PART I: A look into prosecuting sales tax delinquents
It’s no secret when a business is having trouble paying city sales taxes — the city takes out an advertisement in the newspaper each quarter and lists each delinquent business and how much they owe. In the latest ad, published in late March, CBJ listed 40 businesses that owed a total of about $648,000, as well as 11 inactive businesses that had closed their accounts with CBJ but still owed a total of about $65,000.
The intent behind the “public shaming,” as City Sales Tax Administrator Joan Roomsberg described it, is to encourage merchants to comply with the city sales tax code, lest they end up on the naughty list.
“My whole goal is to get them within that period of time and get them into compliance,” she said. “And I would love to do a publication that says ‘zero’ and ‘everyone filed.’ That would be my goal. I’m not going to see it in my time that’s left, but it is a collection tool. That’s what it’s for.”
Consequences of having such dirty laundry aired can be tangible — customers can and do boycott delinquent businesses, while the business community and fellow merchants raise eyebrows and wonder what’s going on.
“I read it,” said Betsy Fischer, co-owner of Foggy Mountain Shop, whom the city lauds as a responsible merchant who pays taxes on time. “I just think ‘Wow, what were they thinking?’ Or they must be going through some problems that are bigger than obviously the sales tax. If they can’t pay their sales tax, then something’s going on, they’re having other problems.”
“God help them,” she added.
But from that early stage of delinquency, how then do criminal cases arise? And given the recent wave of cases that have ascended to the criminal level — about seven merchants have recently or are presently facing criminal charges — why are we seeing so many cases being prosecuted?
To help answer the latter question, City Attorney John Hartle explains it has always been the city’s policy to go after delinquent businesses in order to protect the city’s coffers. He said he didn’t have an exact number but the city has prosecuted “dozens” of businesses for failing to pay city sales taxes since it became the law.
“Collecting sales tax is an important part of our job and we’ve always done that to a degree and use what tools we have,” he said. “It’s been the program for a long time.”
That policy, however, did receive renewed emphasis in light of the city’s budget shortfall, he said. The general government budget, the portion funded by local sales and property taxes, had a shortfall of $4.5 million in fiscal year 2011 and a $3.2 million shortfall in fiscal year 2012, according to city figures.
“I think we’ve ramped up the effort,” Hartle said. “I know I spoke about it in my evaluation to the Assembly - I gave them a list of all the things I’m doing, and I said that considering the budget shortfall, we’re trying to make a greater effort.”
That conversation took place during an executive session about a year and a half ago, he said.
“It was obvious to everybody,” he added. “I’m on the leadership team of the city, and it was obvious we were running into a budget shortfall, and one part I could do is increase collection efforts.”
A gift shop owner, a cab business owner, a realtor, and a pub owner have all been prosecuted in the past year and half. The owners of a clothing boutique, a salmon bake and a restaurant owner are still presently facing criminal charges and their cases are still pending in court. (All those business owners either could not be reached for comment or declined to comment for this article.)
Roomsberg, who has been the sales tax administrator for 19 years and who works hand-in-hand with several departments including the law department, says the recent increase of charges may also be attributed in part to the fact that the city staff now has a step-by-step process firmly in place.
“I can definitely say that we have increased our number of charges, and I think that has a lot of factors coming into play there,” she said. “New personnel coming on, both here and in the law department, it’s establishing a process of how that’s going to work, and what steps need to be taken in order for that to happen. And I believe we’re kind of, after all this time, kind of at this window. We have all that in place now and I think that’s why you’re seeing an increase in the law department going forward with more (cases).”
As a steady stream of sales tax cases continues to be heard in criminal court, it’s worth examining the process of how these cases originate and evolve to eventually landing in the criminal system. Roomsberg spoke further with the Empire to shed light on the subject.
The first thing to know, she says, is that most businesses do pay their sales taxes. Of the approximately 3,900 registered businesses in Juneau, only a very small percentage of them do not pay, she said. As the figures listed in the ad indicate, only 51 businesses did not pay, plus 100 businesses that did not file tax returns this past quarter.
For those that haven’t paid, they begin receiving bills accompanied by notices informing them of their delinquency and how much they owe. Most merchants respond to this “letter campaign,” as Roomsberg calls it, because the city will begin to threaten to publish the business name in the newspaper alerting the public to the fact that they are delinquent.
If a business ignores the letters and is unresponsive, after 90 days the revenue collector working in conjunction with the sales tax office sends out two collection notices.
At this point, most people respond, she said, since they do not want to be listed in the newspaper.
But if there’s still no response, and if the business owes less than $10,000, then the city will then file a small claim action. If the business owes more than the $10,000 threshold, then it is referred to the law department.
From there, Hartle says the law department tries to collect the amount due through civil means, which can include entering into a “confession of judgment” with the merchant. That’s a way to settle a civil lawsuit in which the city agrees not to enforce the judgment so long as the merchant enters into and keeps a payment plan. If the payment plan fails, the city can sweep their bank accounts to collect.
The city can also protest a business’ liquor license, which is a separate process.
If civil means fail, that’s when a case escalates to the criminal justice system. Hartle calls it a last resort.
“We try other things first,” Hartle said. “... People will pay attention when they get notices and then get themselves on a payment schedule to pay it back, then the city’s pretty reasonable about that. But then when they fall off that schedule or if they’re unresponsive, then we’ve got to go the hard way. We try to go the easy way. Usually that works.”
It’s an easy case for the city to win at trial, Hartle says. Prosecutors just put Roomsberg on the stand to testify whether they’ve paid sales taxes or not.
“Did they pay their taxes? No. New witness,” Hartle said.
Hartle says he hears every excuse in the book from merchants trying to justify not paying sales tax, as well as the usual line from the business owner pleading with the judge to keep the business open so they can pay back the money they owe. Hartle says he is particularly unsympathetic to that argument.
“We’ve heard that argument many times,” he said, stressing, “It’s the public’s money. The sales tax by law never belongs to the merchant — the merchant does not own that money. It’s held in trust for the municipality by law, and so the city’s not really in the position to kind of loan them the money, allow it to go unremitted while they earn money to pay it back. I think we take a tougher line than that.”
The process of bringing a business to court is purposefully slow to work itself up to the criminal level. Hartle says he tries to keep at least one to two cases active at all times. Hartle noted it is worth pursuing criminal charges if all else fails.
“Our job at the city attorney’s office is to represent the city treasury, and the public in general pays their taxes, and it’s only fair if everybody does,” he said. “And again, we try to go the easy way, and if that doesn’t work, we go the hard way.”
Roomsberg says she believes when cases end up in criminal court, it increases the number of non-paying merchants who then scramble to pay their unremitted tax.
“I do believe that we’re seeing a higher level of compliance, people filing on time,” Roomsberg said. “I think it does send a message out there that this is what could happen if you continue to push it.”
• Contact reporter Emily Russo Miller at 523-2263 or at firstname.lastname@example.org.