On Capitol Hill, Back Taxes Lead to Caffeine Deprivation
Friday, March 21, 2008
For many who live on Capitol Hill, Murky Coffee seemed to be the type of conscientious, mom-and-pop-owned business that helps build community. Owner Nicholas Cho purchases socially responsible, fair-trade beans, offers a teacher discount and gives away coffee grounds for use as organic fertilizer.
But on Feb. 26, agents from the D.C. Office of Tax and Revenue placed bright red "seized" signs in Murky's windows and padlocked the door. The closure provoked shock and outrage in the neighborhood.
One patron posted an online petition titled, "Tell D.C. Govt. to Stop Hurting Small Business/Re-open Murky Coffee," complete with a printed copy posted on the door of the coffee shop, which is steps from Eastern Market.
Another neighbor wrote this reply: "Idiot! Nick is a tax cheat!!"
Murky Coffee, according to the tax office, owes more than $427,000 in sales and franchise taxes. A lien filed against the business shows that Cho paid sales tax to the government in only three of the 24 months from November 2004 to October 2006. Officials with the tax office said Cho missed payments in 2007 and 2008 as well.
The tax, which is 10 percent for takeout foods such as coffee, is due on the 20th of every month and is based on the previous month's revenue. The store, which has been open on Capitol Hill since fall 2003, generally owed $4,000 to $5,000 a month.
Although tax officials said numerous warning letters had been sent to Cho, the news came as a surprise to his devoted customers as well as his dozen employees. In his four years in business, Cho, 34, had become the D.C. coffee connoisseur and a favorite among local foodies, a caffeinated equivalent to Cakelove's Warren Brown.
Many patrons consider Cho, who also owns a Murky Coffee in Arlington, as a David going up against coffee goliaths Dunkin' Donuts, Starbucks and Cos¿.
While conceding that he has been irresponsible, Cho chalked up the tax bill to "poor cash flow management." He disputes the tax office's assessment of what he owes, estimating it at about $200,000. And he said he also owes Virginia about $20,000 for sales tax at his Clarendon shop.
"In a nutshell, we've gained a pretty good reputation for our coffee quality. That's the side of the business I've done pretty well at," Cho said. "The financial management side I haven't."
Cho, who initially called his tax problems a "hiccup" in operations, said he never tried to evade authorities and always intended to make the payments.
"It's not that I went and bought a sports car or a horse. It's just general financial mismanagement," he said.
More than three weeks later, the neighbors are missing their coffee.
"I was thinking, the ripple effects of this will be felt all across the city, because cranky people will show up at work without their coffee," said Jamal Kadri, a Capitol Hill resident who said he patronized the business every day on his way to his office at the Environmental Protection Agency.
"Either way, it's sad that an independent coffee store is being shut down," said Joy Bridy, a Capitol Hill potter who regularly brought her handmade mugs to get filled.
Bill Day, a 10th-grade math teacher at Cesar Chavez Charter School who enjoyed $1 teacher coffees, called the closing of Murky Coffee "a terrible thing," adding, "The coffee was good, and you feel better about buying it here than at Dunkin' Donuts or Starbucks."
But Murky Coffee of Capitol Hill won't be reopening. In addition to the back taxes, there's the matter of the eviction notice on the door.
Cho said that the tax office is unwilling to negotiate a payment plan and that he is unable to make the large payment necessary to reopen.
And then there's the rent.
According to court records, Cho has been sued several times for nonpayment of rent. Morris Battino, a lawyer representing Cho's landlord, said Murky Coffee is behind on payments.
"I like the coffee business, because it brought people together and it was a community-building tool," Cho said in a phone interview this week.
"I thought coffee would be up my alley, because I'm a people person."
But now he's also alone. His haphazard approach to finances has cost him his marriage, he said.