Richmond restaurants dispute thousands in meals tax penalties
The city’s finance department has a recent history of irregularities.
Just before Christmas, the owner of Latitude Seafood Co. paid about $68,000 in taxes and interest to Richmond for what the city’s finance department says began with a late meals tax payment in 2020.
“They gave me one hour to pay it or go on a payment plan, which is going to cost me $100,000,” said co-owner Kevin Grubbs.
Grubbs said he made the March 2020 payment late, but has paid on time since then.
Each month, city restaurants pay a self-reported tax of 7.5% that’s used to support public schools. Contrasting with other local governments — like Hanover and Henrico counties — restaurant owners said Richmond does not automatically notify them if they’re late or miss a tax payment.
When the COVID-19 pandemic hit, Mayor Levar Stoney and Richmond City Council passed a “Tax Amnesty Program” that postponed payments from March 21 through June 23, 2020.
Eligibility was contingent on businesses applying for the program and paying “all delinquent taxes, together with any interest or penalty not waived in accordance with this article” by the end of the amnesty period.
But Grubbs said the city didn’t properly notify his business of what it owed in 2020 — or of the interest, which ballooned the restaurant’s debt over two years. Grubbs said he was notified of the penalties in October 2022 and appealed the charges the following month to Richmond Finance Director Sheila White.
“This whole last year, they've been charging me like $2,500 fines each month while [they’ve conducted an] audit,” he said. “Why couldn't they just say ‘You owe $40,000?’ So, now they've racked it up to $68,000.”
The appeal was denied Dec. 1, 2023.
In the decision, White wrote that Grubbs was notified in September 2020 of the penalty. But the department head said that the initial bill was inaccurate.
In the denial of appeal, she wrote that the incorrect “amount on the statement to the Taxpayer would have directly contributed to the taxpayer not understanding the amount of interest due since less interest would have accrued on a lower balance amount. While this does not excuse the Taxpayer's failure to pay the delinquent tax amounts, the City's failure to provide an accurate balance may have caused the Taxpayer to not understand how much interest was due.”
Grubbs — whose restaurant has several other locations in Maryland and Central Virginia, including one being planned along Hull Street in Chesterfield County — said he’s going to move the Richmond store out of the city.
“I’ll move two minutes up the street, and I will retain all of my people,” said Grubbs, who added that his Stony Point Fashion Park location pays about $22,000 each month to the city for the meals tax. “So, you're not going to get anything, and I will lose nothing.”
The business owner said he wouldn’t again open a restaurant in Richmond.
The city’s response, other finance issues
On Tuesday, Petula Burks — director of the city’s Office of Strategic Communications & Civic Engagement — released a statement on questions raised about the meals tax and how penalties are handled.
“Per the Commonwealth of Virginia Code, the responsibility is on the business owner to remit the accurate amount in a timely manner. In the City of Richmond, meals tax is due the 20th of each month,” the statement said. “However, if the city finds a discrepancy from prior payments or outstanding penalties and interest, a partial payment is letter is sent for the taxpayer to contact the Department of Finance. Taxpayers are encouraged to contact the city to work through the amount to bring the account current. Other localities also operate in the same manner.”
City Council President Kristen Nye represents the district where Latitude is located.
“We’ve had challenges over the years with the meals tax and restaurant owners being able to see their accounts in real time,” she said. “If a discrepancy happens … they are not notified. And once they get behind, if they don’t know, then it affects every payment.”
Related issues have been brought to councilors “probably over four years,” she added.
Grubbs said other restaurateurs have contacted him after having similar experiences, but weren’t willing to come forward.
Samuel Veney, an owner of Philly Vegan, recently posted a video to social media saying he’d received inaccurate information from a city employee while filling out documents to open the business in 2021. As a result, the restaurant wasn’t collecting and paying Richmond’s meals tax.
In March 2022, Veney said a city representative stopped into the Southside restaurant and asked why. The business is now on the hook for about $37,000.
“We don’t know what’s going to happen,” Veney said Tuesday. “What we want is justice.”
After learning about the tax bill, Veney said the restaurant hired an attorney and tried to compromise with the city, but was rebuffed. Finance Director White, he said, has declined to meet with Philly Vegan’s owners.
When VPM News reached out to White for an interview, she forwarded the request to a city spokesperson, who did not make the department head available.
A meals tax surprise
In 2020, amid the pandemic, Brad Hemp — then part of a management group that ran several restaurants, including Metzger Bar & Butchery — accidentally stumbled upon the fact that Brenner Pass owed the city about $20,000 as a result of a missed meals tax payment. The late payment, according to reporting by the Richmond Times-Dispatch, occurred two years earlier. Hemp paid the bill.
Manny Mendez opened Kuba Kuba in 1998. The business expanded from the Fan into a second West End spot in 2015. He said the restaurants never had any issues with the meals tax, but recognized the difficulty in negotiating the city’s taxation processes.
“If you don’t have a CPA, it’d be really hard for a mom-and-pop shop,” Mendez told VPM News in late 2023. “We’ve got great accountants, and I pay on the 20th every month.”
Richmond Department of Finance
Richmond’s finance department has had other issues over the years.
State law indicates that businesses that make incorrect tax payments don’t have to be notified, though cities and counties can create a process to do so. In 1993, Richmond passed an ordinance that said, “Whenever the Director of Finance determines that any taxes due under this chapter have been erroneously assessed or that payments have been remitted in excess of the taxes due the City, the Director shall refund such erroneous or excess tax payments with interest at the same rate as charged by the City for delinquent or omitted tax payments.”
If overpaid, that money accrues interest, and the city’s liable to pay back the rate it would charge as a penalty — 10%. The practice led to a business paying $3 million dollars more than it owed in 2017, receiving $475,000 in interest.
Last month, a city audit of the Individual Motor Vehicle Personal Property Tax Assessment and Collections found a number of irregularities, including a dozen vehicle owners who were double billed. For the report, city auditors interviewed department staff, conducted tests on methods of bill calculations, as well as the timeliness of the bills being sent to residents.
The Dec. 5 report said that six of 10 vehicles in a random sample “were noted to have errors.” The errors, the report said, came as the result of filing due dates being changed, but “a penalty should not have been applied.”
The auditors also found that more than 13,000 vehicles “were incorrectly assessed,” in part due to the way value was calculated. In a sample, 11 of 13 were “assessed using the incorrect method.”
Are you a Richmond restaurant owner who has experienced meals tax penalties and is willing to speak with VPM News? Reach out: [email protected].