Howard Fischer/ Capitol Media Services

Officers of corporations that go belly-up owing state sales taxes aren't personally liable for the money, the Arizona Court of Appeals has ruled.

The judges rejected arguments by the state Department of Revenue that the officers and directors of now-defunct Action Marine Inc. had to pay the money owed to the state. The court said that isn't the way Arizona law is crafted.

Court records show that Action Marine was being liquidated in proceedings in U.S. Bankruptcy Court in Arizona.

While that case was pending, the Department of Revenue requested that the firm file returns for the amount it owed in transaction privilege taxes. The company reported more than $51,000 in taxes but never made payment before liquidation was completed.

After the bankruptcy, the state filed a collection action against the directors and the company.

Maricopa County Superior Court Judge Mark Armstrong concluded that they are liable for the tax "as sole owners, officers and directors of the defunct corporate defendant.'' That led to the appeal.

Appellate Judge Sheldon Weisberg, writing for the unanimous court, said there is no state law that specifically imposes personal liability on corporate officers or directors.

Attorneys for the state said, however, said the Tax Code says that any person who "fails to remit'' the money for the transaction privilege tax "is, in addition to other penalties provided by law, personally liable for the total amount.''

But Weisberg said the state was taking a too-literal view of the word "person.'' He specifically noted the Tax Code says a person can be the same as a company. It includes individuals, firms, partnerships, joint ventures, associations, corporations, estates and trusts. Beyond that, Weisberg said that the question of liability for unpaid taxes turns on the difference between those who are obligated to do something versus those who are simply authorized to do it. Put more simply, he said that tax statutes which impose liability "applies only to those person on whom another statute imposes an affirmative obligation to act.''

And he said nothing in law specifically obligated the officers of Action Marine to pay the taxes.

The judge conceded that this might be considered a close call. But he said that when there are arguments on both sides, "we interpret tax statutes strictly against the state and resolve all ambiguities in the taxpayer's favor.''

Finally, the appellate court rejected arguments by attorneys for the state that it should follow precedents from other states which have found corporate officers liable for unpaid taxes. "While this is true, unlike Arizona, almost all such jurisdictions have statutes that specifically subject corporate officers to personal liability for failing to remit collected corporate taxes,'' Weisberg wrote. Arizona, by contrast, does not.