Restaurant owner missed one meals tax payment. Richmond charged him $68,000 in late fees: 'Completely immoral'

RICHMOND, Va. -- What started as a late meals tax payment for one Richmond restaurant owner ended up turning into a $68,000 mistake.

Kevin Grubbs, owner of Latitude Seafood Co., opened his Richmond location at Stony Point Fashion Park in 2018. It was a decision he may now be regretting after going through what he called a "nightmare" situation with the City of Richmond.

“The way it was all handled makes Richmond extremely untrustworthy. I can't say I would do business in Richmond again," Grubbs said.

On average, he said he sends the city about $28,000 a month in meals tax payments.

That money is collected through a 7.5% tax on every diner's bill.

The reporting and collection of taxes operates on an "honor system," which means business owners are responsible for reporting and sending the amount owed to the city.

But Grubbs was late on one payment in March 2020.

According to the city's records, as indicated in a Department of Finance appeal report, his March 2020 payment had an effective date of May 13, 2020, but was due April 20, 2020.

The late payment came as his restaurant was forced to close toward the beginning of the pandemic and as the city offered an amnesty program to waive interest and penalties applied to certain meals taxes from March 2020 to June 2020.

Grubbs said since he sent his payment within that period, he thought a late penalty would be abated. However, he was unaware of certain stipulations for restaurants to qualify for the program, such as requiring them to apply.

He was ultimately assessed an $800 late fee, but he said no one ever notified him that he owed it.

"If we had known, then we would have just settled the $800 right then. We're not going to let this get out of hand," he said.

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But he didn't know.

So, Grubbs said he sent his meals tax payments as usual, not knowing that the city was tacking on a 10% penalty every single month for the March 2020 payment.

In November 2022, he said he eventually received a notice from the city, which it called a "courtesy," that his $800 late fee had grown to $41,000.

Shocked, Grubbs filed an appeal with the Finance Department.

It took a year for the department to investigate, and then on December 1, 2023, Finance Director Sheila White notified Grubbs that his appeal had been denied.

Citing an opinion from the Attorney General, the Finance Department's appeal report stated, "taxpayers have a duty to investigate the amount of the tax and to pay it, and the failure to do so does not relieve the taxpayer of fault."

The department's report also stated that the city informed Grubbs in September 2020, when Grubbs applied for a business license renewal, that there was a balance on his meals tax and provided him with a statement. However, the report admitted that the balance on the statement was incorrect and significantly lower than what he owed.

"While it is regrettable that the statement included the wrong balance, being provided with the statement put the Taxpayer on further notice that its Meals Tax Account was delinquent," the report said.

As that audit took place for a year, the city continued to add more penalties, and by December 1, 2023, Grubbs owed Richmond $68,000 – which he ultimately paid.

“It’s not right. It’s completely immoral," Grubbs said.

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He's not the only frustrated restaurant owner.

“I just wish our city would fix the problems that they've been telling me they're going to fix for years," John Giavos, who runs ten restaurants and six markets across Richmond, said.

Giavos said it took him three and a half years to get a business license because the city withheld it over a mistake on one of his meals tax payments from years ago.

Giavos said the city never told him about the issue.

He believes Richmond should take notes from its neighbor.

“There's no transparency for them to show you that you've been late," Giavos said. "Like Henrico County, you can go online and you can check the computers, and you can know when you're late. And you can pay it online and you can move forward. There's none of that with the City of Richmond."

He added, "They need to ask themselves, 'What would Henrico do?'"

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CBS 6 reached out to Henrico County's finance department to ask if it notifies businesses when they're late on meals tax payments.

It does.

"Henrico County administers the meals tax monthly. Part of that process does involve communication with relevant businesses regarding missing filings, payments, and late fees. We also send monthly notices for the outstanding balance," said business audit supervisor Morgan Howell.

Richmond City Councilman Andreas Addison (1st District) said the problems in Richmond are not new, and he hopes to initiate improvements in communication between the city and its business owners.

"Are we proactively getting ahead of problems before they become an issue? Are we really engaging with people? No. We're just sending them a bill and going, 'Hey, figure it out,'" Addison said.

Addison said he would escalate restaurant owners' concerns to his colleagues on the council and the administration.

"At the end of the day, government is going to do what the bare minimum is required by law, and that's what you're getting right now," Addison said. "We need to be supporting [business's] success and their growth and their opportunities to provide more investment in our city."

CBS 6 requested an interview with Richmond's Finance Director Sheila White and requested a response from Mayor Levar Stoney. Neither request was granted.

However, city spokesperson Petula Burks provided a written statement stating in part, "It is important to note that legally the city cannot speak to a specific individual's tax information. Please understand that these situations did not occur overnight and are not a surprise to the businesses."

Burks said pertinent information about the meals tax is posted online, and it is the business owner's responsibility to pay accurate taxes on time.

"Each business operating within the city is responsible for knowing their obligations and for addressing liabilities. Information regarding applicable taxes is contained on the city website and is provided to the business when the business license is issued. The city does not produce or mail bills for meals tax. This tax is collected just like how sales tax is collected by the state," Burks said, adding that the city is compliant with state codes pertaining to collecting taxes.

Her statement continued, "When businesses do not comply with state and local code pertaining to meals tax, it is the equivalent to embezzlement. The City of Richmond is willing to work with business owners to set up payment plans to help them come into compliance."

Grubbs said he planned to challenge the city in circuit court over the late fees while advocating for systematic change at the state level.

“It should be a law that changes. In Virginia, it should be a law that if they're going to accrue [late fees] that way, then they send you a notice and say, ‘Hey, we're going to accrue this,’ because so many of us have no idea," Grubbs said.

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