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Tuesday, October 09, 2007

Seven West Seized!

Just a sad recognition of another Lafayette food joint getting caught failing to pay taxes - 7 Est was a pizza bar in old town that has "seized" across the door this morning. Hopefully this prominent spot on old town's north end won't be vacant for too long. Hopefully we'll get a different menu than pizza in there too...




A business like that collects sales tax on food and beverage for the city, county, and state. It is a "collection" point.

The sales tax collected was not its money. The money was not its property. Lafayette had worked out a payment plan per its liquor license. It was the state that lowered the boom.

As of last week, folks tell me you may not get your wish. We'll see.

The state sponsored auction is this week.

Doktorbombay said...

It would be very interesting to know how many other businesses in Lafayette have "worked out a payment plan" to pay their city sales tax. And, what those workouts cost the taxpayers. What are the terms? Are they interest free?

If a business is doing so poorly it's gotten behind on forwarding sales tax collections to the appropriate jurisdictions, what makes the city believe they'll ever collect?

As part of the city's review when deciding to "workout a payment plan" do they check to see if the business is current with the state?

Seems to me these "workouts" just delay the inevitable.



The only ones I have seen were with regard to liquor license renewal. That's what happened here.

I once raised the issue that perhaps some businesses may not be as forthcoming and got shelled by the Chamber of Commerce for even suggesting that (I knew it happens because I had personally audited a business in the city). And of course I found out about the "non-existent" Bunker's Bagel shop that was open for 3 years a lot later.

Now Dan's comments imply he doesn't want any financial over sight by us council members. So based on that, how could one suggest what you are suggesting?

To my knowledge, the city does charge interest. But it works off of estimates, not actuals.

Alex Schatz said...

How do Dan's comments imply any particular stand on Council policy?

As I recall, Hunan Garden got into a payment plan deal with the City of Lafayette. This was for liquor license violations only?

I can think of a number of businesses that were seized not because they weren't profitable, but because they were mismanaged. Mismanaged as far as tax law goes at least.

If there's a policy question at hand, it's basically the same one that a landlord faces in this situation. Do you want to evict a tenant who has the potential to keep up with the cashflow, when vacancy is guaranteed to produce nothing and require major hurdles to getting a new business up and running? At some point, the decision to evict or seize a non-paying business must be made, but not before some effort at remediation is made. That's only rational.

Doktorbombay said...

Certainly, businesses are not seized for being unprofitable, ever. There’s no law against operating a business at a loss.

But, not remitting collected sales tax is the epitome of mismanagement. Any business owner willfully withholding collected sales tax knows it’s just a matter of time before they’re found out and forced out of business. If they’re not remitting, there’s no financial benefit to the city to allow them to remain open. In fact, allowing them to remain open allows them to continue to fleece the consumer by collecting a tax they’ll probably keep in their own pocket.

Landlords can certainly decide to work out a payment plan for tenants who fall behind. There is no fiduciary responsibility associated with rent payments. Sales tax is completely different. Sales tax does not belong to the business owner. Keeping it is tantamount to theft. The city is doing a disservice to its citizens by allowing criminals to continue to do business.

There are stringent laws about collecting sales tax, keeping proper records to keep those taxes separate on the business books, and remitting those taxes on time. The State, it would appear, takes those laws seriously. This conversation would imply Lafayette doesn’t take it as seriously as the State.

Non home rule cities have no choice. The State enforces the collection/remittance regs for non home rule cities, counties, and state taxes. As a home rule city, Lafayette should be all over the process of collecting/remitting sales tax. The Finance Department should be auditing all businesses operating in Lafayette to assure the city is receiving what it should on a timely basis. And, because of the Bunker’s Bagels situation, this process should assure that any business operating in town has a business license. Allowing a business to operate for 3 years with no license is unforgivable.

So, the State seizes the business, holds an auction, and gets some of the taxes back from the proceeds of the auction. What does the city get for it's mismanagement of it's sales tax collection process?



I only learned about this seizure issue from looking into buying a "seized" business in town years ago. I also by chance stopped in at 7 West when the auctioneer guys were there and were willing to talk to me as a city official. It's not like the city council gets reports on sales tax delinquencies. To date, there has been no communication on this seizure. Lafayette will get whatever is let over after the state gets its money from the auction.

Now you say its mismanagement. I can tell you what the city finance department tells me. But yet when I bring up fiscal over sight and management issues, it's heresy to some.

Yes, it is theft. Sales tax collections are due the 20th of the following month. If submitted on time, the business gets a small rebate for their efforts.

So here is the interesting part. 7 West was in the name of one person. But essentially the "co-owner" of the place wants to lease out the Chips location to start a restaurant there on Nov. 1. No liquor license is involved. So a person party to the 7 West seizure will be allowed to do business in town again???

Doktorbombay said...

Well, if the "co-owner" was not legally an owner of 7West, the city can't really stop them. Let's hope the Finance Department pays closer attention to sales tax payments on the new restaurant.

Local fiscal oversight and management issues are more important than passing non-binding resolutions about national or global political issues.

Alex Schatz said...

I don't think we're disagreeing about much, but I do have to strenuously object to the notion that what is rational for a landlord is somehow illegal or unethical for a city government because they are fiduciaries of public money.

The fiduciary duty is to collect sales tax to the fullest extent. If the mission is to optimize sales tax, it's easy to lose the forest for the trees. If the City instantly seized and shut down every business after it fell behind on sales tax payments, this would be a disaster both financially and from the standpoint of economic development.

My understanding is that the City of Lafayette does need to enhance enforcement of sales tax remittance. But this does not mean that the problem is failure to shut down businesses. From what I understand, the problem in Lafayette is likely the number of business who are not yet on payment plans, maybe not even on the radar screen, that should be, as opposed to the steps taken with those cases that do get brought to light.


7 West and the Lafayette Liquor Board (LLA) had worked out an agreement in order to have them meet their obligations without shutting them done. That was triggered by their request to renew their liquor license. The policies are spelled out in the LLA Manual. That was in progress when the state moved in and seized their assets, shutting them done.

If the liquor license had not been up for renewal, neither the LLA or Council would have known about this. The City Finance department works with each business which it finds delinquent and works out some sort of payment schedule. I'm told the city works on estimated sales tax and may "audit" six or eight businesses a year. So if there is a revenue loss because of this, I haven't seen any numbers. One would think so. The "big" small businesses and the franchises seem to be timely. The independent Mom and Pops may be different.

I know of no business shut down by the city because of sales tax payment problems. There is the issue of wanting to keep a business in business for future revenue generation and to avoid an increase in empty store fronts in town. Being a member of LOTA, many operate right at the breakeven and can have down periods and suffer from seasonality.

One can ask to what extent leniency leads to more violations and more revenue loss. Somewhere in there is a balance that is workable. Small businesses come and go in town and there are many factors that are involved in that.

Doktorbombay said...

No, we’re not disagreeing on much. Didn’t know we had to disagree to blog.

The fiduciary responsibility I talk about is with the business owner, and their holding of the city’s tax money (and in the case of 7West, keeping the taxes).

However, I never said the city should shut down any business that’s late on sales tax payments. That’s not how the state works, either. A business has to be months behind before the state acts, with several notices to cure before they surprise you with a seizure.

The notion that the city’s revenues are somehow increased by allowing delinquent businesses to continue doesn’t make sense. If they’re not remitting the tax, how does it help the city to allow them to not remit for a longer period of time?

dreamer-believer said...

It sounds like 7 West was remitting sales tax to the city so I'm not sure Lafayette would even be aware that there was a problem with nonremittance to the state.

What is happenintg at Rocky Mountain Instruments? The Daily Camera is reporting that federal officers and others are conducting a raid of some type today.

Anonymous said...

Toughest business is always the restaurants. Village Square in Louisville had three and as of today - none
Bart's (closed long ago), Yummie Thai (this last May) and now Cortino's Pizza & Sub. Sad as the owner was one of the hardest workers I met...12 + hours per day
On Main Street, Pasquini's closed up a couple of weeks ago.
On the south end no less than 4 closed up within the last 3 to 6 months.
The newest one on Main Street....Waterloo IceHouse but they cut a deal with the city on the sales tax. Still...watch this one as you have your choice of 2 items on the menu. A $10 hamburger or a $8 salad. Maybe their beer is colder than most

Anonymous said...

By newest one I meant to open and not to close

Cyclorado said...

Pasquini's?!? Bummer.

Dan Powers said...

What's Pasquini's story? I thought they always were busy - and such great desserts...

Anonymous said...

locals complained of cleaniness and bad service
rumor has a bistro type establishment going in that the owner has 2 other restaurants in Boulder
down on Mccaslin by Chipolte a Spicy Pickle is getting a space ready
as for Cortinos it appears no delivery, closed on Sundays and a relocated Black Jack a 1/4 mile away was the death blow