Two Roanoke restaurateurs are facing embezzlement charges for failing to pay more than $30,000 in meals taxes to the city.
The owners of Mel’s Place Wood Fired Pizza are the first to be charged with felonies in a more aggressive approach by the city treasurer to extracting the meals taxes collected by restaurants but not paid to the city. Charging meals tax scofflaws with embezzlement isn’t unheard of, but it’s unusual.
“It’s not their money. They’re using their tax dollars as part of their operating expense, and you can’t do that,” Roanoke Treasurer Evelyn Powers said. “At the end of the day, they know what they’ve collected today in meals tax that belongs to the city.”
“I think like everything else, you sort of hope people will comply voluntarily with the law,” said Roanoke Commonwealth’s Attorney Don Caldwell. “When they don’t you have to consider other options.”
Chris Graham and Michele Green, the owners of Mel’s Place at 551 Marshall Ave. S.W., were indicted in November.
“We believe we’ll be able to prove in the range of $32,000” of unpaid taxes, Caldwell said. That amount represents perhaps a year of overdue taxes, he said.
“Mr. Graham and Miss Green deny the allegations in the strongest possible terms,” said their lawyer, Rob Dean. “And they look forward to resolving this matter with the city as soon as possible.”
The restaurant remains open, Dean said.
Caldwell said the pair were advised ahead of time that they would be indicted and told to turn themselves in. They didn’t, warrants were issued and police arrested them Dec. 1. They are both free on $5,000 bond.
In the early 1990s, Roanoke authorities charged a handful of restaurant owners with embezzlement for unpaid meals taxes, but Caldwell doesn’t recall that it’s happened since then.
In June, Salem authorities charged the owners of the Pirate Sip Barrr with embezzlement for about $15,000 in unpaid taxes. The two women were jailed for 16 days each. A few cases from elsewhere in Virginia also have made the news in recent years.
Caldwell said Salem’s success in prosecuting those restaurateurs had some influence on his consideration of it.
Powers has never resorted to felony charges before now, but she’s ready to make it a regular option if necessary.
“This just seemed to be a way to get some teeth in them to say, ‘We mean business,’” she said.
The meals tax, formally called the prepared food and beverage tax, is a local levy and what’s known as a “trust tax.” Business are charged with collecting the tax — 5.5 percent on each dollar in Roanoke — and trusted to remit what they collect to the city each month.
“We’re giving it because we think it’s going to help the schools and all that,” Caldwell said, not to fund the operating costs of the restaurants.
For the most recent year, meals taxes contributed $16 million to city coffers.
Currently there are 530 meals tax accounts in Roanoke. More than 10 percent of them, or 56, were delinquent in September, according to the Roanoke Commissioner of the Revenue’s Office. That’s $251,252.40 in unpaid meals taxes for September alone.
Powers said her office is currently pursuing collections against 48 establishments.
She’s planning to send cases to the commonwealth’s attorney for criminal prosecution monthly if the circumstances demand it.
In October, she sent notices to all delinquent account holders announcing her plans in red, capital letters at the top and citing chapter and verse of the Code of Virginia that allows her to do it.
She’ll only take that measure when she’s exhausted all other options and the account holder is uncooperative.
Those other options include bank liens — essentially seizing the taxes owed from the business’ bank account. Powers said that’s not always effective because she has to first know where a business banks, and some business owners simply move their accounts to another bank to escape her reach.
Powers said she could turn to “till tapping” — simply walking into the restaurant and collecting cash from the register till — but she doesn’t want to put her staff in a situation that could turn volatile.
Powers acknowledged her approach is more stern than what business owners have been accustomed.
Until last year, meals taxes were assessed and collected by the city’s director of finance. As part of an effort to consolidate all assessments with the commissioner of the revenue and all collections with the treasurer, Powers began collecting meals taxes.
“My rules are different,” she said. “If it’s not in here by the 20th of the month, you’re going to get a penalty.”
Powers said she didn’t take lightly the decision to pursue felony embezzlement charges against people who are mostly local small business owners.
“It did bother me a little bit, but when I sat down to think about fairness, it’s not fair … to the restaurants who really do the right thing,” she said.
Now, she’s resolute.
“It’s not like these people have not been put on notice,” Powers said.
Caldwell defended the embezzlement charge as fitting for tax scofflaws.
“When you are entrusted with money and then you converted it to your own use without permission, that’s embezzlement,” he said.
Caldwell expects the Mel’s Place case — and any subsequent ones brought — to turn largely on debates over amounts due. “It’s going to be a record intensive case to prove,” he said.
Powers anticipates taking a case or more to Caldwell for potential prosecution perhaps monthly for a while, but she and Caldwell both believe the cases will ultimately serve as a spur for other volunteers to keep their taxes paid.
For those who don’t get the drift, “Let the courts put them in jail,” Powers said. “It’s not like they don’t know they owe the city this money.”