Richmond wrote off millions in business taxes, but doesn't know how much they owed overpaying businesses

Posted at 6:18 PM, May 14, 2024
and last updated 2024-05-14 18:26:31-04

RICHMOND, Va. -- Over the past several months, Richmond officials have heard from some business owners complaining about the city's finance department's former practice of not notifying taxpayers of delinquencies on their accounts while quietly accruing late fees.

The issue took center stage as restauranters came forward to speak out about snowballing and dramatic meals tax penalties and interests and what they considered an unfair tax collection system.

“It’s about the system that is so broken that it has come to this, years later you’re getting these bills that you don’t even know what they’re for," Elizabeth Sexton, owner of Smohk, said in a previous interview.

“I feel like if I did my business like the City of Richmond did their business, I would be out of business," Mac McCormack, owner of McCormack's Whisky Grill, told CBS 6 in a previous interview.

But what about the other way around: Is the city telling taxpayers when they overpaid on their taxes?

It's a matter currently under investigation by the Richmond Inspector General's Office after receiving a complaint alleging the "finance department is failing to notify taxpayers of credits on their accounts" for meals taxes and business license taxes and then "writing the credits off the taxpayer accounts and converting them to city funds" after a "statutory three-year period," according to a draft report obtained by CBS 6.

The Inspector General's Office said it could not comment or release information about an open investigation.

According to data obtained by CBS 6 through a Freedom of Information Act request, the City of Richmond recorded more than $3.2 million in meals tax (ALM) and business license (BPOL) tax write-offs from 2014-2018. However, the city can't say how much of those were credits owed to taxpayers and how much were delinquencies owed to the city.

When we asked why not, city spokesperson Petula Burks said their system does not separate credits from delinquencies on a taxpayer's account. Burks declined CBS 6's request for an interview with Chief Administrative Officer Lincoln Saunders for this story.

"It's crucial to understand that determining a credit balance is not as straightforward as it may seem. It requires a comprehensive analysis of the taxpayer’s accounts to ascertain when a credit exists. This process is governed by financial policies derived from state and local code and [Generally Accepted Accounting Principles]," Burks said in a statement.

Burks said determining whether a taxpayer is owed a credit can only be done through a complex, manual reconciliation process. Explaining why, she said some taxpayers have multiple accounts with the city, and finance staff must ensure taxpayers are in good standing across all their accounts before issuing a refund.

If it's determined a taxpayer has a credit on one account, but a delinquency on another account, the finance department would apply the credit to the delinquency instead of giving the money back to the taxpayer. If it's determined a taxpayer is in good standing, the city would initiate the refund process or apply the credit to a future balance.

“A lot of our systems in the finance and tax areas in which the city functions are archaic and are manual," Richmond City Council President Kristen Nye said. "Sometimes what I have seen is that data can be pulled-- it just takes a lot of man hours to pull it, and we don't want our folks spending hundreds of hours trying to go through things manually."

Burks acknowledged that the city has not been notifying taxpayers of credits. Specifically for the meals tax, she said the city wouldn't know if a business overpaid because it's a self-reported tax.

And the reconciliation process is only initiated after a taxpayer requests a refund if they believe they may have overpaid, Burks said.

Nye said that's not a clear or effective process.

“We don't want to have any unclear policies. We don't want residents to think anything is cloudy and not being transparent," she said.

It's why she said the council passed new legislation in March that requires the finance department to tell taxpayers when they overpay on their meals tax or business license tax. The ordinance gives the taxpayer a 90-day window to apply for a refund.

“Honestly, if this is taxpayer money, and they have paid too much on their real estate bill or personal property tax or something like that, we just want to give it back to them," Nye said.

She added other fixes included allocating funding in the budget for more finance department staffing and the implementation of a new online billing system called RVAPay, which is expected to be fully in effect by the end of the year.

"If we don't have a clear history of the books, then yes, RVAPay will definitely help get us back on track," Nye said.

What do other localities do?

Henrico County's finance department does not notify business owners of a tax credit.

Finance Director Sheila Minor told CBS 6 that credits can appear on numerous accounts for various reasons, including when business owners intentionally overpay for their own budgeting purposes.

"It would generate a significant amount of additional programming and postage to notify a taxpayer any time a credit was outstanding. Additionally, we would have some difficulty justifying providing notice of credits to businesses and not residents," Minor said.

However, she said treasury reviews all accounts at the end of the year. If a credit exists, Henrico Finance, like Richmond, would first apply credits to any delinquencies on an associated account.

If all accounts are in good standing, credits over $5 are refunded to the taxpayer. If the taxpayer cannot be found, credits are remitted to the state as unclaimed property.

Henrico will only write off credits that are less than $5, which are defaulted to the county. Minor said the county does not keep documents or reports summarizing the total amount of yearly write-offs.

In Chesterfield County, the office of Treasurer Rebecca Longnaker manages the tax refund process only if an audit by the Commissioner of the Revenue’s Office determines a taxpayer was over-assessed and overpaid on their taxes.

Longnaker said her accounting staff works through the refund process as part of their daily duties.

Once they become aware that a taxpayer overpaid on a tax assessment, they would either apply the credit to outstanding invoices or issue a refund to the taxpayer.

Since Longnaker's office continuously reviews accounts throughout the year, she said an overpayment would never reach the statute of limitations period, thus never resulting in a write-off.

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