Restaurants asked to pay up

Published 8:15 pm Saturday, July 14, 2012

First comes a phone call. Then letters, requesting a payment plan. Then, if you still don’t cooperate, there will be bank liens, on-site visits, and any other tool necessary — including arrest and jail time — to get you to pay up.

This is the hard lesson that several Suffolk restaurant owners have learned in the past few years. Suffolk Treasurer Ron Williams says collecting meals taxes from Suffolk eateries has become more challenging in recent years because of the economic hardships many establishments have faced.

Still, he says, it’s his duty to ensure the taxes are paid.

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His methods first gained attention in 2008, when he took law enforcement agents to Burger King restaurants in North Suffolk owned by Samina and Sarmed Azhar. He seized the contents of cash registers and safes to help pay off some of the $20,000 the Azhars owed. Samina Azhar was tossed in jail two months later, and the next year, an auctioneer hawked nearly every single item in the restaurants to a crowd of bidders. The proceeds of the auction went to help pay the bill.

But Williams wasn’t done yet — in April of this year, Samina Azhar was taken into custody on the outstanding warrants for failure to pay meals taxes after Williams’ office got a tip she would be arriving in the state. It wasn’t long before a family member called the office and arranged for payment of the final $3,000 she owed.

Suffolk restaurants are required to charge a 6.5-percent meals tax on every dollar spent on food and drink at their establishments. The total for each month is due to the city by the 20th day of the next month.

“It’s a great system,” Williams said. But it doesn’t always work as intended.

When a restaurant is struggling, he said, the owners sometimes will begin using the meals taxes as operating capital rather than keeping the cash in a separate fund. That usually puts them in danger of not being able to pay on time — or at all.

“The downturn in the economy over the past four years has created more challenging situations,” he said. “We’ve bent over backwards to keep them in business rather than forcing them out of business.”

Williams’ zeal to collect every penny of tax owed isn’t unwarranted, others say. The meals tax is becoming increasingly more important to helping the city meet its budget, Commissioner of the Revenue Thomas Hazelwood said.

“It generates more revenue,” he said. “It pays for more firefighters, police officers, schools. It’s been a healthy revenue stream for a long time.”

It’s been getting healthier in recent years. Continuing a trend of growth that has been going on for years, the amount assessed jumped 9.73 percent in fiscal year 2011 over the prior year to a total of $6.3 million. In mid-June, fiscal year 2012 was on track for a 13-percent increase.

“Suffolk is a growing locality,” Williams said. “This type of growth gives a real shot in the arm to the city’s revenue stream.”

The increases come both from a growing number of establishments and better sales, said Susan Draper, chief deputy for the commissioner of the revenue. She estimated the city sees about 20 to 25 new establishments a year, from Peanut Fest vendors up to full-fledged restaurants.

But with the growth comes a number of challenges, including an increase in the number of enforcement cases.

“Only as a last resort do we take criminal action,” Williams said.

If a restaurant does not file on the 20th of the month, Hazelwood’s office will give a courtesy call, he said. If a restaurant gets two months behind, his office estimates the tax based on the restaurant’s history, sends a bill and forwards the case to Williams’ office.

Quick action is needed, Williams said. By the time it gets to his office, the case is already almost three months behind.

“It can snowball very quickly,” he said. “It’s much easier to put out a small fire than a big fire.”

His office takes a number of actions, including attempting to contact the owners and work out a payment plan. If the owners are uncooperative, such actions as bank liens, on-site visits, seizing of assets and other ramifications can take place.

In the event nothing else works, court summonses are issued.

Keith Ainsley, who works in Williams’ office, said state and federal agencies such as the Virginia Department of Taxation and Internal Revenue Service can complicate matters if they, also, are owed money.

“Sometimes we have to fight to make sure we get ahead of these other guys,” he said.

“Our job is to protect the taxpayers of the city of Suffolk’s interests,” Williams added.

To that end, he said, the successful but long-awaited resolution of the Azhar case spurred his office to take action recently against some other delinquent business owners.

As of mid-June, Bennett’s Creek Restaurant and Marina owed $51,690.55. Williams said his office has tried its hardest to work with the establishment that has been severely damaged twice in recent years during storms.

A man who answered the phone at the restaurant in late June said the owners were trying to get the debt paid off. He took a message for the owners, which was not returned. Last week, he confirmed during another phone call the owners were not interested in speaking for this story.

Other hefty debts include a combined $29,750 for Agora World Fusion and Bistro in North Suffolk and Isle Skye Café inside Lockheed Martin. The two businesses were owned by the same person, and the city didn’t even know about the café inside Lockheed Martin until they visited to do an audit on the defense contractor, Williams said.

A company called Gembrick, the former owner of the Tropical Smoothie on North Main Street, owes more than $17,000, Williams said. He stressed the restaurant is under new management and the current owners are not responsible for the former debts.

Furthermore, as of mid-June, the former Randzz Pub owed more than $5,500; Divine Creations owed $2,200; and P&C Island Express owed $875.

All have court dates coming up in the next several months.

“At the end of the day, we had to protect the city’s interests in these matters,” Williams said. “We try to be tenacious.”