Late Friday afternoon, an officer with the D.C. Office of Tax and Revenue walked into Kushi Izakaya & Sushi and promptly told the owners that the city was closing down the operation for failing to pay back sales taxes.
To the city, revoking Kushi’s sales tax certificate and shutting down the place was the last resort. Tax officials had apparently tried to contact the restaurant “multiple times” about its payment problems, says Bill Bowie, senior counsel for the Office of Tax and Revenue. But they were hearing crickets in return.
The District government, after all, had already shown mercy with Kushi. Earlier this year, Bowie notes, the city put the restaurant's owners on a repayment plan for back sales taxes totalling slightly more than $129,000. Both sides, Kushi and the District, had agreed that the izakaya and sushi emporium would not only remit its regular sales tax receipts but also repay $10,000 a month to settle its back taxes. Both payments were due on the 20th of each month.
According to co-owners Darren Lee Norris and Ari Kushimoto Norris, Kushi had actually remitted its June payments — but a good 10 days past the deadline. Darren Norris says this was not an unusual practice in the few months that the repayment plan had been put in place; he says Kushi would merely notify the city when it would be late, and everything seemed to be fine with tax officials. In fact, the owner says, his accountant notified the city on June 9 that Kushi’s monthly payment would be late.
But on July 11, Darren Norris received an e-mail from the Office of Tax and Revenue, informing the Japanese restaurant that it needed to get back to the agreed-upon schedule. Otherwise, the e-mail noted, “We may have to cancel your agreement and begin enforcement,” said Darren Norris, reading the e-mail over the phone. (He declined to share it with All We Can Eat.)
That was the last contact anyone at the restaurant had from the Office of Tax and Revenue, Darren Norris says, until last Friday, when the officer showed up, took all the available cash on hand and closed the restaurant.
Regardless of the number of contacts, senior counsel Bowie says Kushi had violated the repayment agreement. “The terms of the agreement have been breached,” Bowie says. “We were forced to shut down the business.”
“We really do this only after we have made numerous contacts with the taxpayer,” reiterates Natalie Wilson, spokeswoman for the Tax and Revenue Office.
The far bigger problem for Kushi, however, is that once the city declares an agreement breached, the agreement is then also voided. The taxpayer is immediately on the hook for the full amount of the back taxes. No further repayment plans can be negotiated.
“Once you breach [an agreement],” Bowie says, “we typically don’t put you on another agreement.”
The city instead wants its money now.
Darren Norris says that he and his wife/business partner paid about half the back taxes on Monday and then provided documentation that they could gather the reminder of the $129,000 in two to three weeks. He said the paperwork appeased the tax office. Kushi reopened on Monday evening for dinner.
“I can’t blame anybody else for the fact that I owed them the money,” Darren Norris says. “I agreed in writing, I signed a document saying that I would pay on specific dates, and I breached that agreement by not paying on that date.”
“We were taught a lesson: Don’t mess with the government,” Darren Norris adds. “I don’t blame them to be honest with you. Yeah, they flexed their muscles, but I mean, they wouldn’t have had to flex them if I paid on time.”
The owners say that, as first-time restaurateurs, they made a number of miscalculations when Kushi first opened in March 2010. They had four salaried chefs — two at the sushi bar and two at the robata grill — not to mention several salaried managers and a long, elaborate menu. Labor and ingredient costs were high, Darren Norris says, to the point that Kushi was losing money on a monthly basis — until it cut back on staff and refined the menu.
“We’re not some super well-oiled machine. Or we weren’t, but we’re learning,” says Darren Norris. “It’s a couple of creative people — I mean, Ari’s an artist and I’m a chef — and we wanted to make a business. And we’ve learned our lesson.”