Pet Store Shut Down (PAY YOUR TAXES!)

Part of a series on essential actions you need to take

This article would have just gone out on my new Twitter feed, but as I read this news article I got more and more ticked off and decided it required the full Sales Tax Guy treatment.

In case the article disappears, the essential facts are below.

There have been several stories recently about Rhode Island suddenly closing over 1000 businesses because they haven't paid their sales and use taxes.

That's the first thing to be ticked off about. Why do they pick the depths of the recession to close businesses and increase unemployment? Sounds like the RI revenuers need a reality check. Maybe some targeted state layoffs would do the trick.

But, it's not all entirely the state's fault either. As I read the article about this pet shop owner, I really can't feel sorry for him either. Now, I am assuming the article is correct which is a big assumption. So if I'm wrong here, I've seen other situations where the facts were pretty close to as described. So, at least we'll considered it a teaching opportunity.

1. Business hasn't been good for the pet shop for a while.
2. The owner quit remitting his sales taxes and started keeping the money to run his business, figuring he'd pay it back someday when business got better. The quote in the article is “I used that money to stay in business." [my emphasis]
3. He apparently hasn't been filing returns on schedule either.
4. He has had problems with the IRS too.
5. While not mentioned in the article, I'm betting he got more than a few letters from the state inquiring about when he was going to pay up.
5. He has virtually no assets.

And he wonders why the state won't give him a break and lenders won't give him money. Talk about a bad credit risk. The amazing thing is that he still has employees coming to work to take care of the critters. Hey, I'm in favor of taking care of the critters, but how is this guy paying his employees? Is he going to have to deal with unpaid wage claims at some point too?

While I'm a big appreciator of persistence, there is a signal that any business should heed when considering its viability. If the management can't (or won't) remit their sales taxes (which have been collected in trust for the state), and choose to use those funds to keep the business going, then it's probably time to rethink the business plan. This situation is not the beginning of the end. It's pretty much the last ledge before the business falls into the abyss.

And if I was working for a company where this was going on, I'd be asking for daily paychecks and hitting the bank on the way home to cash them.

Is it right to steal from the state, and defraud customers to keep the business going?

Stealing from the state? Yeah. The taxes weren't collected for the business's benefit. The seller, in most states, in merely the collector and is holding the taxes in trust. If the seller doesn't send the funds in, it's theft as far as I'm concerned.

Defrauding the customer? The customer didn't pay the business an extra few percentage points for the business's profit. They paid it under the assumption that the state would get that money. If the business isn't going to send the money in, then the business defrauded the customer.

The same thing applies to taxes you withhold from your employees' paychecks. If that money doesn't get deposited quickly... Well, let me just say this. I've heard that the IRS agents who audit companies for this particular problem - not making tax deposits - carry guns. Because people who violate this particular law, tend to find themselves wearing orange jumpsuits.

Bottom line folks. If you're small business, don't think that sales tax money sitting there waiting to be sent to the state is available for interest free loans you can take care of later. It isn't. And you won't. You'll probably wind up just like this poor pet store owner.

So if you've collected taxes, PAY THEM!

See, way more than what I could have squeezed into a Twitter post.

Sales Tax Guy

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Picture note: The cat is Pewee. She wants YOU to pay your taxes. More on Flickr here.