Small Business vs. The State: Does This Seem Fair?

My stepfather, Dave Panaro, and I don’t agree on everything.

Dave & Eva - April 2010

We both have strong opinions. We have the occasional heated debate about sports. However, one thing I can say about Dave – without an ounce of doubt in my mind – is that he is honest. That’s why when he told me about New York State’s recent audit practices, I not only believed every word he said, I was also out-of-my-mind shocked.

In a story published today – Father’s Day 2010 – titled, Restaurant owners angry over state audit methods, Dave “Doc” Panaro detailed how some recent practices by NY State have moved him from scared to angry. As Buffalo News reporter Samantha Maziarz Christmann (email Samantha) reports,

David “Doc” Panaro and Dennis Nettina, owners of the Buffalo Tap Room & Grill [link is mine] in Tonawanda, have always prided themselves on their integrity. They run a clean business, keep meticulous records and treat their employees, customers and vendors with respect.

So when the state accused them of dodging roughly $330,000 in sales tax over three years, they were first scared and then angry. Now they’re determined to fight.

The article continues to describe how the New York State Department of Taxation and Finance has attempted to “enforce sales tax compliance.”

Audits have become even more frequent since Gov. David A. Paterson and state legislators identified increased sales tax audits as a way to close the budget gap without raising taxes or cutting services. Paterson hired 330 more auditors with the goal of raising an extra $220 million per year.

Local small business owners are reacting:

…newly accepted auditing practices have them over a barrel. They say the audits, instead of identifying legitimate tax evaders, are being misused to hang imaginary debts on business owners and force them to pay up.

Ready for this? If this does not shock and anger you, I’m not sure what will.

The method of estimation the state used was to observe the restaurant’s sales for a day, then compare it with the same date on a previous year. The previous year’s reported sales were 25 percent lower, so the auditor took that percentage and multiplied it over each day’s sales of the three-year period, deciding the restaurant did enough unreported business to owe an additional $330,000 in sales tax.

To make matters worse, Dave told me that when they compared the date this year with the one last year, it was not at all apples to apples. The “observation day” was a Thursday vs. the “comparison day” of Wednesday. Also, the temperature last year (when sales were a reported 25% lower) was a mere 2 degrees Fahrenheit. Anyone who has ever worked in the restaurant business knows that day of the week, temperature and host of other factors dramatically impact business. As my stepfather stated in the article, “They almost did me a favor by coming up with such a ridiculous number, because it’s so obviously wrong.”

Read the full story, Restaurant owners angry over state audit methods.

I’m Asking For Your Help

I realize that you – the reader – may not live in New York State. I understand that you may not be a small business owner. Chances are high that you do not know my Dave, nor are you related to him. However, I really hoping that you read this post, clicked through to the entire article, and was as fired up as I was. I’m hoping that this article elicited a strong reaction. I’m hoping that instead of simple reading, nodding your head and thinking, “Wow. That sucks.” that you’ll actually take action.

A few ways you can help:

  1. Comment below. I’ll pass along all comments to Dave and the Buffalo News.
  2. Comment on the actual article in the Buffalo News. As of the publish date on this post, there are 28 comments there. I’m surprised that the number who totally missed the point of the article. Some very anti-small business folks out there.
  3. Film a short video reaction. Post to YouTube or your video site of choice and email to me. Again – I’ll be sure to forward to Dave and the Buffalo News.
  4. Write your own blog post. Please link back her so I know about it.
  5. Tweet or Retweet. Use the button at the top of this post or your favorite Twitter service.
  6. Post to other social networks – Facebook, LinkedIn, etc. Spread the word.

Thank you for taking the time to not only read this post, but to respond. It means a lot to me, to Dave and to small business owners in NY State and elsewhere who are being unfairly audited.

Oh. And to all of those dads, step-dads, grandfathers, etc out there … Happy Father’s Day!

DJ Waldow