State tax audits are ‘morale killer’ during pandemic. Just ask this Tacoma business
The odds are long and getting longer for pandemic-weary small businesses like Odd Otter Brewing Company in downtown Tacoma.
The brewpub’s owners and staff wish they could celebrate their sixth anniversary in style this week. Instead, they’ve had to switch back to filling growlers and selling grab-and-go cans of craft beer, the result of Gov. Jay Inslee’s latest order to halt all indoor sit-down dining and drinking service in Washington until at least mid-December.
Could this be the final nail in the hide of Odd Otter? That’s hard to say. There have been many nails for the establishment at 716 Pacific Ave., making co-owner John Hotchkiss feel the end has been closing in for some time.
A difficult building lease. A series of local and state minimum wage increases. And of course, a hospitality industry shutdown triggered by the COVID-19 outbreak last spring, then gradually relaxed by the governor in concert with face coverings, social distancing and other precautions.
But one unexpected nail strike that landed recently may be the most biting of all, if only because it was so needless, heedless and clueless:
A random state audit of Odd Otter’s tax records dating back to January 2017.
It’s shocking that any bar, restaurant or other small business would have to deal with a paperwork nightmare like this while an eight-month-old pandemic burns through cash flow and patience.
A Department of Revenue audit is not only a distraction and a “morale killer,” Hotchkiss said, it’s also a significant business expense, and Odd Otter can’t afford to pay an accountant to sort it all out. “Really horrible timing” is how Hotchkiss characterized it to us in a phone interview this week. That seems charitable.
It’s one thing for state leaders to order sit-down service closed for the holiday season. Aggressive steps are needed as COVID-19 cases have set records several times this month. The virus has killed more than 2,500 Washingtonians and more than 200 Pierce County residents.
But for a small business to have to respond to an audit notice adds insult to injury — or injury to injury.
“It takes it to another level,” Hotchkiss said, “when the government is needlessly blowing you up.”
That’s not the intent, a Revenue Department spokesperson told us by email. The state actually paused its auditing program at the start of the pandemic, then started “a slow, flexible reengagement” in June. Audits have declined this year by nearly 40 percent: 2,901 were issued between March and October 2019 compared to 1,772 during the same period in 2020.
Businesses in hard-hit industries aren’t supposed to be scheduled for audits right now, said spokesperson Mikhail Carpenter, although some may have received appointment letters.
Odd Otter was among the unlucky ones. And the letter that Hotchkiss received from a field auditor in September gives no sign of flexibility. The only mention of COVID-19 notes that under Phase 2 restrictions, auditors aren’t allowed to make on-site visits.
Much of the letter is a laundry list of documents that must be produced — tax returns, bank statements, sales journals, purchase invoices, credit card statements, depreciation schedules — to show a business is paying correct taxes and following applicable laws.
All of this is strictly by the book. The revenue secured through tax collections and audits is necessary to keep Washington schools running, roads paved and public safety officers on duty.
But during a backbreaking pandemic, promises of flexibility are empty if not accompanied by clear communication.
No wonder Hotchkiss felt like another nail was hammered into Odd Otter’s hide.
We hope the local brewery can hold it together through the lean weeks ahead. The place radiates a welcoming Grit City vibe, catering to subcultures including the LGBTQ and military communities. (Three of the five original partners serve or have served in the Armed Forces.)
“We really love Tacoma,” Hotchkiss said. “None of us are originally from Tacoma but we love the community; it has a very personable feel.”
Looking at the big picture, however, the state needs to fix its communication protocols. That means no more misleading messages telling beleaguered businesses to unravel 3 ½ years of tax history.
The governor may need to get involved since the Revenue Department reports to him. Episodes like this only fuel a growing perception that his pandemic management is laser-focused on public health but flat-footed on economic concerns.
It’s tough enough for small businesses to survive in a strong economy, let alone the one they’re facing now. They need state leaders to pull nails, not pound them.
This story was originally published November 21, 2020 at 7:00 AM.