CHARLESTON, W.Va. — Lawyers for the State Tax Department are asking a federal judge to force hotel investors and the lender to hand over $720,000 in sales taxes that were collected from customers but never passed on.
The lawyers for the tax department filed their complaint in U.S. District Court in the Northern District of West Virginia on Friday.
The complaint was filed both against Mountain West Hospitality, which owned defaulting hotels in Elkins and Clarksburg, and against Deutsche Bank Trust Company.
Mountain West and Deutsche Bank have been fighting each other in court. Now the State Tax Department is fighting them both.
The tax department says the unpaid taxes started to mount in 2015. The agency’s lawyers want Mountain West to provide an accounting of all consumer sales taxes from that year to the present.
The agency also wants judgement against both entities for at least $720,000.
And the tax department is asking for punitive damages, plus interest and the cost of its expenses and lawyers’ fees.
“The unremitted trust-fund sales taxes became the property of the State the moment Mountain West collected them from its customers and belong to the State still today, whether in the hands of Mountain West or Deutsche Bank or anyone else, including the Receivers appointed in this case,” the lawyers wrote.
Mountain West Hospitality, headed by developer William Abruzzino, owned the Hilton Garden Inn in Clarksburg and the Hampton Inn in Elkins.
Mountain West’s original loan documents — and the original lawsuit filed on behalf of Deutsche Bank in this case — identified Sen. Joe Manchin and longtime aide Larry Puccio as investors. No new filings in this case have clarified the ownership group.
Abruzzino and his affiliated investors have also been involved in legal disputes and bankruptcies over several other investments, including the Hilton Garden Inn in Morgantown and Crossings Mall in Elkview.
The tax department is part of bankruptcy proceedings in the Morgantown hotel case, claiming the state is owed $587,000 in taxes that were collected from customers and then not passed on, dating back to 2015.
The lawsuit filed by the tax department notes that consumer sales taxes, like those in the Mountain Blue case, are considered ‘trust-fund taxes’ because those who collect the taxes only holds them until remitted to the state.
“Trust-fund taxes are never considered the property of the collector, and the State imposes stringent personal liability on individuals with responsibility in corporate entities that keep the State’s money as its own,” the lawyers wrote.
Mountain West was supposed to transfer its cash, including collected taxes, to bank accounts controlled by Deutsche Bank.
The state claims the collected taxes were commingled with Mountain West’s other funds in those bank accounts. The tax department claims the funds were used to pay other expenses relating to the hotels.
“Thus, as a result and upon further information and belief, both Mountain West and Deutsche Bank exercised dominion over and ultimately used trust-fund sales taxes belonging to the State for other purposes and for their own benefit and profit, including for the payment of Mountain West’s obligations to Deutsche Bank.”
The hotels were part of a sale last month, forced by Deutsche Bank and allowed by a federal judge. Deutsche Bank wound up being the buyer of both hotels, using $9 million in credit.
The tax department says at that point, Deutsche Bank should have made arrangements to make good on the unpaid taxes.
“The State has further reason to believe that some or all of the unremitted trust-fund sales taxes may still remain in the possession of Deutsche Bank in an account or accounts under its sole dominion and control, and accordingly Deutsche Bank may still unlawfully hold some of the trust-fund sales taxes that Mountain West collected from its customers and that comprise the State’s property,” wrote lawyers for the state.
The tax department claims both Mountain West and Deutsche Bank breached fiduciary obligations to the state.
“The diversion of such collected trust-fund sales taxes to such other uses and for their own personal benefit unjustly enriched both Mountain West and Deutsche Bank at the expense of the State and its taxpayers and citizens,” the lawyers wrote.