In Tough Times, the Tax Bill Stays Behind
Businesses Delinquent Paying 'Hamburger Tax'
Last updated Sunday, August 31, 2008 5:39 PM CDT in News
By Skip Descant
THE MORNING NEWS
FAYETTEVILLE -- It's not unusual for some businesses to leave a few bills on the table in lean economic times. For some restaurants, the check not going in the mail these days is the 2 percent hotel motel restaurant tax collections.
"It's summertime, and even though we're on Dickson Street, it's summer and things have been slow," said Peter Steinhart, owner of the 1936 Cafe in Fayetteville.
As of Aug. 6 the restaurant had fallen almost $1,000 behind in the reporting of its restaurant taxes. On Aug. 13, Steinhart paid $922 in back taxes to the city of Fayetteville accounting department, according to Shelly Turberville, accounting manager.
Bars, restaurants, hotels and motels in Fayetteville -- and many communities -- are required to collect a 2 percent "hotel, motel and restaurant" tax on the food and beverages sold. The money must then be turned in to the city's accounting office on a monthly basis.
But in the restaurant and bar business, when times get tough, it's often the tax bills that get left behind while other more immediate costs are covered.
"If it comes down to paying payroll or suppliers, or your taxes, the taxes are going to be the first to go, because the other two are going to be the first to walk on you," said Kit Williams, the city's attorney. It's often Williams' job to track down nonpayers and hopefully get them to settle their bill with the city before legal action is taken.
"But let me also say that most of our restaurants do a great job at paying their monthly taxes," added Williams, who noted more than 90 percent of food and drink establishments pay their taxes on time every month.
"I mean, the last thing I want to do is not pay my taxes," remarked Steinhart. "It's just not worth the trouble. But sometimes, it just happens."
Mama Dean's Soul Food, a popular lunch spot on School Avenue, fell about three months behind, said Terry Morrison, owner of the restaurant, which has been in operation for about a year. According to Turberville the restaurant paid $1,637 on Aug. 4, catching Mama Dean's up from back taxes owed in February through May.
"June is still due," said Turberville. July taxes are due Tuesday.
"I was busy, and it just slipped my mind," Morrison said, when asked why Mama Dean's owed several months of back taxes. "I do some of the cooking here and most of the books and it just fell between the cracks."
Williams reported at the last Fayetteville Advertising and Promotion Commission meeting that his office had collected $11,334 in overdue taxes in July. So far this year, the city has taken in more than $60,600 in delinquent hotel and restaurant taxes. More than $30,600 in back taxes is still owed. For seven of the restaurants on the city's list of businesses with overdue taxes, it's unclear how much they owe, Turberville said.
"The people that we know how much they owe, it's because they've been to court and turned in their paperwork," Turberville explained. Without information regarding sales and other financial reporting, city officials say they can not accurately say how much of the tax money some businesses owe.
Beginning in 2001, the city began to aggressively go after the overdue taxes.
"We collected $100,000 in the first year," Williams recalled. "It never was these guys' money, so we're going to pursue that as hard as we can."
Twenty restaurants or bars were identified as owing back taxes in Williams' August report. For many, such as the restaurant Benson or the Dart Room, the establishment has been closed and the owners have been served a criminal summons. The legal trail to collect the money can go back years.
For example, Lloyd Hardison, owner of the defunct Broken Ark Pizza Inc. of Bentonville, closed four Dominoes Pizza locations in Northwest Arkansas, including locations in Fayetteville, in July 2002 after filing for Chapter 7 bankruptcy. According to the city's report, Hardison owes $7,690 in back restaurant taxes and has an active criminal summons against him.
The Bentonville Advertising and Promotion Commission recently authorized that city's Convention and Visitors Bureau to file certificates of indebtedness against eight businesses owing a total of $3,500.
Failing to pay taxes, say observers, is almost always a sign of fiscal struggles.
"We've had a few instances where a restaurant comes in and says, 'Oh, we didn't know,'" Williams said.
"But generally, if a business is falling behind on their taxes, it's because they're in trouble."
By The Numbers
HMR Taxes
HMR Taxes Collected in Fayetteville
2005 -- $1,943,930
2006 -- $2,073,923
2007 -- $2,030,913
2008 -- $1,246,939 (January-July)
Source: Staff Report
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spun gold wrote on Sep 1, 2008 8:47 AM:
Not already registered?
recross1 wrote on Sep 1, 2008 7:54 AM: