Actions Speak Louder Than Titles: How the Appeal of Monzon Redefined “Responsible Person” Liability

In the landscape of California tax law, the principle of the “corporate veil” traditionally shields owners and officers from personal liability for business debts. However, when it comes to unpaid sales and use taxes, the California Department of Tax and Fee Administration (CDTFA) has a powerful tool to pierce that veil: the dual determination. A recent landmark decision by the California Office of Tax Appeals (OTA), the Appeal of Monzon, has significantly clarified and expanded the scope of who can be targeted, sending a clear message that an individual’s actions and responsibilities matter far more than their formal job title.

The Monzon case is a critical cautionary tale for any employee with financial responsibilities, demonstrating that even those without an official officer title or ownership stake can be held personally liable for a company’s tax debts.

The Appeal of Monzon: A Case Study in “De Facto” Authority

The case involved Prestige SNJ Xpress Auto Body of Lake Forest Inc., an auto repair business that closed in February 2019 owing over $20,000 in unpaid sales tax, interest, and penalties. The CDTFA issued a dual determination, a parallel assessment for the same liability, against Reynaldo T. Monzon, holding him personally responsible for the entire amount.

What made the case unusual was that Mr. Monzon was not an owner of the business, nor was he a formally appointed corporate officer. Another individual held all the official officer titles, including Chief Financial Officer (CFO). Mr. Monzon’s defense was straightforward: he argued that because the corporation never took formal action to grant him the authority of an officer, he could not be held liable as one.

The OTA disagreed. In its ruling, the OTA introduced the concept of a “de facto” officer—an individual who, through their actions, assumes the role and responsibilities of an officer, regardless of their formal title. The OTA conducted a thorough review of Mr. Monzon’s actual involvement with the company’s finances and tax compliance, and the evidence was compelling:

• Mr. Monzon filed the original seller’s permit application for the corporation.
• He was listed on that application as the corporate treasurer and the primary contact for the company’s books and records.
• He signed various documents on behalf of the company with the title “CFO.”
• He was responsible for filing the sales and use tax returns during the liability period.
• He personally made electronic payments to the CDTFA for the business’s tax liabilities.
• He was the primary individual who communicated with the CDTFA regarding the company’s tax compliance and payment plans.
• On a “Business Operations Questionnaire” submitted to the CDTFA, he identified his role as “Accounting/CFO.”

Based on this pattern of behavior, the OTA concluded that Mr. Monzon had held himself out as the CFO and had performed the essential duties of that office. His argument that he lacked formal authority was dismissed because his actions proved he had actual authority. He was, for all practical purposes, the acting CFO, making him a “responsible person” under the law and therefore personally liable for the unpaid taxes.

Beyond the C-Suite: Which Employees Are at Risk?

The Monzon ruling serves as a stark warning that personal liability for sales tax is not limited to owners and formally appointed officers. The CDTFA can and will look beyond the corporate organizational chart to determine who truly had control over financial decisions. Any employee, regardless of title, who has significant control over tax compliance could be deemed a “responsible person”.

This includes high-level accounting staff, bookkeepers, and other managers with financial responsibilities. The key is not the title, but the function. If an employee’s duties include the authority to file returns, direct tax payments, and decide which creditors get paid, they are at risk.

Here are some practical examples of non-officer employees who could be held personally liable in a dual determination scenario:

• The Veteran Bookkeeper: In a small, closely-held company, a long-serving bookkeeper might handle all financial aspects of the business. Even if the owner is the official CEO, if the bookkeeper is the one who manages the bank accounts, prepares and files tax returns, and has the authority to sign checks and decide which vendors to pay, they could be deemed a “responsible person.” If they are aware the company is collecting sales tax but not remitting it, and they continue to pay other bills, they have likely met the “willfulness” test as well.
• The Empowered Office Manager: Consider an office manager who, in addition to administrative duties, is entrusted with the company’s day-to-day finances. This person might not have the title of “Controller,” but if they are responsible for making bank deposits, handling payroll, and using the company checkbook or online banking portal to pay bills, they exercise significant financial control. If they knowingly fail to make sales tax payments while paying other expenses, they are performing the exact actions that lead to personal liability.
• The Hands-On Controller or Staff Accountant: A controller or staff accountant in a larger organization may be delegated the specific duty of managing sales tax compliance. While they may report to a CFO, if they have the independent authority to prepare returns, authorize electronic payments, and interact with the CDTFA, they have a “duty to act” under the law. If they become aware of a delinquency and fail to act—or worse, are directed by a superior to pay other creditors first and comply—they could be found to have willfully failed to pay the tax. Their best defense in such a scenario would be to document their efforts to remit the tax and any instructions from superiors to the contrary.

The lesson from the Appeal of Monzon is unequivocal: the CDTFA will assess liability based on functional reality, not formalities. Any individual who assumes the authority and responsibility for a company’s tax compliance—whether explicitly or implicitly—also assumes the personal risk if those obligations are not met.