CHARLESTON, W.Va. — The state Tax Department is taking legal action to claim at least $1.2 million in consumer sales taxes that were collected but never passed on to the state.
Lawyers for the state filed a motion to intervene on Friday in a lawsuit over a Hilton Garden Inn in Morgantown. They followed up on Monday by filing to intervene in a lawsuit over a Hilton Garden Inn in Clarksburg and a Hampton Inn in Elkins. All the filings were in U.S. District Court for the Northern District of West Virginia.
The state claims it is owed $480,000 in taxes that were collected over several years by the Morgantown hotel but then not passed on. The total that should have been passed on by the Clarksburg and Elkins hotels is even greater, $720,000.
All of the hotels are under ownership groups headed by developer William Abruzzino and headquartered at 205 Marion Square, Fairmont.
Mountain Blue Hospitality LLC owns the Morgantown Hotel. Mountain West Hospitality LLC owns the other two. Abruzzino and his companies are also involved in multiple financial disputes over the Crossings Mall development in Kanawha County.
The hotel ownership groups, which were kicked out of bankruptcy court for failing to meet deadlines, were already subject to multi-million dollar lawsuits filed by their lenders. The state is suggesting it be rolled into those cases rather than filing separate federal lawsuits.
“The state’s interest in this case is significant and compelling,” lawyers for the Tax Department state in both filings.
MORE: Read the state’s motion to intervene in the lawsuit over the Morgantown hotel.
MORE: Read the state’s motion to intervene in the Clarksburg/Elkins lawsuit.
Lawyers for the state say that in all three instances the companies collected but failed to pay their sales taxes since 2015.
The lawyers added that it’s not clear where the money has gone. Both motions include a threat of going after the officers in the ownership groups.
“Since 2015 until the appointment of the receiver, defendant Mountain Blue Hotel Group LLC collected state consumer sales taxes from its customers but failed to remit them to the state as required by law,” wrote the lawyers for the state in the motion concerning the Morgantown property.
“These taxes should have been held in trust by the defendant and then paid to the state, as these funds were never the defendant’s property to begin with,” the lawyers for the state wrote.
The financial troubles of all the hotels have been notable and tangled.
A lawsuit was filed over a $19,630,000 loan on the Clarksburg and Elkins hotel on May 10. The plaintiff, Deutsche Bank, claims a breach of contract.
Then the U.S. Bank National Association filed a lawsuit in early August over the Morgantown hotel owners’ default on a $15,470,000 loan.
Senator Joe Manchin and longtime advisor Larry Puccio were initially listed as investors in the Morgantown hotel, although a recent filing by Mountain Blue in bankruptcy court had removed their partnership, AA Properties, from the list.
Their initial presence in the lawsuit was described by their aides as a mistake. No one has clarified at what point Manchin and Puccio got out of their investment.
Manchin and Puccio also were listed as investors in the Clarksburg and Elkins hotels. No recent filing in that lawsuit has clarified whether they still are or aren’t.
Manchin’s Senate financial disclosures say he had $50,001 to $100,000 invested in AA in 2016, with earnings of $11,200.18. Disclosures from prior years show the AA partnership earned Manchin $11,000 in 2015, $11,454.52 for 2014, $15,000 for 2013 and $12,966 in 2012.
The motions by the State of West Virginia add a new wrinkle to the situation.
The lawyers for the state, in their motions to intervene, seek the right to recover the unpaid taxes from the hotel. In each case, the state believes the hotel ownership collected hundreds of thousands of dollars but didn’t forward the money as required by law.
“And the state also has reason to believe that the plaintiff-creditor may have converted or may still be holding some or all of these trust funds either by or through an account or accounts under its exclusive control.”
The lawyers note that the sales taxes are collected from consumers.
“They are never considered the property of the collector, and stringent personal liability may be imposed on individuals with responsibility in corporate entities that keep the state’s money as its own,” wrote the lawyers for the Tax Department.
The lawyers then make reference to a section of state code dealing with sales taxes that says the officers of a corporation may be held personally liable for any default, including payment of the original tax debt, penalties and interest.
“The state moves to intervene in this action for the purpose of obtaining any state’s property that may be in, or may have passed through the possession of the plaintiff, the defendant, and the receiver and a judgment for the converted ‘trust taxes’ and an order directing that any such property be turned over to the state,” the lawyers wrote.
The state isn’t the only entity that’s owed money.
In September, Monongalia County Sheriff’s deputies raided the Morgantown hotel to account for back taxes of $150,000. The sheriff’s staff had a court order about unpaid hotel/motel taxes, which, similarly, are just supposed to pass through from the hotel as they’re collected.
City of Clarksburg officials, back in May, filed a lawsuit against the owners of the hotel over $41,000 in unpaid business & occupation and hotel/motel taxes.
The plaintiff in the Morgantown lawsuit, U.S. Bank National Association, has expressed worries in its various court filings over the financial condition of that hotel.
In an emergency receiver request filed in mid-September, the plaintiff described a “highly volatile situation” that included the raid, the Hilton franchise flag in jeopardy and non-payment of insurance.
The lender also flagged a problem on the control account, which is an account used to record the balances on subsidiary accounts and to provide a cross-check on them.
“Virtually no receipts were deposited into the control account in early August and early September, raising concerns that receipts are being diverted away from the property,” lawyers for the lender wrote.
U.S. District Judge Irene Keeley ordered the appointment of a receiver for the hotel on Oct. 19. She appointed receivers for the Clarksburg and Elkins hotels on Aug. 2. The receivers manage the hotels and try to straighten out problems while the lawsuits are worked out in court.
That’s another reason lawyers thought the state should get involved.
“Although the state has no reason to believe that receiver will not adhere to its ongoing legal obligations to remit collected trust taxes, the state is concerned that the collected-but-unremitted trust taxes may be in, or have passed through, the possession of the plaintiff secured creditor, as well as the defendant,” the lawyers wrote.
“And the state cannot blindly assume that the receiver will be fully knowledgeable or sufficiently interested to press the plaintiff or the defendant for obtaining unremitted trust taxes that it may hold.”
The state is represented by several lawyers from the Bailey & Glasser firm, acting as special assistant attorneys general. They include Marc Weintraub, Kevin Barrett and Zak Ritchie.