July 31, 2009

1,200 R.I. businesses face closure over sales tax

 Thursday, July 30, 2009
By Cynthia Needham and KATHERINE GREGG

Journal State House Bureau

The hallway and waiting area at the Division of Taxation at the Department of Administration Building in Providence on Wednesday was crowded with people who have received notices telling them to cease their business operations.

PROVIDENCE — State tax officials have put more than 1,200 businesses across the state on notice this week that they are out of business unless they pay their overdue sales taxes immediately.

For most, that action came in the form of a personal visit from the state Division of Taxation, ordering business owners to lock their doors at once.

By Wednesday, a line of people had queued up inside the Department of Administration building on Smith Hill, waiting their turn to plead their case to a state revenue agent. Some were angry. Others frustrated.

"I understand the state needs money, but to put pressure on the small guy or the moderate guy that's struggling, it's not going to do any good," said Mike Suriani, who owns an electrical supply company in South Providence.

In Suriani's case, it may have been a bookkeeping error that landed him in the three-hour line. Suriani says he paid his taxes in full — albeit a little late –– and had copies of the cancelled checks from the state showing he had indeed turned over the sales taxes he collected.

But that didn't keep taxation officials from appearing at his door Tuesday demanding that he close up shop.

"Yes, the rules state that we have a responsibility to pay our bills every quarter. But when your customers come in and they don't pay you for a month, and then another month, and another month, businesses have no choice [in] the eyes of the state but to close up and get out," Suriani said.

State officials say they've given businesses with sales-tax permits plenty of notice that they've fallen behind in making tax payments.

The permits expired on June 30, and the last in a series of letters sent to owners in recent months said they would not be issued new permits without straightening out their tax situation. In the interim, they were told: "You are conducting business without a permit and must cease immediately."

A handful in line Wednesday said the process wasn't quite that simple. Desmond Clark, who owns a small video-game store in North Providence, said he spent months trying to negotiate a payment plan with the state that would allow him to keep current on owed taxes, while staying afloat in a tough economy.

"They didn't want to hear it. They didn't want any payment plan whatsoever," said Clark.

In a joint interview Wednesday, state Tax Administrator David Sullivan and Department of Revenue Director Gary Sasse said this marks the fourth year the state has taken similar steps to extract overdue sales taxes from businesses that they believe have, in most cases, collected them, but not remitted them to the state.

They said the first notice goes out in February to put businesses delinquent in paying their sales taxes on notice that their continued failure to do so "will result in your being denied a renewal of your sales tax permit and, if applicable, cigarette license effective July 1, 2009."

A second notice goes out about 90 days later with a repeated warning. A third and final notices goes out 30 days after that, in late June.

The letters hand-delivered by the hundreds this week reiterated the message that owners are now operating without a permit and that under state law "each officer of any corporation which so engages in business shall be guilty of a misdemeanor" for which they can be fined up to $5,000 and imprisoned for up to a year.

"Each day in which such person so engages in business shall constitute a separate offense," the letter says.

Initially, 3,949 letters went out which, in turn, precipitated the payment of $3,072,500 in delinquent sales tax payments, Sullivan said. By the time the final notices went out, the holders of all but 1,248 had paid their overdue taxes, or settled their cases in some other way.

The officials would not disclose who received the in-person visits this week, but said they reached every conceivable kind of retail business in Rhode Island, including small mom-and-pop stores, restaurants and bars.

Sullivan said the number of business owners in this category is up this year, though not significantly despite the recession.

But most standing in line Wednesday cited economic pressures and the constant fear of closure as the reason for their delinquency.

By 4 p.m., as Division of Taxation employees worked their way down the list, tensions were on the rise. A few in the 50-person queue made frantic calls to explain to vendors why their restaurants were closed for the day. Others ran out to feed expiring parking meters, while sweating over the lost revenue and embarrassment that appeared on their doorsteps Wednesday morning.

And then there was Pawtucket clothing manufacturer Jessica Bahl who, like Mike Suriani, said she didn't owe any taxes at all. State officials closed her business Wednesday insisting she never renewed her permit. But in her hand she held a copy of the application along with proof that the state had cashed her renewal check.

"The economy is [terrible], people are hardly staying in business. I had to shut down my business for a day to come here and do this and they already got my check. So why am I here?" a frustrated Bahl said.

"And then they send someone over to scare me in front of my customers?" she continued. "It's ridiculous … It's embarrassing."


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