By Robert A. Stiberman, Esq., Member of The Florida Bar since 1998, representing Florida bankruptcy clients since 2009. Last reviewed: September 2026.
Business tax debt is not like ordinary business debt, and treating it that way is how owners get personally ruined. Much of what a Florida business owes in sales tax and payroll tax is “trust fund” money it collected or withheld on behalf of others, which generally cannot be wiped out and which the government can pursue against you personally. The good news: filing Chapter 11 or Subchapter V stops aggressive tax collection immediately and lets a business pay its priority tax debt in full over as long as five years while it keeps operating. This page explains what is dischargeable, what is not, where the personal exposure comes from, and how reorganization actually helps.
Why Business Tax Debt Is Treated Differently
The single most important distinction in business tax debt is trust fund vs. non-trust fund.
Trust fund taxes are amounts a business collects or withholds that belong to someone else and are merely held “in trust” until remitted, the sales tax you collect from customers and the income and FICA taxes you withhold from employees’ paychecks. Because that money was never really the company’s, the law treats a failure to hand it over as close to theft. Trust fund taxes are priority claims, they generally cannot be discharged, and responsible individuals can be held personally liable for them.
Non-trust-fund taxes, such as the employer’s own share of FICA or corporate income tax, are treated more like other tax debt, and older amounts can sometimes be discharged or paid as general claims. Sorting your tax debt into these buckets is the first thing we do, because it drives everything that follows.
Florida Sales Tax: You Are Holding the State’s Money
When your business collects Florida sales tax, that money is not income, it is the state’s money in your hands. Florida law treats collected sales tax as state funds, and failing to remit it carries serious consequences beyond the tax itself:
- Personal liability for responsible persons. Under Fla. Stat. § 213.29, a person who is responsible for collecting and remitting sales tax and willfully fails to do so can be assessed a penalty of up to 200% of the unpaid tax, personally, in addition to the tax owed.
- Criminal exposure. Willful failure to remit collected sales tax can be charged as theft of state funds, and the charge escalates with the amount involved.
- Aggressive collection. The Florida Department of Revenue can issue warrants and levies and can revoke your sales tax registration, which effectively shuts a business down.
This is why a sales-tax problem is urgent: the exposure is personal, it grows fast with penalties and interest, and the state has powerful tools.
Federal Payroll Taxes and the Trust Fund Recovery Penalty
The same logic applies, even more harshly, to federal payroll taxes. The portion you withhold from employees’ wages (their income tax withholding and their share of Social Security and Medicare) is trust fund money. If a business fails to deposit it, the IRS can assess the Trust Fund Recovery Penalty under 26 U.S.C. § 6672 against any responsible person who willfully failed to pay, an owner, officer, bookkeeper, or anyone with authority over the funds, equal to 100% of the trust fund portion. That liability is personal, and it generally survives a business bankruptcy. The employer’s own matching share of FICA is not a trust fund tax and is treated differently.
What Chapter 11 and Subchapter V Actually Do About Tax Debt
Reorganization does not make trust fund taxes disappear, but it does three powerful things:
- Stops collection immediately. The automatic stay halts tax levies, bank seizures, warrants, and registration-revocation actions the moment you file, giving the business room to breathe and to propose a plan.
- Spreads priority taxes over up to five years. Under 11 U.S.C. § 1129(a)(9)(C), priority tax claims must be paid in full, but they can be paid in regular installments over a period ending no later than five years from the order for relief. For a business drowning in a lump-sum tax demand, converting it into a manageable five-year payment is often the difference between surviving and closing.
- Freezes the pile-up. A confirmed plan provides a structured, court-supervised path to pay the tax, which stops the cycle of ever-growing penalties and collection pressure.
One firm rule: you must stay current on taxes going forward. A business that keeps falling behind on post-petition taxes will lose its case. Part of our job is building a plan whose payments the business can actually sustain while remaining current.
What Reorganization Does Not Do
We believe in setting honest expectations. Chapter 11 will not:
- Discharge trust fund taxes. Collected sales tax and withheld payroll taxes are generally non-dischargeable priority claims, they get paid through the plan, not erased.
- Erase your personal responsible-person liability. The § 213.29 penalty and the federal Trust Fund Recovery Penalty attach to you, not just the company, and a business filing does not by itself remove them. This is why we look at your personal exposure alongside the business case, and, where needed, coordinate a personal Chapter 7 or Chapter 13 as part of an overall strategy.
Which Taxes Might Be Dischargeable?
Not all tax debt is trust fund debt. Older income taxes (for an individual, or a business’s non-trust-fund tax) can sometimes be discharged or treated as general unsecured claims if they meet strict timing rules, generally, the return was due more than three years ago, was filed more than two years ago, and was assessed more than 240 days ago, with no fraud or evasion. These rules are technical and fact-specific, and getting the dates right can significantly change what a plan costs. We analyze each tax year to see what qualifies.
How We Help Florida Businesses With Tax Debt
Robert A. Stiberman has practiced Florida bankruptcy since 2009 and is admitted in all three of Florida’s federal districts. When a business comes to us with sales or payroll tax debt, we separate the trust fund taxes from the rest, quantify the personal responsible-person exposure, stop active collection with the automatic stay, and build a plan that pays the priority taxes over up to five years while keeping the business current going forward, coordinating your personal exposure at the same time. Tax outcomes depend on the specific facts and are never guaranteed.
Frequently Asked Questions
Can bankruptcy wipe out my Florida sales tax debt?
Generally no. Collected sales tax is trust fund money and is a non-dischargeable priority claim. However, Chapter 11 or Subchapter V can stop collection and let you pay it in full over up to five years, which is often the real relief a business needs.
Am I personally responsible for my company’s unpaid sales or payroll taxes?
You can be. Florida’s § 213.29 penalty (up to 200% of the tax) and the federal Trust Fund Recovery Penalty (100% of the withheld payroll tax) both reach responsible individuals personally. We assess this exposure and address it as part of your strategy.
Will filing stop a Department of Revenue levy or a registration revocation?
Yes. The automatic stay halts levies, warrants, and most collection actions the moment you file, including efforts to revoke your sales tax registration.
Do I have to keep paying taxes during the case?
Yes. Staying current on post-petition taxes is essential, a business that falls behind again during the case risks dismissal. We build the plan around keeping you current.
Can any of my tax debt actually be eliminated?
Sometimes. Older income taxes that meet strict timing rules may be dischargeable or paid as general claims. Trust fund taxes are not. We review each year to see what qualifies.
Talk to a Florida Business Bankruptcy Attorney
If sales tax or payroll tax debt is threatening your business, or you are worried about personal liability, do not wait for a levy or a revocation notice. Call 954-922-2283 or request a free, confidential consultation. We will separate what can be reorganized from what must be paid, and give you a clear plan.
This article is general information, not legal or tax advice. The treatment, dischargeability, and personal-liability consequences of any tax depend on the specific facts of your case, including the type of tax, the years involved, and your role in the business.