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Double trouble


Restaurants and bars are accused of double taxing. Is the legal action without merit?

Greg Horton August 24th, 2011

Two lawsuits filed in Canadian County are attempting to make hundreds of bar and restaurant owners responsible for paying back millions of dollars in liquor taxes the plaintiffs believe were unlawfully collected.

Tom and Gladys Erbar of El Reno are the principal plaintiffs on one lawsuit (CJ-2011-159), while the other (CJ- 2011-115), represented by Oklahoma City attorney Mark Henricksen, seeks class-action status and currently has nine listed plaintiffs.

Henricksen told Oklahoma Gazette the lawsuit originally named 801 defendants, but one defendant has since been dropped due to bankruptcy protection. Henricksen said his plaintiffs visited approximately 1,500 Oklahoma eating and drinking establishments over a period of three years and discovered that 40 percent were unlawfully collecting liquor taxes or unfairly assessing sales tax.

right Bill Bonadio of Papa Dio’s

At issue is a 13.5 percent liquor tax for on-premise drinks that is required on all alcoholic beverages above 3.2 beer by Title 37 (subsection 576) of state law. Restaurants typically add the 13.5 percent liquor tax and the local sales tax together and deliver one price at the bottom of the ticket. In Oklahoma City, the combined tax is 21.875 percent. By law, the liquor and sales tax must be factored separately so there is no double taxing.

Henricksen contends that many bars and restaurants are figuring the sales tax or liquor tax on the ticket after factoring in one of the taxes, effectively taxing customers for their meals, drinks, and sales or liquor tax. The lawsuit further contends that restaurants must include the liquor tax in the “advertised price” of the drink, which, according to Henricksen, also means the menu price.

This is likely to be a point of contention in the lawsuit, as it would mean that restaurants would have to charge only the sales tax on the price listed on the menu, and that taxes collected above that amount have resulted in a double tax. The statute reads: “The advertised price of a mixed beverage shall be the sum of the total retail sale price and the gross receipts tax levied thereon.”

Mark Harter, assistant chief counsel for the Oklahoma House of Representatives, said it will be up to the court to determine what “advertised price” means.

“The term is undefined in the statute,” Harter said. “A basic principle of legislative construction is that a word is understood by its plain or ordinary meaning, unless a special meaning has been determined.

Depending on the circumstances, the long-standing practices of a state agency can have a bearing on how a court construes a term.”

In short, restaurant owners are likely to point to the long-standing practice of state agencies — the Alcoholic Beverage Laws Enforcement Commission and the Oklahoma Tax Commission — allowing for the collection of taxes according to current methods, except for the cases of taxing sales or liquor tax. All parties agree that practice is unlawful.

No restaurant has been unjustly enriched in this process.
—Jim Hopper


ABLE did not respond to a request for an interview.

Marjorie Welch, first deputy general counsel of the OTC, said her agency has not been named as a defendant in either lawsuit.

“I don’t believe they’re asking for a refund of the taxes,” Welch said. “I believe they’re asking for damages.”

The Erbars’ lawsuit, now represented by Yukon attorney Fenton Ramey, is asking for damages. The Henricksen lawsuit is requesting a disgorgement, or repayment of the “wrongful overcharges.” Henricksen said it wasn’t yet clear who the beneficiaries of the disgorgement would be.

“If in the process of discovery we can determine who the affected customers are, the money would go to them,” he said. “If not, the court would have to determine how the money would be used.”

Henricksen said the lawsuit does not name OTC as a defendant because “they have done nothing wrong.”

His contention is that the OTC simply received the taxes they were due, and that the licensees kept the additional tax, by which he means the 13.5 percent that his group believes must be included in the menu price.

Jim Hopper (pictured), president of the Oklahoma Restaurant Association, disagrees.

“The lawsuit is without merit,” Hopper said. “We are working with our members and legal counsel to determine a strategy, and so far our attorneys are saying it is without merit. No restaurant has been unjustly enriched in this process. They collect taxes and remit them to OTC.”

Dio’s Inc., with the restaurant Papa Dio’s, was named as a defendant in both lawsuits. Bill Bonadio, owner and chef of Papa Dio’s, said he’s been in business in the metro since 1979. He’s not sure why he was named.

“I responded within the 20 days allowed, and I supplied the court with a receipt to show I’ve been doing it right,” he said. “I figured out from the beginning how to do it, and I’ve been doing it right. Unfortunately, in our system, the innocent often have to pay because it’s cheaper to pay than fight.”

Henricksen said he doesn’t know what the next step is.

“I’ve been flooded with calls from lawyers,” Henricksen said. “The next step is really theirs. They’ll either provide the information within 20 days or file a motion to dismiss.”

 
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