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Owners of L.B. Grand will fight $247K back-tax bill

By Howard B. Owens

New York is apparently turning over every stone in an effort to find more revenue to help close its billions in annual budget gaps.

They're now going after restaurants and bars, trying to find a reason to demand more money from the business owners.

Three weeks ago, L.B. Grand in Le Roy got hit with a $247,000 bill for back taxes and penalties.

"I had a nervous breakdown," said co-owner Ron Shoemaker. "I did. I had to go to the hospital. I just lost it. I said, 'My God, I couldn't pay that kind of money if I took the rest of my life.' The place doesn't make enough money to pay that."

The bill was based entirely on a one-day audit on a Thursday in January.

That day, 81 percent of the customers paid cash. Shoemaker said the restaurant and bar's average is 54 percent (he's double checked this figure by reviewing monthly records going back to 2008).

That 27-percent difference is significant to the state. If L.B. Grand were indeed doing 81 percent cash business on a daily basis, that would mean the 40-year-old landmark restaurant was under reporting its total revenue. The state would suspect a restaurant owner in that situation of pocketing all of those extra tens and twenties that aren't showing up in its cash report in order to avoid sales tax.

Shoemaker said he's kept meticulous books and has paid the State every dime the restaurant owes.

His partner, Ron Piazza, said Shoemaker is the kind of guy who can't stand to leave a bill unpaid or for his accounting to go undone.

What got L.B. Grand into this mess, though, is that Shoemaker didn't know he was required to save every guest check (the slips of paper waiters write customer orders on).

When a state auditor found this discrepancy in September, he scheduled L.B. Grand for a random, unscheduled on-site audit.

Six auditors descended on L.B. Grand (the state has hired hundreds of new auditors for this process) and just hung out. One guy sat at the bar, working a crossword puzzle, and  watching every transaction. At the end of the day, Shoemaker provided him with a print out of all that day's business.

It was a fairly average business day, except for the higher than normal amount of cash transactions, Shoemaker said.

Not only can't Shoemaker and Piazza pay the tax bill, they said, they're ready to fight back.

"I don't feel like I owe them anything," Shoemaker said.

Piazza said that while it's no laughing matter, that's about all he can do.

"I can't take it as seriously as he does," Piazza said. "It (the assessment) is just so foolish. They might as well put a one in front of it. It's just foolish."

Shoemaker, who spent seven years in the military and 30 years in skilled jobs before getting into the restaurant business, wonders what the state might have to gain by putting the Main Street eatery and tavern out of business. He figures that between off-track betting, lottery and sales tax, L.B. Grand generates $600,000 a year in revenue for New York, and that doesn't count the taxes paid by six employees who would be out of work if the tax bill holds up.

L.B. Grand isn't alone in facing aggressive auditing by the state, and the story of another restaurant gives Shoemaker and Piazza a glimmer of hope that they can fight the taxation department and win.

Mark Supples, owner of Mother's Restaurant on Virginia Place in Buffalo, also failed to keep his guest checks -- he estimates he would have been storing more than one million from the six previous years if he had -- and was hit with a $1.1 million tax bill after his audit.

"The methods they use are very similar to methods that were used by La Cosa Nostra, also known as the mob," Supples told WGRZ. "What they do is come up with a figure that will really scare you, then they settle for a lesser figure. So basically it's an extortion practice which is really quite effective because the figures they come up with are pretty scary."

The state offered Supples a $250,000 settlement and Supples declined. Instead, he spent $150,000 on legal fees (money he hopes to recover from the state) and won.

From WGRZ:

"When you go to (tax) court, you're presumed guilty and you have to prove you're innocent," Supples said.

In particular, (the court) found that for Supples to have done the volume of business and made the kind of money the state had estimated, every table in his restaurant would have had to have been full for eleven hours a day, seven days a week, for six years.

"I really thought it was time somebody stood up to these bullies and extortionists and expose them for what they are, and because of my case, the state has changed its methods," Supples said.

For its part, New York admits that the new aggressive audits (it's rarely enforced the requirement to keep guest checks before) is being done to help close budget gaps.

Even so, William Comiskey, deputy commissioner for Tax Enforcement, didn't express a lot of sympathy for bars and restaurants that aren't keeping guest checks.

Comiskey said: "We encounter a lot of businesses that tell us they don't have those records, and I'm frankly a little perplexed by it, because they would need the records we're looking at and asking for to run their business properly. But either way, they're required under the law to maintain them, and so I think it's reasonable to require them to have those records."

L.B. Grand is now keeping those guest checks, Shoemaker said. They had their cash register vendor reprogram their machines to print out all of the guest checks at the end of every day so that can be filed. But like many restaurants, the guest checks will be printed on thermal paper, so the ink will fade away to nothing within weeks. But at least the guest checks will be saved.

"I went from having a nervous breakdown over this, to now I'm just mad," Shoemaker said. "I'm going to fight them on this with every breath I have left in my body."

bud prevost

For it's part, the State admits that the new aggressive audits (it's rarely enforced the requirement to keep guest checks before) is being done to help close budget gaps.

What's next, following paperboys and babysitters to make sure they report their income? Photographing cash tips left on the table to entrap your server? Tracking serial numbers on the 10 spot you gave the valet?

I have a better idea, clean up our corrupt government. Stop harassing good, hard-working people and weed out the riff raff in the various state agencies, including the tax thugs.

Mar 22, 2010, 2:04pm Permalink
Sean Valdes

This is happening to restaurants all over the state. I think that people forget how important restaurants are to our local economy.
1. There are over 900,000 restaurants in the U.S.
2. The restaurant industry posts daily sales of more than $1.2 billion.
3. The restaurant industry employs 12.2 million people, making it the country’s largest employer outside of government
4. More than two out of five adults have worked in a restaurant
5. Nine out of 10 salaried employees at restaurants started out as hourly employees
(from National Restaurant Assoc, Nov 2009)

I can give you a billion more points if you have nothing else better to do. Point being - restaurants are the first industry that local planners want in order to revitalize a downtown area. Restaurants are the first businesses that help with EVERY SINGLE fundraiser or community event. Restaurants are the only industry that has had their product cost raised 15%-20% in the past 5 years, and yet only passed on 2%-3% of the cost to their customers.
The auditors were unleashed on us also, and while our tax bill isn't as extreme as LB's, there would be no way we could come up with enough extra income to pay it. As to Commissioner Commiskey's comment about guest checks - we presented all 4 years worth that they requested, along with every invoice, charge slip, yada yada yada. In the end, they found minutia wording on how to write your sales tax on guest checks, how to word gratuities and so forth.
It is obvious that NYS is strapped for cash, so they hit the least profitable businesses - restaurants. Pretty sad stuff.

Mar 22, 2010, 2:41pm Permalink
Sean Valdes

Sorry for the second post, but I'm really upset over this. Do you see how old Mr. Shoemaker is? He's not in his 30's. How about the Piazzas? How about my partner Nancy? None of them are at the age that they would want to work 12-15 hour days 6-7 days a week, yet they do, just like every other independent restaurant owner around. They're working these hours because they love their jobs yes, but also because they have to work to survive. I'm sure if Mr. Shoemaker was pocketing $247,000 over the 3-4 year audit period, he'd be able to take a little break, huh? Well, he doesn't - he keeps moving forward hoping for whatever busy day, season, etc. to come.

Mar 22, 2010, 2:51pm Permalink
Gabor Deutsch

Any business that accepts cash and has employees accepting tips/gratuities are going to be targeted. It maybe be the fact that several employees don't report their tips or just the minimum amount. I cant believe anyone would be surprised that N.Y.S is looking for tax money. I used to rent a space at a flea market a few weekends out of the year and had to get a Tax Id #/ I kept receipts books and had to report sales tax. It was cash only business so i guess I should dig up them receipts. Dont get me started with sales on ebay ! All we can do is fight back.

Mar 22, 2010, 3:21pm Permalink
Chris Charvella

Sean is absolutely right here. The state is specifically targeting restaurants in an effort to raise money. I've had more than just a few of our customers come in and tell us the horror stories.

The state sends in auditors for a single day, sometimes just one or two shifts at off hours and use these ridiculously small samplings to forecast cash vs. credit card receipts. They almost always come up with a number that doesn't in any way reflect the true receipts over time.

Usually if a person used phrases like 'La Cosa Nostra tactics' to describe something I would accuse them of broad scale histrionics, but I've seen enough examples now to say that I wholeheartedly agree with that sentiment.

Local owner/operators of independent restaurants are at the core of any community. They work long hours for not enough pay and they do it because they love it. People like Sean and Nancy at the D&R Depot, Dolly and Ron at LB Grand, and countless other independent owner/operators in our area spend 12-14 hours a day, six or seven days a week working their fingers to the bone in order to run their businesses and support their staff.

If we truly care about the 'little guy,' we need to everything in our power to protect these hard-working community members. I suppose if the state want to pop in every independent business' door and demand a quarter million dollars in back taxes or more after a piss poor sampling of receipts, they could do so, but they can only have that money once because the result is going to be bankruptcy for these folks who never owed that tax to begin with.

Mar 22, 2010, 3:40pm Permalink
Howard B. Owens

Chris, that's one of the thing that gets me -- the state is jeopardizing $600k in annual revenue in order to collect a one-time $250K that it likely will never be able to collect anyway -- just put a good business out of business. How will the state be better off then?

Mar 22, 2010, 3:52pm Permalink
Chris Charvella

Howard, I wish I had a better, or more hopeful, answer than this one:

The folks in Albany (all of them) care only about getting re-elected. If the state is in terrible debt, they won't be re-elected so they come up with ridiculous schemes like this one to make up the gaps.

Once again, I'd usually tell someone that the word 'scheme' is a bit too dramatic, but when you break this issue down to its base components that's what we're left with.

The thing that irks me most about this whole thing is that state auditors are using terrible accounting methods to reach their figures. The use of infinitesimally small samplings would make the hairs on any statistician's neck stand on end. There are only two conclusions that can be drawn here based on the results:

One: Every independent owner/operator who has been audited so far is a tax cheat and secret millionaire.

or

Two: The state is intentionally using bad accounting methods to produce the result they want in order to squeeze people who are afraid of losing their business and their lifeblood.

The people who are being hurt by this are my customers and, in a lot of cases, my friends. They are good people at heart and the state is destroying the things they worked so hard for. The whole process makes me sick to my stomach.

Mar 22, 2010, 4:09pm Permalink
Chris Charvella

Other than starting a legal defense fund for the folks affected, there's nothing that can be done within the law.

Call your Congressman, Call your State Senator, call your Assemblyman.

Mar 22, 2010, 4:33pm Permalink
Sean Valdes

According to one of our legal counselors - This 'super auditing' was actually started by the Pataki administration - the selling point was - hire more auditors - audit one sector at a time - let the illegal and shady operations get caught - pay their fines, eventually go straight or go out of business - and let the legal and legit operations benefit from less competition.

I think when Albany got really desperate, the original plan (whether true or not) was tossed out the window and it became an economic witch hunt. I have called the the Senator and Assemblyman, and Congressman. I have called the NYS Restaurant Association. Remember the saying - death and taxes. (Even if they're not really due)

Mar 22, 2010, 4:51pm Permalink
Lori Silvernail

And if customers pay with a credit card, aren't businesses charged a percentage as a fee for accepting credit?

What's the incentive to be honest around here? Geesh!

Mar 22, 2010, 5:07pm Permalink
Sean Valdes

The usual political office stuff. Take your contact info, we'll pass this along. Honestly, I really don't think there's much they can do. The DTF (Dept of Taxation & Finance) is following all the rules that the State has created. They've done nothing wrong in the eyes of law.

Mar 22, 2010, 5:30pm Permalink
Chris Charvella

Do you think it would help if some other people started calling as well? I know quite a few folks around here who would like nothing better than to call a politician's office and explain their feelings about unfair taxation.

Mar 22, 2010, 5:38pm Permalink
Dave Olsen

Remember Mel Brooks in "Blazing Saddles"? "Gentlemen, we've got to protect our phony baloney jobs". It does sound like the DTF is just hitting the restaurant owners high and seeing what they shake them down for. It's bad and wrong and shows that the people who are supposed to be working for us are just justifying their own phony baloney jobs. Maybe there are too many tax auditors.

Mar 22, 2010, 5:56pm Permalink
bud prevost

NY and the bass ackward approach taken on everything. I'd love to be a plant in one of those back room Albany deals. The lazy, immoral, and un-ethical leeches in Albany are barking up the wrong tree. The answer lies within Albany, the answer lies within.

Mar 22, 2010, 5:57pm Permalink
Bob Price

I was just reading about this a few weeks ago about this same BS the state is aggressively doing now-it happened to a restaurant in Buffalo,and they hit him up for over a MILLION dollars in back taxes-I think the owner filed a grievance or something and was able to get it reduced quite a bit,but still had to pay.I wish I knew the names of the people/restaurant...I want to say I read it in the Buffalo News. They are coming after everyone hard and heavy to get the money they "think" they are owed...radio station this morning was saying how our "fine" governor wants $800k for two "conjugal/family" visit modulars for inmates at a prison (Five Mile??)-they were saying it is where that creep Frank Garcia is.......let's pamper the inmates and screw the working poor......

Mar 22, 2010, 6:33pm Permalink
Doug Yeomans

This makes me sick..so sick. When are people going to organize, band together and put up a resistance? Enough of the cr*p from Albany already. Leave working people alone and allow them to support themselves. Heaven forbid if you didn't need the government for anything.

Even if you don't agree with their actions, tea parties and bricks through windows are speaking loudly of where peoples thoughts are.

Mar 23, 2010, 10:05am Permalink

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