BY THE NUMBERS
$14.4 million: Amount of sales tax collected last year after state investigators threatened to suspend the businesses of habitual offenders
$675,000 to $700,000: Amount spent each year to collect delinquent sales tax from businesses
Six: Number of full-time staffers charged with managing the state’s Habitual Offender Program
Source: Ohio Habitual Offender Program
Ohio’s taxpayers spend roughly $700,000 annually for state investigators to track down and, in some cases, close businesses that fail to hand over sales tax collected from customers.
The state has suspended roughly 700 Ohio businesses since 2013 because owners failed to pay sales tax.
The program, state officials say, is meant to put struggling businesses on track to pay their bills and make sure customers aren’t swindled out of money. But, it can also cause publicity nightmares for businesses.
“That money is not theirs,” said David Peck, who oversees the Ohio Department of Taxation’s compliance division. “That’s the thing with sales tax that people don’t realize. As a taxpayer, you’re paying that to the business in the good faith that they’re going to turn around pay that to the state.”
To be suspended by the state, business owners must first land themselves in Ohio’s Habitual Offenders Program, which means the business has a recent history of late sales tax payments. Currently, 1,800 businesses, most of which collect $25,000 or more a year in sales tax, are enrolled in the state’s program.
The Journal-News requested a list of businesses that the state has suspended since January 1, 2013 to September 15, 2014 and found at least 21 business locations in Butler and Warren counties have been suspended for failing to pay sales tax.
State open records laws do not permit the public to know the amount an individual business owes in sales taxes. But, during the state’s fiscal year from July 1, 2013 to June 30, 2014 investigators collected $14.4 million in sales tax from businesses who were threatened with a suspension.
The process can be a headache for businesses.
For example, the program recently brought unwanted attention to one downtown Cincinnati restaurant called Mahogany’s at the Banks, which used to have a location in Hamilton. The restaurant, which was already behind on rent and payments on a city taxpayer-backed loan, was closed for four days in August when the state shut down the building for failure to pay sales tax.
If a business that’s been labeled a habitual offender fails to pay sales tax for at least two consecutive months, state tax officials tell the owner to finally pay up or face a state-order shut down in 10 days.
Once those 10 days pass, and the business fails to pay, state investigators arrive at the business’ door step with a pink closure notice to hang on the door. Penalties for not paying sales tax are among the highest in the state at up to 50 percent.
Sales tax is money consumers pay and trust businesses to turn over to the state to fund a myriad of public necessities, such as building roads or keeping police on the streets, Gary Gudmundson, the spokesman for the Ohio Department of Taxation, said.
“It’s essentially theft but, in most cases, it doesn’t arise to that level,” Gudmundson said.
And, not paying the taxman puts a business at serious risk, said Roger Ames, an accountant who runs his own firm in Oxford and advises businesses.
“That’s probably the dumbest mistake that any business can make,” Ames said. “When (sales tax) money comes through the front door of the business, it doesn’t belong to them.”
But Ames said businesses sometimes fall into a tempting trap of putting off paying taxes when other bills — such as rent or utilities — start piling up.
“Even with an older business, when the cash flow gets to be a problem, like it is when the economy turns down, who starts screaming and hollering first? The landlords, the electric company — all of those people. The state doesn’t remind you (to pay your tax bill) on the first every month.”
Anne Crone has run The Bird Shoppe, which is one of the few locations in southwest Ohio that sells exotic birds and supplies, in Fairfield for 11 years. But the recession has left her “mom-and-pop shop” sometimes tight on cash, and she admits, at times, the business fell behind on paying taxes.
State officials suspended the business in March — Crone said her business was never actually shut down and she paid her taxes once she found out they intended to suspend the shop.
“I don’t know any business that isn’t behind at some point,” Crone said, adding that the business is current on all bills and “happy” to be continuing operations.
Roughly 75 percent of businesses pay their outstanding sales tax bill the first day the states suspends their operations, Gudmundson estimates.
The Journal-News made an attempt to contact all 21 businesses that were suspended at some point since 2013; some were still operating, others had since shuttered or been taken over by different owners.
One business, Monroe Dry Cleaning LLC, owned by Robert Tran when the taxes became delinquent, sold its assets to an unrelated company.
The company is now owned by Megan Blake and operates as Monroe Dry Cleaning, which has locations in Mason, Monroe, Liberty Township and Cincinnati.
Blake said “the present ownership team has paid all sales and other taxes in full, prior to their due date” in a statement.
State officials say they don’t want to close a business permanently when they put an establishment on suspension orders.
“We’re not trying to shut down businesses,” Peck said. “It’s trying to get people back on track. There’s some people out there that need to know Big Brother is watching, they need that extra guidance.”
Rick Sizemore, the owner of Cobblestone Tavern in Fairfield, said his time in the Habitual Offenders Program was helpful and got him on track to paying his sales tax on time. State records show his business was suspended in November for falling behind on sales tax payments.
Sizemore said since then, he’s almost completed his time in the program and he’s learned more about Ohio’s tax laws.
“It caught my attention,” Sizemore said of the program. “I now personally make sure (the sales tax) is paid on the due date.”
That’s the advice — staying in close contact with the accountant — Bob Wiwi, the West Chester branch manager for the Service Corp of Retired Executives (SCORE), gives business owners. SCORE is a small business advocate and resource for area owners.
“We often times suggest business rank their expenses on their statement,” Wiwi said. “Their needs come last; the first thing they need to cover is paying taxes, utilities and paying your vendors.”