Monday, January 04, 2010

[Guest essay] The abusive relationship between NYS and small businesses

A Christmas Carol – New York Style
by Matt Funiciello, owner of Rock Hill Bakehouse and Cafe


The Empire state’s web page has a proud banner which reads, “New York *HEARTS* Business!” As a small business owner, I have to wonder who dreamed up this Orwellian nonsense? It should (perhaps, more correctly) read, “New York *HEARTS* Attacking Small Business!”

I have to have a certain amount of respect for Governor Paterson. I buy into the propaganda. He was thrust into the situation he is in and he should be credited with taking a tough and fairly principled stance against the monied interests in our state as we start to feel the full effects of this, seemingly historic, recession. But, when it comes to the agencies and groups that represent us in this state, I am not “feeling the love” at all.

What I am feeling, like my 32 workers, is that we are trapped in an abusive relationship with the state and that keeping it a secret only benefits our abuser. This state that “loves” us so is using us in the much the same way a desperate parent might use the contents of their kids’ piggy banks to buy food for they, themselves, to eat. At a time when it is crucial that we all work together, our state should be helping small employers rather than trying to extinguish our collective flame. At the very least, they shouldn’t be beating us without mercy!

Given the 1.2 billion dollars in corporate welfare being given to Global Foundries/AMD (the Malta chip fab project), the millions that will be spent on make-work projects like the Champlain bridge, the lack of any serious, much-needed, IDA reform and the hundreds of billions that have been bled out to AIG and other banksters and welfare cases by our federal government, you’ll pardon me if I find it impossible to take any of our government’s claims of “love” seriously.

Last year, we had an equipment fire which led to smoke damage and divided responsibilities from several different insurance carriers. In the end, we lost three weeks of production and 2009 became a real struggle for us. It has, simply put, been a very tough year, but to add insult to injury, this past year has also marked some extremely unfair attacks by our government on our financial well-being.

New York Taxation and Finance did not appreciate our lack of ability to pay our final period of sales tax due from the period of the fire. We missed this one payment and I knew that we would be required to pay a penalty and interest (as has been the case at the other times in the past two decades when we could not immediately pay our sales tax bill).

Upon receiving a notice from the state in the early spring, I called the number cited several times and left messages but received no response. Calling other numbers netted me long periods waiting, but no humans picked up at the other end. As spring progressed into summer and cash flow improved, I simply started sending them about 1/5th of the projected bill each month hoping that they would then contact me or at least send me a letter stating their terms for repayment as a response to those payments. I wanted them to know that I would make good on our debt.

I believe it was just after making the second payment that they sent our bank a levy notice for the original amount. Without much adieu, they took it. The only flexibility exhibited during this transaction was that when they realized they had actually taken more money than was due, they reversed the initial levy for a day and put out a new levy for the reduced amount and took that instead.
No conversation. No discussion. No concern for our financial status or well-being at all. Mercenary.

Next, we suffered an attack by the IRS, who had decided way back in 2008 that we should be punished for making our weekly FICA (payroll) with-holdings in person, in a timely fashion, at our bank, each week. Our transgression? We had shown the testicular fortitude to have made these payments (horror of horrors) in person at the bank, rather than electronically, which the IRS had then decided they can force people to do whether they bank electronically or wish to or not. The net result was an $8,000 levy as a fine (and interest) for taxes already paid on time and in full.
Needless to say, having just survived the fire and now entering the surreal weirdness that is this recession, I was dumbfounded. Why attack an employer in a recession?

These attacks on us seem purposeful but, in the end, I have to believe, that they are simply “fishing.” Many businesses are attacked in this manner. We all have to decide whether it is financially reasonable to fight back to defend a principle or is it, in some cases, more responsible to just pay up given that it may cost more to fight than to acquiesce? Well, we are fighting this one and, for the moment, the IRS, to its credit, has backed off.

As with many small businesses in New York state, we often live check to check, just as our workers are forced to. But, on a daily basis, we all have to recognize that attacks of this kind can too often be the proverbial straw that shatters the camel’s spine for small businesses all over the state and the country.

The last attack we’re dealing with is just unconscionable. As a business involved in the manufacture of non-taxable products, we’re exempted from paying sales tax on utilities used in their production. This is certainly not a loophole and many businesses depend on this exemption. If the state cannot collect sales tax on the item produced, then what right should they have to collect tax on the utility used to produce it, right?

So, we do pay sales tax on the utilities consumed at our cafe and we pay sales tax on one of the accounts at our production space because it, arguably, covers about 1/5 of our consumption which is probably about three or four times the actual proportion of utility use that is not production-specific. We do not pay sales tax on the space in which natural gas fires our two hearth ovens and that seems to be the primary focus of this witch hunt. Obviously, that gas is used for production, right?

Well, New York State has decided that we are trying to get one over on them by not paying sales tax on utility use in this space and they decided to conduct an audit to determine if that is the case. By, “conduct an audit”, I mean they have forced us to use our own time and to pay an accountant to provide them with all the information they require to better attack us.

We collected and sent in all the information they asked for and, basically, were told that we can expect to pay sales tax on all the lighting used in our production area as it is merely “a comfort for workers, not, apparently, a “necessity”! Now, we are also being told that much, if not all, of the gas we use in our bake ovens may also be taxable.

Well, I have to say that, having tried hard to bake bread in the dark (during power outages), lighting is most certainly not just “a comfort for workers”. It is a required and direct component of production. Period. Without light, one cannot produce bread (never mind the fact that it is federal and state law that these areas be adequately lit for safety reasons, if nothing else). These lights are used for production and they are used DIRECTLY for it. In fact, if they were not used for production of bread, we would not use them at all.

We come then to gas use. We leave our ovens running all the time, all year round. They are hearth ovens. They retain their heat remarkably well so it is arguably more efficient (and better for them) to keep them running at a relatively constant temperature than to have them suffer major heat loss and then recover it over and over again. We bake almost around the clock. Even so, we run a gas furnace in an adjoining open room which is specifically there to heat our production space and packaging space as the ovens certainly don’t keep us, our bread, or our pipes, warm enough not to freeze.

I would question the state’s maintenance that is now ethical and responsible to retroactively bill us for sales tax on natural gas in my production space at all given that the food requires said heat every bit as much as me and my workers do (and bakers, like lights, are certainly a direct part of production, regardless). But, I also have to wonder, since all of this gas is only used in our production area and is absolutely necessary for the production of bread, it should all be exempt from sales tax, anyway, right?
Well, again, not according to NYS Taxation and Finance.

Our “lovers” presented us with a Christmas present this year and it was an invoice for $6800 in taxes, penalties and interest that arrived a few days before the 25th. Our “lovers” didn’t bother to wrap it. No bow. No tinsel. No card. Nothing.

Now, I have lots of friends and acquaintances and when I tell them these horror stories, they are simply incredulous. While most of them do not love this state or its anti-small business behavior, they are simply incredulous about how much the state seems to single people out, especially targets like me (my only real crime seems to be not knowing when to keep my mouth shut.

I can’t help but wonder if I, and my 32 employees, are in what amounts to an abusive relationship with New York. I also can’t help but wonder if it makes any economic sense to destroy New York’s small business infrastructure just to grab a few bucks? In the process, they are causing many ships to go down and how, in this job market, can that benefit we, the taxpayers? For every small business forced to put with these gestapo tactics, there are countless workers who may face the unemployment line and countless taxpayers who will have to foot the bill when that happens.

As much as I respect your hard line, Governor Paterson, I have to ask if there is any mathematical formula whereby “unemploying” 32 people tomorrow is a winning scenario for us collectively when the return is the meager (and unethical) extraction of a few thousand, ill-gotten, dollars?

In truth, if New York really *HEARTS* small business, it should be finding ways to give us all a break while we are all going through hard times, not focusing on finding better ways to joyously kick us while we’re down.

Where are our bonuses? Where are our make-work projects? Where are our well-timed infusions of cash? Where’s our corporate welfare?
Governor, as Global Foundries (or whatever we’re calling them today) stand poised to finally cash in their $1.2 Billion dollar taxpayer-funded check, perhaps you can explain in your state of the state address how I, and my 32 workers, are supposed to pay for this handout?

It would seem that, regardless of your personal intent, your administration and agencies are eager to see us do it with newly-received unemployment checks!

1 comment:

Anonymous said...

"the millions that will be spent on make-work projects like the Champlain bridge"
I think it's a stretch to call the lake champlain bridge a make-work project. It was used by 3 thousand people a day.