Last month I wrote about the Minnesota Department of Revenue’s Hall of Shame list of tax debtors. This week our online reporter Tim Harlow decided to buy his lunch at one of the businesses on the list. Here’s his story:

They’re holding tomatoes off of all sandwiches these days at the Cousins Subs in northeast Minneapolis due to the national salmonella scare. That’s not all the sub shop is holding. Seems the store had been holding off on paying money it legally owes the state.

The eatery’s new owner, Aaron Leischke, recently took over the Cousins Subs location adjacent to the Quarry shopping center at 1730 New Brighton Blvd. Unlike the store’s previous owner, Leischke said “I’m paying my taxes. I don’t want to follow in his footsteps.”

Good to know that the 28 cents tax he collected from me Tuesday when I bought a $3.99 meatball sub will end up in state coffers rather than his cash drawer, or worse in his bank account.

The Minnesota Department of Revenue yanked Cousins Subs’ permit to make taxable sales on Feb. 19 after the previous owner collected $80,706.12 in sales taxes but didn’t forwarded to the state.

Without a license, the store should have been be locked up tighter than a drum. No license, no sales, according to the Revenue Department, but the cash register kept right on ringing.

Until corporate stepped in and installed Leischke as its owner.

Still the shop remains on a list of firms that owe back taxes to the state, as do many others.

So what happens when a business is told to stop making taxable sales, but flouts the law?

Terri Steenblock, in the Revenue Department’s collections division, said the state needs some kind of evidence that an establishment is operating before it can bring criminal charges.

Steenblock said the state goes to great lengths to collect the tax - letters, phone calls and as a last-ditch effort revoking their sales tax permit - but it can’t slap criminal charges or fines on establishments unless the state can prove without doubt that the business is still operating.

Steenblock said the state can and has seized bank accounts, and can subpoena records to find out where “the money train is or if checks are coming in.” Then the state has to consult with an attorney to find out if there is more that needs to be done in order to bring charges.

“It’s a long and cumbersome process,” Steenblock said. “We have to make sure all the i’s dotted and t’s are crossed, that we follow a process and that we are not negatively impacting somebody [we should not be].”

Minnesota sales tax is a “trust tax.”

“Customers pay sales tax with the expectation that businesses will send it to the state on their behalf,” the Revenue Department said. “It can not be used by a business as additional operating capital or for any other purpose.”

Penalties for not following the law can range from the business owner being jailed or ordered to perform community service, a fine or both, Steenblock said.

In fairness to the state, which must do due diligence, the criminal investigations unit has 72 cases of tax delinquency totaling $2.63 million on its hands along with cases of other sorts. And unlike the sub shop that is in a fixed location, others are more fluid and difficult to track down.

Take Lawn Detailers for example. The landscaping company owes the state $192,549.32. It has a Medina mailing address, but like many landscaping outfits, its taxable sales happen at various locations outside of its physical address, making it harder to track down. So the onus is on the state to show proof. And other places just vanish and disappear.

Two voice mail messages seeking comment left at Lawn Detailers were not returned. In two other attempts, the voice mailbox was full and didn’t accept messages.

Perhaps the most effective way to get business to pony up is for consumers to be aware of those not authorized to make taxable sales in the state and take their business elsewhere.

Three months ago, Minnesota became the first state in the country to use the Internet to publicly post the names of businesses and their owners who have not paid or filed their sales tax returns and have had their license to make taxable sales revoked.

The measure has had some success as four companies have come forward in recent weeks and paid their debt in full.

As of Monday, the worst offenders are TNT Motorsports Unlimited, LLC, of Medina, with a debt of $259,358; R.J. Barthel Holdings, LLC, of Dexter, Minn., which is $222,189 in arrears, and Burgess Woodcraft, Inc., of Osseo, which owes $200,398. The complete list is here.

This entry was posted on Wednesday, June 11th, 2008 at 12:01 pm and is filed under Businesses in hot water, Public records. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.