State tax department wants hotel operators to turn over sales tax receipts

CLARKSBURG, W.Va.  — West Virginia’s Tax Department wants the operators of three struggling hotels to turn over more than $1 million in sales taxes state officials say were collected but never remitted.

Within the past week the state moved to intervene in lawsuits filed against Mountain Blue Hotel Group, owner of Hilton Garden Inn Morgantown, and Mountain West Hospitality, owners of Hampton Inn Elkins and Hilton Garden Inn Clarksburg.

Deutsche Bank sued Mountain West in federal court in May, claiming the company had defaulted on $19.6 million in loans, while U.S. Bank National Association claimed in a separate complaint that Mountain Blue had defaulted on its $15 million-plus loan.

The state wants to recoup roughly $480,000 in unremitted sales taxes collected from guests at the Morgantown property beginning in 2015 and continuing until the receiver was appointed. Likewise, the state wants at least $720,000 collected from guests at the Clarksburg and Elkins properties that was never turned over.

In their motions, state officials said they have no reason to believe the receiver won’t do his job, but they are concerned the “collected-but-unremitted” tax money may be in the possession of the hotel operators or, alternatively, their lenders, “and the state cannot blindly assume that the receiver will be fully knowledgeable or sufficiently interested to press (them) for obtaining unremitted … taxes that it may hold.”

“The state’s interest in this case is significant and compelling,” the state pointed out in the Mountain Blue case. “Since 2015 until the appointment of the receiver, defendant Mountain Blue … collected state consumer sales taxes from its customers but failed to remit them to the state as required by law. These taxes should have been held in trust by the defendant and then paid to the state, as these funds were never the defendant’s property to begin with.”

The collected sales taxes “are never considered the property of the collector, and stringent personal liability may be imposed on individuals with responsibility in corporate entities that keep the state’s money as its own,” the state noted in its motion to intervene in the Mountain West case.

Both companies had sought Chapter 11 bankruptcy protection, but the cases were dismissed at the government’s request — in Mountain Blue’s case, because it failed to provide the bankruptcy trustee with proof of workers’ compensation insurance, while Mountain West “failed to comply with its financial reporting and budgeting obligations, bankruptcy court orders, and various other requests.”

In renewing its motion for a receiver, U.S. Bank had characterized the situation at the Morgantown property as “dire,” while attorneys for Deutsch Bank had claimed Mountain West had again fallen behind on its franchise payments and other obligations.

Mountain Blue, however, told U.S. District Judge Irene Keeley its cash flow problems were attributable to the bank’s requirement that they deposit all receipts into a cash management account controlled by them and the bank’s “refusal” to disburse funds from it.

Mountain Blue and Mountain West, both represented by Ciccarello, Del Giudice & LaFon in Charleston, have denied the allegations and asked that the complaints be dismissed.