It is perhaps common, and understandable, for limited partners and members of limited liability companies to assume that they have ... well ... limited liability with respect to the debts and obligations of the partnership or LLC in which they hold an interest. After all, that is seemingly the purpose behind most states's limited partnership and LLC laws. Yet such an assumption can be - at least in New York - an erroneous and dangerous one to make.

The truth of the matter is that, according to the interpretation of the sales tax statute by the New York State Department of Taxation and Finance, there is no limit whatsoever to the liability of a limited partner or LLC member for the sales and use taxes that should have been collected and remitted by the entity. According to the department, any partner of a partnership or member of an LLC may be held liable for 100 percent of the sales and use tax obligations (including penalties and interest) of their respective partnership or LLC.

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