Why the Texas Comptroller Can Block an L-Cert Over an Officer’s Delinquent Taxes From an Unrelated Entity, and How That Hold Is Cleared

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The Comptroller’s signature on TABC’s Required Certifications form states that “none of the persons making this application are indebted to the State of Texas.” A tax debt of another company can reach a new application when it has become the personal debt of someone behind the applicant. Texas tax law makes that happen in two situations: an individual who controlled the collection or payment of trust-fund taxes, such as sales tax, and willfully failed to pay them, or an officer who took part in a fraudulent scheme to evade taxes. The hold clears when that debt is resolved with the Comptroller.

What the Comptroller certifies

The Comptroller block on page 6 of the Required Certifications form (L-CERT) certifies two things:

  1. the applicant holds, or has applied for and satisfies all legal requirements for, a sales tax permit, or is not required to hold one; and
  2. “none of the persons making this application are indebted to the State of Texas.”

The statutory anchor is Section 11.46(b) of the Alcoholic Beverage Code, which directs TABC to deny an original retail permit application that lacks the Comptroller’s sales tax certificate. Separately, Section 11.46(a)(5) allows TABC to deny an application if the applicant is indebted to the state for taxes, fees, or penalties imposed by the Alcoholic Beverage Code or TABC rules.

How another company’s taxes become a person’s debt

A company’s unpaid taxes are normally the company’s debt. Two provisions of the Texas Tax Code can make them an individual’s debt as well:

  • Responsible individual liability. Tax collected from customers is held in trust for the state. Under Tax Code Section 111.016(b), an individual who controls or supervises the collection of that tax, or the accounting for and paying over of it, and who willfully fails to pay it, is personally liable as a responsible individual for the unpaid amount. Dissolving the company does not end that liability.
  • Fraudulent evasion. Under Tax Code Section 111.0611, an officer, manager, director, or partner who took part in a fraudulent scheme or plan to evade taxes is personally liable for the tax, penalty, and interest, including the 50 percent fraud penalty. The Comptroller assesses that person the same way it assesses other taxpayers.

Once either liability exists, the debt belongs to the individual. If that individual is among the people making the new application, the statement the Comptroller signs, that none of them owes the state, would not be true, even though the new company itself owes nothing.

What the form leaves open

The form does not define “persons making this application.” Which individuals the Comptroller checks for a given application, and whether it looks at other companies they are connected to, is a question to put to the Comptroller’s office for that application.

Clearing the hold

The certification turns on the debt, not on the TABC application, so the fix is with the Comptroller:

  1. Identify the account. Ask the Comptroller’s office which taxpayer and which liability are behind the refusal to sign.
  2. Confirm whose debt it is. A liability assessed to the old company alone is different from one assessed to an individual as a responsible person or under the fraud provision.
  3. Resolve it. Pay the liability, or pursue whatever resolution or challenge the Comptroller’s procedures allow for that assessment, and obtain the signed certification once the account is clear.

A separate issue can arise on the applicant’s own account. The Comptroller may require security, such as a bond or certificate of deposit, as a condition of a sales tax permit, up to the greater of $100,000 or four times the average monthly tax liability (Tax Code Sections 151.251 and 151.253).

Checking before filing

Before the application goes in, each owner, officer, and manager should confirm with the Comptroller that no tax liability is assessed against them personally, and list every other company in which they have handled tax collection or payment. A debt found at that stage can be dealt with on the applicant’s schedule rather than at the Comptroller’s counter.

This article is general information about Texas alcoholic beverage law, not legal advice, and reading it does not create an attorney-client relationship. Statutes and TABC rules change; confirm current requirements with the Texas Alcoholic Beverage Commission, the relevant city or county, or a licensed Texas attorney before acting.

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