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