Court Opinion

ID: 9618286
Source: CourtListenerOpinion
Date Created: 2023-08-22 05:10:15.902755+00
Date Added: 2024-06-11T18:04:27.635372
License: Public Domain

*243LINDE, J.
Oregon’s income tax withholding law provides that an individual officer or employe of a corporation under some circumstances may be personally responsible for remitting withholding taxes on the wages of the corporation’s employes. Personal responsibility was imposed by a 1961 amendment to the withholding law, which enacted this definition of “employer”:
“(a) A person who is in such relation to another person that the person may control the work of that other person and direct the manner in which it is to be done; or
“(b) An officer or employe of a corporation, or a member or employe of a partnership, who as such officer, employe or member is under a duty to perform the acts required of employers by ORS 316.167, 316.182, 316.197, 316.202 and 316.207.”
ORS 316.162(3).
The issue in the present appeal from the Oregon Tax Court is whether plaintiff, a half-owner and officer of a corporation which became delinquent in remitting withholding taxes, was an “employer” within the meaning of ORS 316.162(3)(b). The Department of Revenue determined that plaintiff was personally responsible as an “employer,” the Oregon Tax Court held that he was not, and the Department appeals to this court. We reverse the Tax Court’s decision.
The appeal presents questions of the interpretation of the statute as well as its application to the facts in this case. The first question concerns the phrase in ORS 316.162(3) (b) referring to an officer, employe or member who is “under a duty to perform the acts required of employers” under the law. The Department argues that the “duty” referred to is a duty to the state, not a duty to the corporation. That reading is circular, because aside from ORS 316.162(3) (b) itself nothing in the statute places such a duty on any corporate officer or employe. The definition thus would not serve to identify any class of officers, employes or members on which it places the intended personal duty to secure compliance with the withholding law.
An alternative reading would be that the definition refers to those persons within a corporation or partnership *244whom the organization has charged with responsibility for complying with the withholding law. The Department expresses concern that if “duty” means whatever duties are assigned within an organization, corporate managers would escape responsibility under the law whenever they delegate the task of withholding and remitting taxes to subordinate managers and payroll clerks.
The Department’s predecessor, the Tax Commission, was partly responsible for the doubt what “duty” is intended, because it drafted the 1961 amendment. But the distinction between a duty to the company and a duty to the state is more apparent than real. When a corporation gets into trouble for neglecting to pay taxes, or to meet other obligations, some officers will face liability to the corporation for their neglect (that is, breach of duty) and others will not. Those responsible to the corporation for the failure to comply with the withholding law are also responsible under ORS 316.162(3)(b). Of course, administrative tasks like bookkeeping and tax accounting are delegated, but the delegation does not relieve the responsible officers of their responsibilities for seeing that the tasks are carried out. In fact, the Commission’s initial version of ORS 316.162(3) (b) was amended in order to relieve the concern of some legislators that subsection (3) might be construed to extend liability to subordinate employes such as foremen.1
The Tax Commission’s legislative request and the subsequent legislative history made clear that the purpose of the bill was to reach small, closely held corporations, essentially incorporated sole proprietorships and partnerships. This written request reported that officers of such corporations 'would fail to remit withholding taxes in order to stay in business by “borrowing” state tax money and would escape personal liability, because “they can hide behind the corporate personality and avoid the penalties for a failure for which they *245are individually responsible.” The amendment, the Commission explained, would reach “those officers of the corporation charged with the responsibility for withholding and remitting the taxes.”
The corporation in this case certainly fits the Commission’s description. The evidence shows that plaintiff Olson and one Bowman formed a corporation and bought their former employer’s steel fabricating business in 1980. They were the only shareholders. Bowman was president of the corporation and Olson was vice president and secretary. The operating arrangement between them, as the Tax Court phrased it, was that “plaintiff did not exercise or expect to exercise any control over the management of the corporation. * * * Bowman was responsible for management of the company and plaintiff ran the shop.” 10 OTR at 275. Business ordinarily was conducted in that fashion. From this evidence, the Tax Court seems to have concluded that plaintiffs nonparticipation in business matters established not only an agreement with Bowman but also plaintiffs “relationship with the corporation,” id., although there was no evidence of corporate bylaws, minutes, resolutions, or other corporate records that defined plaintiffs duties as vice president and secretary. We do not suggest that such documents are indispensable evidence of an officer’s duties to a corporation. But it was plaintiffs burden, ORS 305.427, to show that the corporation was not entitled to look to him to assure that important corporate obligations were not neglected if the primary manager were, for instance, absent or disabled. Plaintiff did, in fact, exercise authority to sign checks or other documents in Bowman’s absence. In the absence of contrary indications in corporate bylaws or resolutions, this would be consistent with the position of a vice president and secretary of a corporation in which two equal owners are the only officers.
The Tax Court found support for plaintiffs view of his lack of duty in the fact that when plaintiff learned about the unpaid withholding taxes and expressed concern to Bowman, he was assured that Bowman would see that they were paid. The Tax Court inferred that because “plaintiff was concerned and would have paid the taxes were he in control, his failure to require Bowman to pay them may be evidence of his lack of control.” In sum, the Tax Court concluded that his arrangement with Bowman relieved him of any “ ‘duty’ to *246perform the acts required of an employer within the meaning of ORS 316.162.” 10 OTR at 276.
It may be true that as between plaintiff and Bowman, their arrangement relieved plaintiff of any duty to Bowman to assure that the corporation paid its taxes or any other bills. But plaintiff must show that he was not responsible to the corporation apart from Bowman. When one chooses to conduct one’s business as a director or officer of a corporation, one may find oneself with duties toward the corporate entity aside from or in lieu of any duties one may have toward a co-owner. Plaintiffs duties as a corporate officer are not measured by whether Bowman might have any legal claim, direct or derivative, against Olson for harm to the corporation that might result from nonpayment of a corporate obligation. The corporation itself might have such a claim (if one were to imagine a derivative action by some hypothetical minority shareholder) even if Bowman were precluded from pursuing it by their mutual arrangement.
We agree with the Tax Court that the record leaves some doubt how far plaintiffs powers and responsibilities under the corporation’s internal rules denied him any role in assuring that the corporation did not become fiscally delinquent. We differ with the Tax Court about the weight that may be given to an informal arrangement between plaintiff and his co-owner, Bowman, not formalized in the title or description of plaintiffs position as a corporate officer, to show that his position excluded any duty to the corporation to avoid its default. The corporate job description of a vice-president for engineering or production may clearly state or exclude any duty to see that taxes or other bills are paid, whether or not this officer also is a major shareholder, but an informal arrangement with another officer is not conclusive on the duty to the corporation.2
*247We do not suggest that everything turns on formalities. Cf. Frutiger v. Department of Revenue, 270 Or 821, 529 P2d 910 (1974), which found no liability as an “employer” for the wife of a corporation’s president and general manager who was a corporate officer in name only. But the fact that plaintiff had and sometimes used authority to pay corporate bills leads us to a different conclusion from the Tax Court’s. Apparently plaintiffs authority to sign checks for withholding tax payments when due would not have been questioned, at least not by anyone other than Bowman, and not by Bowman if the payments came due in his absence. It would have been plaintiffs authority as a corporate officer, not the delegated task of a subordinate clerk or bookkeeper. If Bowman were injured and disabled for an extended period, plaintiffs duties to the corporation would have been commensurate with his authority. His duties sufficed to bring him within the definition of “employer” in ORS 316.162(3)(b).
The decision of the Tax Court is reversed, and the order of the Department of Revenue is reinstated.

 The Tax Commission returned to the House Committee on Taxation with the final words of ORS 316.162(3)(b), listing sections of the tax law under which the employer’s duties arise. The committee’s concern about “foremen” may well have related to the “control” test of paragraph (3) (a) rather than to paragraph (3)(b). Paragraph (3)(a), however, may concern the customary line between employers and independent contractors rather than relationships within an enterprise. See, e.g., Realty Group v. Dept. of Rev., 299 Or 377, 382, 702 P2d 1075 (1985).

 The Department of Revenue, in OAR 150-316.162(3)(1), has listed the following factors which the Department considers in determining whether a corporate officer or employee is an “employer” for purposes of the withholding law:
“(a) the power or authority to see that the withholding taxes are paid when due;
“(b) power or authority to prefer one creditor over another;
“(c) authority to hire and fire employees;
“(d) authority to set working conditions and schedules;
“(e) authority to sign or co-sign checks;
“(f) authority to compute and sign payroll tax reports;
*247“(g) authority to make fiscal decisions of the corporation;
“(h) authority to incur debt on behalf of the corporation;
“(i) knowledge of the nonpayment of the withholding taxes;
“(j) exercised authority on behalf of the corporation at or after the time the duty arose to collect and hold the taxes;
“(k) exercised authority on behalf of the corporation at or after the time the duty arose to pay over the taxes required to be withheld; or
“(1) performed duties other than those outlined by the corporate bylaws.”
Without endorsing the entire list, we note that plaintiffs authority sufficed to meet at least items (a), (c), (d), (e), and (1).