Tag: todd divers

Categories
News

‘The squeeze’: Novelists sue city and county for business tax bills

Novelists John Hart and Corban Addison (pictured here with their attorney Renée Flaherty) are freelancers who work from home or remote locations. They’re suing the city and county for collecting taxes on what they say are their constitutionally protected endeavors. Eze Amos

John Hart and Corban Addison Klug both make a living writing novels. Unlike writers for newspapers and magazines, which state code exempts from business license taxes, Hart and Addison received sizable tax bills from Albemarle County and Charlottesville that they say are unconstitutional.

The two men filed lawsuits against the city and county July 24, represented by the Arlington-based Institute for Justice, a “nonprofit, public interest law firm that litigates cutting-edge cases,” according to attorney Renée Flaherty.

The libertarian institute focuses on government overreach in cases involving private property, occupational overregulation, free speech, and school choice. Its most famous case, and the only one it lost before the U.S. Supreme Court, according to its website, was Kelo v. New London, which spurred an eminent domain backlash against government confiscation of property for private development.

In this case, the city and county “unconstitutionally discriminate between different kinds of speech,” says Flaherty. “Instead of protecting and supporting its creative community, Charlottesville and Albemarle County have decided to treat it like an ATM.”

Klug, who writes under the name Corban Addison, has lived in Charlottesville since he attended law school here in 2001, and has written four novels that address human rights issues. Because he offers no goods or services for sale in the city, he was unaware he was subject to business taxes—until he got a notice from Todd Divers, the commissioner of revenue, who also is named in the suit, advising him he may need to pay up.

“I’m committed to paying my taxes,” says Klug. But he believes he should be treated the same as the press and also get First Amendment protections.

Klug says he ended up paying the city almost $2,600 for three years in back taxes, penalties, and interest on his gross receipts, which don’t allow the deductions for travel or other expenses that he would get on his income taxes.

Hart, a former lawyer and financial adviser, spent 15 years trying to be a published author. His six literary thrillers in Southern gothic settings have been New York Times bestsellers. “I need a laptop and pure imagination, he says. “I don’t understand why the county feels they’re entitled to a piece of that.”

In 2016, he—many other local freelance writers—learned that the county, which had hired two full-time business-tax auditors, did indeed believe it was entitled to a piece of his income going back to 2011. He’s coughed up nearly $11,000 in taxes, penalties, and interest, which he paid under protest.

Besides claiming the business tax on freelance writers is unconstitutional, Hart and Addison also allege city and county tax officials “exploit” the code, which they say is vague and doesn’t list writers or authors among those businesses and services that must pay 36 cents per $100 on gross receipts if they earn over $100,000. Writers who earn less pay a flat fee that starts at $35 in the city and $50 in the county.

While other localities like Arlington have business taxes, they don’t target writers, says Flaherty.

When individuals are self-employed, they file a Schedule C on their income taxes to report profit or loss, and local tax collectors have access to those forms.

In 2016, Charlottesville didn’t regularly go after freelance writers. Divers told C-VILLE then, “The juice has got to be worth the squeeze. I don’t know how much it’s worth with our workload. We do check Schedule Cs occasionally.”

Divers declined to comment about the suit, and Bill Letteri, his counterpart in the county who is named in Hart’s suit, did not respond to an inquiry from C-VILLE.

The authors want the courts to declare the business license ordinances unconstitutional and to refund the taxes they’ve paid.

Categories
News

Overtaxed: Numbers don’t add up for diners

The July 1 increase in the meals tax caused some miscalculations in diners' tabs. staff photo

Charlottesville raised its meals tax to 6 percent July 1, which, on top of the 5.3 percent state sales tax, adds more than 11 percent to your dinner tab. But a computer glitch at one local restaurant meant some customers were paying more than 16 percent.

Lorena Perez, a designer at C-VILLE Weekly, had lunch with friends at Wild Wolf Brewing Company on Second Street SE on July 4. She calculated that the $7.66 tax charged on her $46 bill was 16.65 percent. Her companions also had more than 16 percent added to their bill—about $2 more than what the tax should be.

The tax on this bill should be $5.20, not $7.66.

Perez says, “We told the manager, who called the general manager, who said over the phone that their system had the accurate percentage in, and that it was the correct tax. We asked the manager in the restaurant to do the math, and although he agreed that the amount was more than what the percentage should be, he said, ‘I can’t do anything about it.’”

Commissioner of Revenue Todd Divers confirms that the meals tax is 6 percent and the state tax is 5.3 percent for a total of 11.3 percent on restaurant tabs in the city. “It could be an honest mistake if the wrong number was put in at the point of sale,” he says.

If it’s an ongoing problem, says Divers, “it could escalate to the police.” According to city code, “the wrongful and fraudulent use of such collections” constitutes embezzlement, he says.

A week later on July 11, C-VILLE dined at Wild Wolf, which opened its Charlottesville location in May, to see if the excess tax had been fixed. It had not been.

On a bill of $34, the tax was $5.64, almost 17 percent—a $1.80 overcharge. The manager on duty said she’d have the marketing manager call back. C-VILLE also left a message for Troy Berge, the general manager.

It was July 17 before C-VILLE caught up with Berge, who said he’d look into it. “We don’t want to be overcharging.”

He discovered there was a problem. “After July 1, the system reprogrammed. It was only a few days. We didn’t realize it.”

Perez says the manager she spoke with offered to discount her bill—but didn’t do it. “We left quite disappointed” by the customer service and “knowing that they are overcharging customers with the tax.”

Berge says no one called him about Perez’s tax concern July 4—and that the manager Perez spoke to is no longer there.

“Please ask her to come in,” says Berge. “I’d like to take care of her.”

Wild Wolf added a couple of extra dollars in tax to a recent lunch tab (top).

Categories
News

Show them the money: Revenue commissioner says no to Airbnb collecting local occupancy taxes

Airbnb says it has 1,100 listings in the Charlottesville area.

Over graduation weekend, Fry’s Spring resident Chris Meyer rented his house for a “ridiculous amount of money to someone from California,” he said at City Council May 20.

He appeared before council to complain about the difficulty he encountered in getting the proper city permits and in trying to remit the transient occupancy tax, and asked councilors: Why not do what Alexandria and Blacksburg do and have Airbnb collect the lodging tax? He also suggested raising the rate from 7 percent to 15 or 20 percent, and using that money for affordable housing rental vouchers.

Mayor Nikuyah Walker commended his “very different perspective,” and councilor Kathy Galvin noted that in 2018, the city lost about 250 housing units to short-term rentals.

Commissioner of Revenue Todd Divers is not enthusiastic about the idea of turning lodging tax collection over to a “multinational corporate entity that has repeatedly shown its willingness to flout tax, zoning, and regulatory structures all over the world.”

In a memo to City Council and City Manager Tarron Richardson, Divers says his office is doing a “fantastic” job of collecting transient occupancy tax of licensed homestays—over $1 million since the city created a hotel residential permit a few years ago.

His problem with having Airbnb collect the lodging tax is that the company will not disclose the identity and location of hosts, nor will it allow the city to audit its tax records more than once every four years, which means the city has to take Airbnb’s word it’s collecting all the taxes. Meanwhile, the city still must make sure hosts have business licenses and homestay permits.

Divers also questions how Airbnb can determine the appropriate jurisdiction for an Albemarle rental with a Charlottesville address.

“We’ve done this all over the world,” says Airbnb spokesperson Liz DeBold Fusco. Airbnb has collected more than $1 billion in taxes in 400 municipalities. “I’m not sure why [Divers] thinks our methods don’t work.”

She also “vehemently” disagrees with his characterization the company flouts regulations. “We think that’s baseless.”

Divers points out that 189 jurisdictions in Virginia collect lodging taxes, and he contends that rather than asking why Charlottesville doesn’t follow the Alexandria/Blacksburg model, the question should be, “why did 187 other jurisdictions in Virginia reject it?”

In Meyer’s case, Divers says someone who rents out his home once or twice a year, is “de minimis” by taxation standards, which means the person doesn’t have to get the short-term rental permit. “I’m not going to make you do anything” as far as trying to collect the lodging tax, says Divers, although one is still free to pay the tax if he wants.

However, he’s still checking the Airbnb website, and if someone claims to have an infrequent rental and he finds out otherwise, “I’m going to come to get you,” says Divers.

Meyer met with Divers after the City Council meeting, and learned he didn’t have to do the paperwork, but he still feels the city should be collecting the $125 tax in his case.

And he likes the idea of making a difference between the lodging tax hotels pay and the tax on short-term rentals, upping the transient occupancy tax to 15 or 20 percent on the latter to help mitigate the loss of housing stock.

“That excess revenue should be plowed into rental housing vouchers,” he says, “to help people displaced by Airbnb.”

Developer Oliver Kuttner owns nine apartments on the Downtown Mall that he rents full-time on Airbnb, for which he pays more than $1,000 per month in transient occupancy taxes. He says the city pays “lip service” to affordable housing. In 2015, he wanted to build micro-apartments behind the Glass Building on Second Street SE, but couldn’t get the rezoning needed. An office building is now going up in that spot.

“It cost me $80,000 [in permits] and six months of my life to be denied the permit to build micro-units,” he says. “The city is the single biggest obstacle to lower-cost apartments.”

Now, he wants more decentralized hotels like Airbnb. “We need to support the person who wants to build one hotel,” says Kuttner. “I would like to see more independent hotels than a fifth Marriott downtown.”

Currently Charlottesville has no plans to funnel lodging taxes into affordable housing vouchers, says city spokesperson Brian Wheeler. The taxes go into the general fund, which funds the city’s affordable housing initiatives, he says.

Meyer says he thinks Divers is doing a “very good job” in collecting the lodging tax, but says, “I wonder if we can do better.”

Categories
News

The taxman cometh—and wants list of stored vehicles

Todd Divers’ job is to find taxable property for the city. File photo

Personal property taxes are due June 5, and the city has stepped up its efforts to locate vehicles that reside in Charlottesville, even if their owners don’t.

Woolen Mills Storage received a request from Commissioner of the Revenue Todd Divers to provide a list of vehicles stored there.

“If a vehicle is parked here on January 1, it’s taxed here,” says Divers.

“It has been a nightmare,” says Woolen Mills Storage general manager Eddie Griffin, who was charged with collecting the name, address, vehicle description and VIN—vehicle identification number—from the 47 rented spaces, including some that are rented by construction companies that switch multiple vehicles in and out of the spaces.

He says 22 tenants had not turned in their paperwork. “It has been a pain in the butt,” he says, and he wonders why the city can’t collect the information from the Department of Motor Vehicles.

“It’s a request for information,” says Divers, who says the city routinely asks landlords for lists of tenants to make sure businesses have licenses or have paid tangible business taxes. And while he hasn’t gone after apartment complexes for lists of renters, “I think the code allows that.”

That’s something Albemarle County is already doing, according to spokesperson Jody Saunders. Owners of apartments, office buildings, shopping centers,
trailer camps, trailer courts, self-service storage facilities, marinas and airports are all required to file lists of tenants with the county, she says.

What the city’s request is not, assures Divers, is double taxation for someone who may live in Albemarle and store a vehicle in Charlottesville. If that’s the case, “you’d probably get a refund from Albemarle,” he says.

And nonresidents who rent a monthly parking space in the city are exempt from paying personal property tax, as are full-time students who pay taxes on their vehicles in another domicile, says Divers.

Tracking down stored boats or RVs to collect the city’s $4.20 per $100 of value is just part of the commissioner of the revenue job. “We have to find taxable property and tax it,” says Divers. “That’s what they hire us for.”

Correction 12:08pm: Woolen Mills Storage is not the only storage facility in the city, as previously reported, but it does seem to be the only one that stores vehicles, boats and RVs.

Categories
News

Writer tax: County is all business in targeting freelancers

Writer Kathy Erskine considers herself a law-abiding citizen, but found out recently that she’d been breaking the law by not having an Albemarle County home business license, which she has since obtained for a one-time $27 fee. Photo by Eze Amos

In an area crawling with writers, it’s a well-known fact: Unless you’re a John Grisham or Jan Karon, the odds of being able to pay the rent by writing are pretty low. Nonetheless, that hasn’t deterred Albemarle County from requiring a $50 business occupational professional license—and collecting it for the past five years, with interest and penalties.

A slew of local writers, among other Virginia Department of Taxation Schedule C filers, were recently hit with notices that they need the license if they earned more than $5,000—and if they make more than $100K, they have to pay a percentage of gross receipts.

National Book Award winner Kathy Erskine was one of those taxed. “The shocking thing was to learn I need a business license to be a writer,” she says. “It’s not intuitive for writers and artists to know they’re a business.”

Erskine received plenty of publicity when she won the National Book Award for Mockingbird in 2010, “so it’s not like I’m hiding,” she says.

She had to pay back taxes for five years—plus interest and penalties. And because she had an unusually good year after winning the award, she had to pay a percentage of her gross receipts. “Not net,” says Erskine, which meant she couldn’t take off her expenses for travel or advertising.

Erskine also learned she had to have a home business license, which requires a $27 one-time fee.

“I never would have guessed—it’s so crazy—that when I’m sitting at my kitchen table writing, I would need a license,” she says.

Vampirina Ballerina author Anne Marie Pace also was dinged by the county. “I don’t have a problem with taxes in general because they go to roads and schools and things I value,” she says. “It seems a little odd to me that it seems to be coming out of the blue.”

That’s because Albemarle’s finance department has hired two full-time business-tax auditors, according to director Betty Burrell, and the notices are the result of the auditors “fulfilling their job responsibilities” and following something called the audit work plan.

Burrell points to county code, which has a lengthy listing of business purveyors who must have licenses, and although writers don’t show up on the list, they’re still defined as a “business service,” explains Burrell in an e-mail.

[Disclosure: In the course of reporting this story, this reporter also found a notice in her mailbox, presumably sparked from making $6,971 from freelance writing while unemployed in 2014.]

At press time, the county had not responded to questions about its decision to collect license fees from five years back, except for this in an e-mail from the county attorney’s office: The authority to collect taxes and fees is outlined in county code. “Thus, Finance is administering tax collection, not making ‘decisions’ to collect.”

Nor had Albemarle shed light on whether anyone who isn’t a W-2 salaried employee is expected to have a business license, how much it expects to collect from the combing of Schedule Cs and how much the new auditors are getting paid.

“I think they shouldn’t charge five years back,” says Pace. She says she didn’t have the money in her business budget and had to use personal funds to pay the $250 tax bill.

“It’s an unpredictable income,” she says. “I can work and not make money. I got a $4.77 royalty statement the other day.”

Charlottesville, too, requires a $35 business license for anyone making less than $50,000. However, it doesn’t actively seek out an artist who made $200 and filed a Schedule C on her taxes, according to Commissioner of Revenue Todd Divers.

“The juice has got to be worth the squeeze,” says Divers. “I don’t know how much it’s worth with our workload. We do check Schedule Cs occasionally.”

Good news for buskers in the city: They are not required to have a license. “If they’re taking donations,” says Divers, “they’re not charging. They’d be playing anyway.”

Not everyone taxes its creative folk. In Ireland, the first 50,000 euros writers, composers and artists make is exempt.

Local writer Janis Jaquith says she didn’t make enough to be on the county’s hit list, and calls the tax regressive. “It doesn’t seem fair when the little guy has to pay more,” she says.

“If you want to be a freelance writer, it’s like taking a vow of poverty,” she adds.

“This is the county squeezing the lemon tight,” says Neil Williamson with the Free Enterprise Forum. “I understand they’re looking for money everywhere.”

Williamson thinks taxing based on gross receipts is “stupid” and the business occupational professional license should be eliminated.

Says Williamson, “This is what business-friendly looks like in Albemarle County.”

Correction 11/3/16: The caption omitted the word “home” in the type of business license Kathy Erskine obtained for a one-time $27 fee.

Categories
News

Homestay hullabaloo: State legislation could bring big change locally

Carolyn McGee, who owns The Inn at 400 West High, says there should be a level playing field for rules and regulations for all homestays. Photo by Eze Amos

While only about one-third of more than 500 homestays operating in town are compliant with local rules and regulations, the city’s commissioner of revenue, Todd Divers, says proposed state legislation is slowing the process of tracking down offenders and demanding they pay up.

The limited residential lodging act introduced by Virginia Delegate Chris Peace, R-97th, if adopted, would restrict local jurisdictions from imposing their own regulations on limited residential lodging—think Airbnbs, inns and bed and breakfasts—and enable the state to collect and remit lodging taxes, rather than the locality. The state would keep a cut of the revenue as an administrative fee.

“Localities are concerned about a local revenue source being sent to Richmond before making its way home,” Divers says. “Thereby, subjecting it to the whims of a state government facing regular revenue shortfalls.”

In Charlottesville, regulations require those operating homestays to have a special-use permit and a business license. They must also pay a 7 percent transient occupancy tax to the city each time someone rents a room in their home, which they are required to live in.

“Those familiar with how the process works for sales tax are extremely leery of having the state involved in local tax collections,” Divers says. “There is little to no accountability. Localities have a very difficult time obtaining information on a timely basis to allow enforcement against businesses that fail to collect, or fail to timely remit, sales taxes, and the state doesn’t have the time or funding to engage in audits and enforcement on behalf of each locality.”

Divers says it’s important to remember that lodging taxes aren’t taxing local businesses, but essentially taxing visitors. And local homestay operators are allowed to impose an administrative fee to cover the cost of them.

“Most everyone involved would like all of these revenues to remain local,” he says.

Carolyn McGee, the president of the Bed & Breakfast Association of Virginia and owner of The Inn at 400 West High, is one of those people. But aside from doubting the state would responsibly collect, remit and report these taxes, she is most concerned with the number of homestay operators—namely the ones renting on Airbnb—who don’t follow mandatory regulations and the city’s failure to reprehend them.

“I fully support the entrepreneurship that Airbnb can provide,” she says. “However, it has to be fair competition.”

While regulations from the health department mandate minute details such as what time McGee must bake the cookies at her inn, she says she’s aware of numerous Airbnb operators who leave wine and snacks for their guests without any special permits. And they don’t have to follow the same parking and lighting rules that she’s subjected to.

“They’re doing exactly what I’m doing without all the extra finances involved,” she says. “Renting out rooms is the only way I can afford to own this historic home in the city.”

And though the rules for Airbnbers are much less stringent, she says the number of people who don’t follow them could cause trouble.

“I just really believe that smart, common sense, short-term rental rules are needed for everybody and [all homestays] need to be legal to protect Charlottesville from this really rapid growth of illegal properties,” McGee says. “I’m afraid it’s going to take a horrible tragedy in an Airbnb for everyone to get it.”

But Divers says any progress made by the city in regulating these operations has temporarily been halted.

“Right now, we’re not really going at people with a stick,” he says. “Eventually, we will.”

He adds that the city doesn’t want to enact new ordinances that could be nullified by the pending legislation, which will be reintroduced at the next General Assembly session.

Another major concern with the bill introduced by Peace is that it would allow homestays to operate without adhering to local zoning ordinances.

Charlottesville’s zoning ordinance was designed to protect the character of low-density residential areas, according to the city attorney’s office. While people are allowed to conduct “home occupations,” as they call them, they are subject to “reasonable” regulations designed to minimize impacts such as noise, traffic and the visual impacts of commercial use.

Mark Kavit, former North Downtown Residents Association president and current board member, says homestays have the ability to quickly change the appearance of neighborhoods if those zoning ordinances no longer existed.

“You could have a place next door to you, where you have people coming and going and you have no idea who they are,” he says, adding that two realtors have approached him and asked to buy his downtown home to turn it into an Airbnb. “People need to be aware that it’s having a dramatic effect on neighborhoods.”