The Ferry House restaurant has re-opened its doors after being closed for more than two weeks by the state Division of Taxation for tax problems.

The Witherspoon Street restaurant re-opened on October 27 after filing Chapter 11 bankruptcy several days earlier, according to chef and owner Bobby Trigg. The business was closed on October 11 and its assets seized by the state due to some $200,000 in overdue state taxes.

The bankruptcy petition was filed on October 23 by Allentown-based attorney Scott Eric Kaplan. According to the petition, the Ferry House has liabilities of between $100,001 and $500,000. Its assets are listed as between zero and $50,000.

In addition to the state Division of Taxation, creditors listed in the filing include the IRS, the state of New Jersey, Bank of America, GMAC Mortgage, PSE&G, the Princeton Packet, court officer Thomas C. Pinto, and various food vendors.

“We’re operating under Chapter 11 guidelines,” says Trigg. “It’s pretty much the only way you’re allowed to work out a payment plan with (the state). We’re changing a bunch of things and following a set of rules. They’ll have a tighter leash on me and it’s all for the best.”

Trigg, who originally opened the restaurant in Lambertville in 1992 before relocating it to Witherspoon Street in 1998, said he fell behind on his taxes after the recession when he overextended himself by investing in other restaurants at the Peacock Inn in Princeton and BT Bistro in West Windsor. The problem was compounded, he says, by financial misdealings behind the scenes at the Ferry House while his attention was focused on the other restauarants.

“We’ve had to revamp the accounting process and the paper trails that went awry,” Trigg says. “Certain employees had a field day here. There was a little bit of pilfering and some management people weren’t doing the right thing.”

“That cost me,” he adds. “I didn’t keep my eyes where I should have. I’ve gotten out of all those other scenarios now, and I’m back in the kitchen and focusing on Ferry House.”

The state originally obtained a judgment against Ferry House last year for not paying sales, gross income, and corporate business tax. The state halted its efforts to collect after the business filed bankruptcy in November, 2011. After the bankruptcy case was dismissed in June for failure to provide information to the courts, the state decided to resume proceedings against the establishment.

Since the Ferry House reopened Trigg says he has rehired old, trusted staff members and has also hired an accountant, a new manager, and a new bookkeeper. He says he has also gotten his father involved in the business.

Once a business runs into tax problems, it can be hard to resolve them, says Scott Borsack, a business and corporate law, tax, and estates attorney at Szaferman Lakind on Quakerbridge Road.

Borsack explains that there are different levels of liability when dealing with company taxes. “There are two baskets of taxes,” he says. “The first is the one where a business collects money from its employees and customers — payroll withholding and sales taxes, for example. These are called “trust fund” taxes because the business is collecting money on behalf of their employees or customers in order to turn them over to the taxing authority.

The other basket is taxes resulting from revenues, such as income taxes.

“The liabilities from the two baskets are different” says Borsack. In cases where a corporation doesn’t pay its revenue taxes, the individual or individuals responsible for paying the taxes are not liable for the tax debt.

But there is personal liability in cases where trust fund taxes are not paid.

“With sales tax, the merchant is supposed to aggregate all the sales taxes they collect and send that money to the state,” Borsack says. “If they collect tax money and don’t send it to the taxing authority then there’s a personal liability on the part of the business owner.”

“The same goes for employment taxes,” he says, adding that payroll taxes are divided into the employer’s contribution and the money deducted from the employee’s pay. “The employer has personal liability for the employee portion. An employee has taxes taken out and the business is supposed to send that money to the taxing authority.”

Of course the best way to stay out of tax trouble is for businesses to make sure they stay current with their payments. “These are not interest-free loans. They must be paid to the taxing authority when they are collected,” says Borsack.

But sometimes businesses don’t — or can’t — stay current, especially in this tough economy. “Depending on the size of the business, it’s easy for some to get into the habit of using the tax money they’ve collected to bridge short-term needs of business,” Borsack says. “But once you start down that slope it gets easier and easier to fall into the hole.”

Borsack says that there are obviously more companies having tax problems in last three years due to the recession than in three years prior to 2008. “As the economy slowed down, some business owners made choices they ordinarily would not make, but even in a strong economy there are business owners who simply do things they ought not to. Usually we have a fairly steady stream of these situations.”

In some cases, says Borsack, businesses fell behind on their tax payments and hoped that they would be able to catch up the following year — hoping for an improved economy. “But the recovery has been painfully slow and nobody has gotten the big hit to bail them out. As a result, one of a businesses biggest creditors becomes the taxing authority”

One potential tactic business owners may use is to use current money collected to pay for back taxes. “They may take withholding money from 2012 and use it to pay for 2009,” Borsack says. “They keep dragging money back and forth from current quarters to pay for past quarters. The IRS doesn’t like this robbing Peter to pay Paul. They call it ‘pyramiding’ and they’ll close a business and seize its assets if they see it happening.”

Businesses that do wind up owing back taxes face significant problems — the government is the most aggressive creditor a company can face, Borsack points out.

Shutting down a business and seizing all it assets — including a levy on existing customer accounts — is the most significant action the government can take. “How do you start over losing everything?” Borsack asks. And forget about getting any business loans. “In this economy a tax seizure pretty much puts you out of the credit department.”

Although it would seem that the best option for the government is to allow a company to stay in business so it can work off the liability, this often isn’t the case. Especially once they shut down a business for non payment.

The company’s finances will be thoroughly reviewed and the government will make a determination as to whether it has the resources to make a payment arrangement work. Only then will they coinsider allowing a business to re-open. Taxing authorities “would much rather avoid having a taxpayer pile onto existing debt,” says Borsack. “If they take $100,000 and it turns into a $150,000 debt, that accomplishes nothing.”

And if an arrangement is worked out, the business better stay current. “If you can convince them to allow you to re-open after they close the doors, you’re going to be on a very short leash,” Borsack says.

Almost as bad as having your business closed is the possibility of being made personally liable for the trust fund portion of unpaid taxes. “They will look at your individual assets. It’s one thing to lose your business, it’s another to lose your 401k or IRA because of a bad business decision,” Borsack says.

Getting sent to prison, though, won’t happen in most cases. “You don’t go to jail simply because you can’t pay taxes,” says Borsack. “People go to jail because of tax fraud. There has to be some level of deceit or criminality involved. Simply spending the money you were supposed to use for taxes on something else doesn’t send you to jail. It’s stupid, but it’s not fraud.”

But people can be imprisoned for crimes like filing a false tax return or conspiring with a vendors to create fake paperwork. “That is fraud. It’s also conspiracy,” says Borsack.

So how does a company avoid running into tax problems? The best practice is to set up tax accounts at the offset to help avoid these problems, Borsack advises. When setting up a payroll account, for example, the gross amount of employee salaries should be deposited — that way the money for both the employee and government shares are covered.

If a business does find itself in the position of owing back taxes, the best thing to do is contact the authority it owes money to. “It’s always better to find the collector before they find you,” says Borsack. “Reaching out to them demonstrates a level of responsibility and gives you a better chance of making a deal. You can work with them to set up a voluntary payment plan with amounts you think you can meet.”

Contacting an attorney or accountant who is an expert in tax issues is also a good idea, says Borsack. “The last thing someone should do is try to fix this problem themselves. Most of the time the results are aren’t very good.”

Meanwhile, Trigg says he believes that the Ferry House is back on course, although he did suffer a few setbacks due to both the closure and Mother Nature.

He said one significant loss occured on the day of the closure. “We had just had a food delivery and they (the state) threw out about $2,000 worth of food.” That weekend was also freshman parents weekend at Princeton University and the restaurant was unable to serve the large number of customers who had reserved tables.

And only three days after the business re-opened the area was hit by Hurricane Sandy, which also slowed business for a number of days.

With major problems hopefully in the past, Trigg said he is most happy that he was able to re-hire the 20 to 22 employees who were put out of work when the state shut him down. “To see them out of a job wasn’t fun to watch. When I called them all to say I was getting the keys back they were very all very excited to come back and get a good start.”

Trigg is optimistic about the future and has learned some lessons from the experience. “You need to stay focused on what’s in front of you and don’t take anything for granted.”

And trust should be hard-earned. “It’s great to trust people, but sometimes even your best partner deceives you. That’s why marriages fail,” Trigg says. “I learned that I don’t want any partners. I like to be the at the head of the ship and call all the shots. When you have too many partners — like cooks in the kitchen — it spoils the broth.”

The Ferry House, 32 Witherspoon Street, Princeton 08542 609-924-2488; fax, 609-924-3485. Bobby Trigg, chef/owner.

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