CHARLESTON, W.Va. — The state Tax Department, which was pursuing about $1.2 million in federal court claims against faltering West Virginia hotels, has opted for another route.
The Tax Department was dismissed from U.S. District Court for the Northern District West Virginia for claims involving hotels formerly owned by Mountain West Hospitality and Mountain Blue Hospitality, as well as their lenders.
The voluntary dismissal points toward other means the state has been pursuing to reclaim the money — including the possibility of settlement, but also through a new lawsuit in the local court system.
The Tax Department has claimed that hundreds of thousands of dollars were collected by hotels in Morgantown, Clarksburg and Elkins but not appropriately passed on by the state.
The agency claimed that the hotel ownership group and its lenders had instead commingled the funds to pay for other expenses.
The original case was a battle of hotel companies owned by West Virginia native William Abruzzino against the companies that had loaned money for the hotels.
But the State Tax Department filed to intervene, first in bankruptcy court and then in two separate but similar cases in civil court.
On May 25, lawyers representing the tax department filed a notice to withdraw from their intended intervention in the case involving Mountain Blue Hotel Group, which owned the Hilton Garden Inn in Morgantown.
The same day, the lawyers for the state filed a notice of withdrawal from a very similar case involving Mountain West Hospitality, which owned the Hilton Garden Inn in Clarksburg and the Hampton Inn in Elkins.
That wasn’t necessarily a sign that the state was giving up on claiming the tax dollars.
One possibility was that there had been settlements.
Responding to a Freedom of Information Act request by West Virginia MetroNews, the Tax Department said it could not provide information about the status of the claim, citing confidentiality requirements in state code.
“The information you have requested would constitute confidential taxpayer information not subject to disclosure,” the Tax Department wrote in response to the request.
The Tax Department did file, on July 12, a claim in Harrison Circuit Court against Mountain West and its lenders.
So that represents a change of venue for the claim.
The Tax Department again claims that the hotel company and its lenders collected taxes but failed to properly send along the receipts to the state.
“As established under State law, the collected sales taxes constitute the property of the State from the moment Mountain West collected them from its customers and continuously belonged to the State, whether in the hands of Mountain West or Deutsche Bank or anyone else.”
The new lawsuit in circuit court claims that starting in 2015, Mountain West failed to pass along to the state hundreds of thousands of dollars of consumer sales taxes collected from its customers.
Instead, the hotel company transferred the cash and receipts into accounts over which Deutsche Bank, its lender, had control, the state claims.
The total amount in the Mountain West case was $720,000, the state claims.
The state is asking for the defendants to be compelled to turn over all sales taxes under their control and to pay damages of at least $720,000 plus court costs, expenses and attorney’s fees.
The hotel companies and their lenders were embroiled in bankruptcy and civil disputes for months.
All of the hotels were under ownership groups headed by Abruzzino and headquartered at 205 Marion Square, Fairmont.
Abruzzino and his companies were also involved in multiple financial disputes over the Crossings Mall development in Kanawha County.
Senator Joe Manchin and his longtime advisor, Larry Puccio, initially were listed as investors in the hotel groups. They said they are no longer in the hotel investments, although it’s never been clear when they got out.
The hotels in Clarksburg and Elkins were auctioned off in late November, 2017. The federal court case involving those hotels was dismissed this past Wednesday.
The Hilton Garden Inn in Morgantown was sold this past April 13. The original lender bought the hotel for $9,375,000.
As an outcome of the sale, the new owner asked that the hotel be moved out of receivership. On August 9, U.S. District Judge Irene Keeley granted the motion.