wisconsin statute 77.52(2) imposes that duty on all people who sell admission to entertainment events. Cellar Door claims it didn’t sell tickets and instead acted as a promoter. Unfortunately for Cellar Door, both the tax appeals commission and the court said Cellar Door could be made responsible for the unpaid taxes.
While the decision was very fact specific, there are important lesson to be learned. Sales taxes are considered “trust fund” taxes in most states. They are collected from third parties and held in trust for the benefit of the state. When the party collecting those taxes fails to turn them over, most states become quite aggressive and will often pursue anyone they feel has the responsibility to make collect and pay over the unpaid taxes (so called trust fund recovery penalty). Because Riverside didn’t pay and Cellar Door billed itself as a co-promoter, the court upheld the assessment and the Tax Appeals Commission decision finding Cellar Door responsible.
If a business affiliate or joint venture partner is collecting sales or employee withholding tax, make they pay that tax. Otherwise you could find yourself on the hook for someone else’s unpaid taxes.
If you are under audit or have been assessed taxes, interest and penalties based on the failure of another party to pay, give us a call. Our audit defense lawyers can help with the audit and any subsequent appeals. We also help clients with tax planning to avoid future problems. All inquiries are protected by the attorney – client privilege and kept in strict confidence. For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct).
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Minneapolis, Minnesota; Portland, Maine and San Francisco, California. Legal services available in all jurisdictions.
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Posted by Brian Mahany, Esq