Mudpuppy’s Pub, Jazz Street Grill fight for licenses

Two Lynchburg restaurants are fighting to keep their license to serve alcohol as they work out a way to pay taxes that they owe.

On June 18, the owners of Mudpuppy’s Pub and Jazz Street Grill appealed an earlier decision by the Virginia Department of Alcoholic Beverage Control that revoked their license because they did not maintain “financial responsibility.” According to the ABC, the restaurants together owe more than $200,000 in meals and sales taxes to the city and the state.

The owners said they are working to pay the taxes. Several factors, including the economic slowdown, “compounded … for the perfect storm to put us in a bind,” co-owner Tommy Keane said.

He would not say more about the situation until the appeals process is completed.

The restaurants can still serve alcohol during the appeal.

In 2007, Mudpuppy’s and Jazz Street Grill moved out of a strip mall off Old Forest Road, where Wal-Mart plans to build a new store, and into a freestanding building nearby. They merged under the corporate name KP Holdings Inc., and they share an ABC license, but they are separate restaurants.

At a Feb. 18 hearing by the ABC, co-owner Mark Paulette said that the restaurants’ revenues have declined so that they could not meet all of their obligations, including the costs of the larger location. He was using personal assets to keep the doors open, according to the agency’s written summary of the hearing.

For some time in 2007 and 2008 the business collected the state’s 5 percent sales tax and the city’s 6.5 percent meals tax but used it to pay bills instead of turning the funds over to the city and state, according to the report on the hearing.

Susan Hargis, manager of Lynchburg’s billing and collections activities, said multiple restaurants have withheld meals taxes from the city. “We are working with a number of restaurants throughout the city, especially due to the economic situation,” she said. Mudpuppy’s “happens to be one of those.”

She said restaurants in Lynchburg owe the city about $685,000 in unpaid meals taxes, of about $10.5 million in meals taxes that the city collects each year.

Records show that Mudpuppy’s and Jazz Street Grill had some tax debt before they merged.

The Virginia Department of Taxation filed three liens against Jazz Street Grill in Lynchburg Circuit Court in 2007 due to unpaid sales taxes. Mudpuppy’s did not pay Lynchburg’s meals tax from April through September 2007, according to testimony in the ABC hearing. After merging, the corporation KP Holdings did not pay meals tax for December 2007 and several months in 2008.

After other attempts to collect the taxes failed, the city and the state both placed liens to garnish the debts from KP Holdings’ bank accounts. They reduced or released the liens so that the restaurants could stay in business and make payments from revenues, according to the hearing report. In February the restaurants owed a total of $141,100 in meals tax to the city and $84,447 in sales tax to the state, the hearing report said.

On May 19 hearing examiner Robert O’Neal ruled that the business should lose its ABC license due to financial irresponsibility. Paulette appealed the decision on June 18.

“KP Holdings, Inc. is currently undergoing a complete reorganization,” his letter of appeal stated. “This consists of the reorganizing of the legal ownership, completing (an) operational review, and restructuring corporate debt to include meals and sales tax owed.” The reorganization should be finished by Sept. 30, the letter said.

The ABC has not scheduled a hearing for Mudpuppy’s appeal.