Prosecuting sales tax delinquents, Part II:
Patrick Peterson, the bar owner of PP’s Douglas Inn and the first person who has ever served jail time for failing to pay city sales taxes, told the judge during his sentencing hearing last year that the city sales tax money he was supposed to collect and turn over to the city, he used to bail his daughter out of jail.
“My daughter is my only child, and her father’s love is unconditional,” he said at the time. “... It took money from every resource I could find to do it.”
It turned out the 80-day jail sentence cost him more than he thought it would — his left foot. Peterson said he contracted an MRSA staph infection at the jail, and his foot had to be amputated.
Sitting in his truck with his crutches beside him, in the parking lot of his bar as someone took out the trash last week, Peterson did not agree to be interviewed for this article. He did say sarcastically, however, “I’m real happy with the city right now.”
The reasons why business owners get into trouble with remitting sales tax is often complex and heart-wrenching, whether it’s to help out a family member, health problems or business woes.
When the economy “bellied-up”, as Bob Droddy of Bob Droddy Concrete said, his business suffered, and he had to do what he could to survive. He was listed as owing about $2,700 as of March 13.
“You just do what you have to do,” he said, also adding that he just got out of the hospital with a new hip.
He said he put his family first, and his business second. He added that he hopes to get the amount paid off in the next 60 days.
Kathleen Buell of Night Moods, a store that makes home-made garters and was listed in the latest March ad as owing about $1,000, shared a similar story.
“The economy just took a nose dive, and I was trying to pay rent, electrical and everything, and all of a sudden the money that was put away for taxes was gone,” she said in a phone interview.
On top of that, her daughter’s kidneys failed, and Buell had to leave town for six or seven months while her husband and a friend manned the store and tried to keep it open.
The business fell behind for four quarters in a row — two she attributed to the fact that she didn’t have the money, the other two quarters were due to accounting errors.
“I think we’re back on track, I think the business will make it,” she said. “I’m stubborn. It’s amazing we’re still open. I have a very supportive husband, we’re trying.”
She has been working with the city on the situation, which she recommends any business in trouble do.
“A phone call is so much easier than going to jail,” she said.
She added her business has filed on time in the past, and she thinks that city sales taxes are important since it supports the community.
“The city has been helping and tolerant of our situation,” she said. “And as I get money, I send money in. I don’t deny that I owe them any of it. ... The city sales tax, in my opinion, they’re just doing their job. ... It’s probably a very thankless job, and I’m grateful that they’re doing it. I love living in Juneau, and it’s how our city is supported.”
Christien Therrien of Aukeness Charters has been coming to Alaska for 23 summers as a boat captain offering tours of Tracy Arm, whale watching and fishing trips. Business was great for the first five summers or so, he said, but it pretty much tailed off after that. He kept doing it because he loved it, but recently quit since he couldn’t even break even, he said. His business owed $728 as of Sept. 12, 2012, and about $615 as of Dec. 4, 2012.
“I had to finally just throw the towel in,” he said, adding he sold his last boat in January. “I don’t know how people do it.”
He said he overpaid the city in sales taxes one year, but never saw that money back, which disgruntles him.
“You can’t fight city hall,” he said.
Contrary to what one might think, purposefully pocketing city sales tax money for the business owner’s personal gain is probably not the most common reason businesses get into trouble for failing to pay city taxes.
More often than not, it comes down to mismanagement, disorganization or sloppy bookkeeping, says Joan Roomsberg, the city sales tax administrator for the past 19 years.
Business owners collect sales tax from purchases on behalf of the city and hold that money in trust until it’s submitted to the city on a monthly or quarterly basis. That kind of system requires merchants to be diligent in bookkeeping so they know how much they owe and also disciplined enough to keep from dipping into the sales tax money they’re collecting.
Roomsberg’s advise? Separate the two pots of money by keeping the business profits in one bank account and the sales tax money that is being collected in another account.
That way, Roomsberg said, “At the end of the quarter, your money is sitting in the sales tax account, ready for you to pay. And if they don’t do that, it all goes into one account, and they have their expenses and whatever else is going out, you come up at the end of the quarter, and say ‘Oh, I don’t have the money I need to pay.’ And I think they’re not managing that well, and they come up short.”
Teresa Busch, owner of Plant People, which provides indoor plantscaping services for homes and businesses, referred to it as the separation of church and state. She said she has seen other merchants get into trouble when they end up using the city sales tax money to cover business expenses, thinking that they’ll be able to pay it back in time.
“It doesn’t work like that, and they get in trouble,” she said. “The best advice I can give you is separate everything because that’s not your money. You’re responsible for taking it in, and when you get a nice chunk of it in your bank, you look at that money, and you’re like ‘That’s a lot of money.’ And they just don’t look, and it all gets meshed together. It’s not your money to look at as an investment to your business.”
Busch, whom the city regards as a responsible business owner for paying sales taxes on time, said she learned to separate her accounts like that after the first time she had to pay taxes after her business opened in the early 2000s.
“The first time that we had to pay it, I’m like, that money is all in your bank account, and you’re looking at the bottom line in your bank account, and you’re not thinking about the sales tax. It’s all mixed in there. ... And I just went ‘Oh, this isn’t good.’ When you’re doing stuff on the fly and placing things, you just have to be able to separate the two.”
She says it takes just about a weekend’s worth of time to calculate everything before filing the tax every four months.
“It’s one of those things that’s always a pain to have to do, but it’s part of doing business,” she said.
Betsy Fischer, who owns Foggy Mountain Shop with her husband, said the business was randomly chosen to be audited by the city sales tax office shortly after it first opened about 30 years ago, which helped set up their current system for paying taxes. They were given advice on how to keep a daily sales journal detailing sales and non-taxable sales which makes it easier to calculate how much they will owe on a quarterly basis.
“I said ‘Oh, it’s hard to keep track of this, what do I do?’ And she said do it this way,” she said. “I’ve done it that way ever since, and I’ve fine-tuned it over the years.”
Fischer, who is also considered a responsible merchant who pays on time, said she also learned bookkeeping from her mother, who did the books for the family tire store in Annapolis, Md.
“She taught me a lot: you count money this way, and you list things this way, and she was just super organized, so that’s how I learned it,” Fischer said. “So then when I came up there and started my own business, the group of people I was with, I was like ‘Well, I know how to do bookkeeping.’”
She remembers once she was late for paying when the business had just opened in 1974 — the memory is “burned into her brain,” she said.
She had gone to Skagway for the Klondike Relay Race, and when she came back to Juneau, she found the city sales tax check still sitting on her counter.
“I had written it out, I had filled out everything. And I went running down to the city sales tax office, and they’d closed, and they didn’t have the drop box then either, so I had to wait until the next business day, I think that was a weekend or something. But I had to go in and I pleaded with them, pleaded with them not to charge us a penalty because we were really, really poor at the time. And they wouldn’t. They wouldn’t not charge us. I was so upset, so mad. I don’t know what (the amount) was, but if it was only $50, it hurt. Now I feel like whatever, 50 bucks, but back then I was really upset, and I paid it, and I was really mad that they didn’t give the poor little business owner a break.”
“They’re actually a little nicer now,” she added. “They still follow the rules, but they are understanding if you make a mistake or didn’t report something properly, and if you catch it and then tell them, they’re like that’s OK, we’ll just fix it and adjust it.”
She said she considers paying and collecting city sales taxes her civic duty.
“The thing is it supports the community,” she said. “We’re paying our sewers and roads and schools and police and fire. It’s like a civic duty to pay your sales tax — the customer pays the sales tax, the business owner collects the sales tax and gives it to the city. We’re supporting our city, and so if you live here, it should be your privilege to pay sales tax. People that try to duck out of it are not good, it’s not a good thing. I won’t say they’re bad people, but I don’t think they understand what they’re doing, the implication. Somebody’s got to pay for it. The public works fairy is not going to come down out of the sky and pay for this stuff, you know.”
Dave Ottoson, owner of Rainbow Foods, says he recalls back in the ‘70s when collecting sales taxes literally meant putting money in a sack and holding onto it before giving it to the city every quarter. Now with technology, it’s a lot easier to keep track of how to pay, he said.
“Now we have a point of sale system that keeps track of everything, but back then everything was paper, and we had to figure out just based on our bank deposits what our sales were for a period, and then, you know, figure out how much was exempt and it was a lot more complicated. Now a lot of businesses, it’s all electronic, it’s a lot easier to just print a report and see how much you owe,” he said.
He noted he also appreciated the collector’s discount the city gives to merchants for collecting the tax — businesses that file monthly can get $50 a month and businesses that file quarterly can get up to $100 a quarter.
“I guess it makes it worth the trouble,” he said, adding, “That, and not going to jail.”
• Contact reporter Emily Russo Miller at 523-2263 or at email@example.com.