Courtesy of Shaw’s Tavern
Update 7/24: Following the publication of this article, At-Large Councilmember Elissa Silverman and her team, among other councilmembers, worked with the Office of Tax and Revenue to arrive at a solution that will help bar and restaurant owners shake free of steep penalty fees levied against them for failing to submit sales tax return reports for the months of February and March. Sales tax payments for these months were deferred until July 20. Some business owners missed the fine print that they still needed to file the return reports.
Initially OTR told City Paper bars and restaurants that had been hit with penalty fees would be evaluated on a case-by-case basis after submitting formal abatement requests that would lead to “a manual review of their accounts.”
Now the agency confirms to City Paper it is willing to waive all penalty fees tied to February and March sales tax return reports without time-strapped operators having to take additional steps so long as they paid their actual sales taxes by July 20. When impacted business owners log into their accounts, the penalty fees should no longer appear.
“Our businesses are struggling just to get by in this pandemic,” Silverman says. “We need to help them in every way possible, which is why my office worked with OTR—specifically the Office of the Taxpayer Advocate—to get rid of these penalties, which made absolutely no sense, and secure relief for our local businesses.”
Within days of Mayor Muriel Bowser declaring a public health emergency in the District in mid-March, the D.C. Council passed emergency legislation designed to keep the public safe and prevent businesses from closing. One such measure, enacted on March 17, allowed owners to put off paying sales tax for February and March until this coming Monday. For restaurants and bars, this was a glimmer of good news since their revenue-earning potential at the time was next to nothing. But if harried owners missed the fine print about some forms, they could owe the Office of Tax and Revenue thousands of dollars.
“When the Council passed the ability for businesses to defer paying February and March sales taxes until July 20 to allow them some additional liquidity, businesses presumed, in error, that they didn’t need to file their monthly or quarterly sales tax reports with the Office of Tax and Revenue,” explains Shaw Main Streets Executive Director Alex Padro. “As they’ve been starting to go online to pay those deferred taxes, they’ve been alerted to the fact that they have penalties and interest due. They’re scratching their heads.”
Restaurateur Eric Heidenberger, who’s behind Shaw’s Tavern, The Madhatter, and several other bars and restaurants, says he owes $32,328 in penalty fees and interest. He assumed he didn’t have to file the sales tax return reports because of the public health emergency.
That’s not the case. A representative from OTR says in an email that the agency sent notices to each taxpayer with a D.C. sales tax account alerting them of the requirements to meet the legislation’s provisions. They directed City Paper to an online notice, which does say business owners must file either form FR-800M or form FR-800Q as usual, depending on whether they file taxes monthly or quarterly.
Heidenberger acknowledges the oversight. But given that most business owners file the forms and pay simultaneously, honest mistakes could occur. Owners are also focused on trying to stay afloat. “We’ve been in business for 40 years,” he says. “I’ve always filed on time and paid what was due. It’s kind of an oversight on our part, but we were assessed penalties on seven locations.”
Incurring penalties has other consequences. Heidenberger only found out he was in trouble when he was working on paperwork for a microgrant his restaurant group received from the city in partnership with Events DC and the Restaurant Association of Metropolitan Washington. Business owners have to have a “clean hands” certificate that basically proves they’re in good standing with the city and thus deserving of money. Thousands of dollars in penalty fees are quite a strike against a restaurant.
“These businesses won’t have clean hands,” Padro echoes. “That’s why this is a big deal, especially because the Council just passed legislation allowing the Mayor to establish more grants. Everybody’s got the best intentions, but the relief ends up not being as effective as anybody intends.”
Another wrinkle is that some business owners say they tried to submit their sales tax return reports but couldn’t, according to Padro and Eastern Market Main Street Executive Director Charles McCaffrey. “I had a number of businesses who tried to go in and file the reports but not pay until July 20,” McCaffrey says. “The system wouldn’t let them defer the payments at the time.” The allegation is that you can’t submit sales tax return reports without also submitting payment.
McCaffrey says the online system is complex and he feels for business owners who don’t speak English fluently. “There’s lots of moving parts—each day brings a new challenge that we try to work with.”
“Thousands of taxpayers have been able to file their returns through MyTax.DC.gov without remitting payment,” the OTR representative says. “OTR has not received any communications from tax filers indicating that they were either unable to remit payments or submit returns through MyTax.DC.gov.”
Meanwhile Heidenberger says he tried filing for an appeal to get the penalty fees and interest lifted, but was rejected. “For us the only option is to have this stuff removed or it’ll add on to existing debt and would force some of our places to fold altogether,” he says. “I’m looking for some sort of message from the Office of Tax and Revenue or the mayor saying this is all going to go away.”
It doesn’t seem like OTR is willing to wave a magic wand and make everyone’s penalty fees disappear at once. Asked whether OTR was aware of the specific situation of business owners incurring penalty fees because they did not submit their sales tax return reports and what can be done, the OTR representative responded with a course of action:
“OTR is aware that many businesses are struggling to meet their tax obligations as a result of the impact of COVID-19. District businesses impacted by COVID can always request an abatement of penalties by submitting a request to OTR for a manual review of their account. In reviewing these requests, OTR will take into consideration the impact of the COVID-related shutdown on a business, the entity’s payment history, and whether an abatement for the affected periods would resolve the delinquency. OTR is committed to treating each taxpayer in a fair and equitable manner, which often requires taking each taxpayer’s individual situation into account.”
They say requests for abatement of penalties can be made by logging into the MyTax portal and requesting a penalty waiver, or by contacting OTR’s Collections Division via email at firstname.lastname@example.org or by calling (202) 724-5045.
“In the event that a request is denied or a taxpayer believes that the business met the requirements of the Mayor’s order and should have received an abatement, a request for reconsideration can be submitted to email@example.com,” the statement continues.
Padro questions the efficiency of the approach. “On a conference call on Tuesday, my colleagues around the city reported that no appeals they were aware of had been granted,” he says. “There are likely hundreds, if not thousands, of businesses that did not file their reports,” he says. “Does OTR really want to have to process all these appeals? Wouldn’t it make more sense to issue a blanket waiver of penalties and interest to all businesses that deferred their February and March sales and use tax remittances?”