State pursues millions in unpaid taxes from businesses

By Aaron Corvin, Columbian port & economy reporter

Published:

 

Fighting fraud

• Washington relies on businesses and citizens to voluntarily pay their taxes. However, some businesses and citizens either don’t understand, or purposely avoid, their tax responsibilities. Tax collectors pursue these businesses and individuals. Tax and license fraud includes collecting, but not remitting, retail sales tax and failing to register an operating business.

• For more about reporting tax fraud, or to report by phone, call 1-800-647-7706. To report tax fraud online go to http://dor.wa.gov...

• The state Department of Revenue’s complete list of delinquent taxpayers is at http://dor.wa.gov...

• For more information about appealing tax decisions, go to the Washington State Board of Tax Appeals’ website, http://bta.state...., or call 1-866-788-5446.

Top 5 delinquent business taxpayers in Clark County

$655,204.06 — Tidewater Development LLC. (Not related to Tidewater Barge or Tidewater Cove.)

$264,289.02 — Yurov Construction Inc.

$174,163.53 — Stephanie L. Martin

$170,792.82 — Alejandro D. Villanueva

$130,062.42 — Darrel M. Tallmadge

Source: Washington Department of Revenue

Businesses often complain about paying too much in taxes. Sometimes, however, they fail to pay their fair share.

The Washington Department of Revenue, the state’s primary tax collector, calls them delinquent taxpayers — businesses that owe the state millions of tax dollars that could otherwise be spent on key public services, including education.

Clark County is home to 17 of the state’s worst tax scofflaws, including Tidewater Development LLC, a defunct Vancouver company that was involved in the development of a long-planned condo complex. (Tidewater Development is in no way related to Tidewater Barge or Tidewater Cove, Vancouver businesses in good standing with the state.) These 17 companies are on a list the state keeps of hundreds of businesses that have failed to meet their tax obligations. The Department of Revenue posts the list on its website and updates it on a monthly basis. This “public stockade,” as revenue department spokesman Mike Gowrylow calls it, is intended to shame the most uncooperative companies into compliance.

Clark County’s worst offenders owe about $3 million, including taxes, interest and penalties. Individual bills range from $32,000 to $655,000. Still more Clark County companies have avoided the revenue department’s Internet-based stockade because they’re working with the state to pay off their debts. Altogether, since fiscal year 2008, the state has issued 2,647 warrants aiming to round up a total of about $11.4 million in back taxes from Clark County companies.

Business tax delinquency is on the rise in Washington. In fiscal year 2010, the revenue department issued 15,494 warrants statewide seeking to collect roughly $104 million in overdue taxes from companies, an increase of about 55 percent from fiscal year 2008. In Clark County, in fiscal year 2010, the department issued 584 warrants intending to recover about $4 million in overdue taxes from businesses, also up about 55 percent from fiscal year 2008.

Why they owe

Many of the businesses that end up owing the state overdue taxes are in the construction industry, said Gowrylow, the revenue department spokesman. That’s been true in Clark County.

Tidewater Development LLC is No. 1 on the state’s list of the worst offenders, owing $655,000, including taxes, interest and penalties.

The company was the contractor in the early phases of Tidewater Cove, a waterfront condo project that dates to 1993.

One of its agents, Richard Ruggiero, died last year. His wife, Beverly Ruggiero, is listed as another agent for the company, according to the Secretary of State’s office. She could not be reached for comment.

Records show that at least two other Clark County companies in the state’s digital stockade landed in bankruptcy court, including the Vancouver company Yurov Construction Inc., which is no longer in operation. It entered bankruptcy proceedings in July 2009. It owes the state roughly $264,000.

Economic hardship is one factor making it difficult for businesses to pay their taxes. There are others. Some companies run their businesses badly. Others run into personal hardships. Some companies don’t understand their tax obligations. Others purposefully evade paying taxes, such as when a company diverts the sales tax a customer pays on a good or service for its own purposes instead of remitting the tax revenue to the state.

Companies that fall behind in paying their taxes include sole proprietorships, limited liability companies and corporations.

“Sometimes it’s beyond their control,” said Jackie Rydel, regional compliance manager for the state Department of Revenue. “Most of the time it’s within their control. Just because you’re a really good contractor doesn’t mean you’re really good at running a business.”

Cracking down

And just because you run your business into the ground doesn’t mean you’re off the hook for tax debts you racked up. “We can pursue the individuals or the corporate officers, then we can issue a lien against those individuals,” Rydel said.

Rydel said the state strives to give businesses the opportunity to settle their debts, offering payment plans and giving them time to work things out. “I treat them with respect and dignity,” she said. “I don’t like the gotcha.”

But if a company is uncooperative, the state has tools to retrieve what it’s owed, including its digital stockade and other legal remedies.

The state compares payments by companies that are current on their taxes with what other similar businesses pay in the same industry, to flag potential underpayments. Audits are random. Discrepancies trigger closer looks.

Businesses are also required to file tax returns on a monthly, quarterly or annual basis, depending on how much they owe. If they haven’t paid within 10 days of the bill being due, the state calls.

“We call it dialing for dollars,” Rydel said. The state typically gives businesses up to 90 days to pay what they owe or to agree to a payment plan.

If a company remains recalcitrant, then the state takes more serious steps. It issues a warrant for back taxes, then files a lien in court against a company’s assets. Companies that don’t agree with the state’s findings can appeal.

The last resort is to revoke a company’s license to do business. Since fiscal year 2008, the state’s revenue department has revoked 84 licenses in Clark County — out of 36,858 registered businesses.

“Most businesses in the state of Washington do not find themselves in this position,” Rydel said.

The state’s delinquent-taxpayer list contains records for hundreds of companies. The list shows taxes initially sought by the state — so if a company has made payments to lower its debt, or interest and penalties have accrued, the amount due to the state could be more or less.

What is unclear is whether the state Department of Revenue will ever get all of the public’s money back from those companies. What is clear is that the department intends to collect: It doesn’t write off the debt for 12 years.

Budget impact

In the meantime, the outstanding tax debt owed by businesses further complicates the state’s budget woes. Lawmakers raised taxes and cut programs to plug a $2.8 billion budget shortfall for the current biennium. As of July 27, businesses owed the state $168 million. The bulk of that is unpaid sales taxes, but business and occupation taxes are also a factor.

Gowrylow, the revenue department spokesman, said the state ends up collecting most of what it’s owed but “as time goes on, honestly it gets more and more difficult to recover any of the unpaid taxes.” At any given time, businesses statewide can owe up to “several hundred million” in overdue taxes, Gowrylow said. That’s money that isn’t supporting the state’s top spending priorities: Roughly 73 percent of the $71.8 billion the state will spend during the 2009-2011 biennium will go toward public schools, higher education and human services.

“It’s a big deal,” Gowrylow said. “We’re talking about hundreds of millions of dollars.”