Portland?s Mattress World Inc. is going out of business following a dispute that left it owing approximately $2 million in taxes and penalties to the state of Washington.
Sherri Hiner, owner and president of the seven-store mattress retailer, said the company will shut down ?soon? and lay off its 80 employees. Its Clackamas offices have been packed up and its warehouse is nearly empty.
Hiner said she?s lost everything, including her home and vehicle, in a dispute with Washington state over sales to residents of Clark County.
The dispute began in late 2009 when the Washington Department of Revenue notified Mattress World it qualified as a Washington business under the legal concept of ?nexus.? Washington law says nexus is created when out-of-state firms install products there.
When that happens, the business is liable for sales and other taxes. The sales tax rate in Clark County is 8.2 percent.
Mattress World doesn?t have any locations in Washington state.
That doesn?t matter, said Mike Gowrylow, a spokesman for the Washington state Department of Revenue. Because Mattress World delivers products there, it must still pay sales and other applicable taxes.
The state employs about 40 revenue officers who registered 823 out-of-state businesses in 2011. That?s a typical level of activity, said Gowrylow.
Gowrylow couldn?t comment specifically on Mattress World, but said the state has not increased enforcement.
?Businesses that choose to do business in Washington need to ...
Portland?s Mattress World Inc. is going out of business following a dispute that left it owing approximately $2 million in taxes and penalties to the state of Washington.
Sherri Hiner, owner and president of the seven-store mattress retailer, said the company will shut down ?soon? and lay off its 80 employees. Its Clackamas offices have been packed up and its warehouse is nearly empty.
Hiner said she?s lost everything, including her home and vehicle, in a dispute with Washington state over sales to residents of Clark County.
The dispute began in late 2009 when the Washington Department of Revenue notified Mattress World it qualified as a Washington business under the legal concept of ?nexus.? Washington law says nexus is created when out-of-state firms install products there.
When that happens, the business is liable for sales and other taxes. The sales tax rate in Clark County is 8.2 percent.
Mattress World doesn?t have any locations in Washington state.
That doesn?t matter, said Mike Gowrylow, a spokesman for the Washington state Department of Revenue. Because Mattress World delivers products there, it must still pay sales and other applicable taxes.
The state employs about 40 revenue officers who registered 823 out-of-state businesses in 2011. That?s a typical level of activity, said Gowrylow.
Gowrylow couldn?t comment specifically on Mattress World, but said the state has not increased enforcement.
?Businesses that choose to do business in Washington need to understand that they need to comply with our tax laws. It?s our job to enforce the laws when they don?t,? he said.
It typically investigates when it receives tips or complaints about businesses that may be operating in its borders. It generally does not seek to recover sales taxes on items purchased elsewhere and brought to Washington, with the exception of big-ticket items such as vehicles, airplanes and boats.
Nexus cases yield a few million dollars a year for Washington?s state coffers. That?s a tiny fraction of the roughly $580 million Washington estimates it loses to cross-border shopping, catalog and Internet sales every year.
Gowrylow said Washington residents avoid $80 million a year in sales tax payments by shopping in Oregon and elsewhere. By shopping online and using catalogs, they avoid another $500 million a year in sales taxes.
After identifying Mattress World as a cross-border business, Washington audited the firm and concluded it owed $800,000 in unpaid sales taxes on mattresses sold at its Oregon stores but delivered to customers in Washington state, dating back to 2002. Penalties swelled the amount to $2 million.
Mattress World did not charge its Washington customers sales tax prior to 2009. Hiner said it has been current on sales tax payments to the state since then.
Hiner said Washington?s case is based on faulty assumptions about her business. She never operated stores in Washington and used third-party delivery services to transport bed sets north of the border during the period covered by the audit.
Businesses can avoid the nexus issue by using common carriers such as FedEx or UPS to ship merchandise into Washington.
In an appeal, Hiner said the Washington investigator posing as a customer questioned an employee who was not knowledgeable about the specifics of delivery. Legal documents also say Washington used information from www.sleeplikeababy.org, which Hiner said Mattress World did not own or control.
Mattress World began making $20,000 monthly payments to Washington starting in March 2010, eventually paying $280,000 toward the balance of the lien.
The drain, coupled with mounting legal fees, overwhelmed the business and it fell behind on other bills.
?It put my company in a tailspin. It sunk us,? she said.
CenterCal Properties, its landlord at two locations, locked it out of its stores, though Hiner said other landlords did not evict the business.
The final blows came in December.
In a notice dated Dec. 6, 2011, Washington officials sent lien notices to Mattress World creditors, shutting off access to cash. A notice to its credit card processing vendor, Heartland Payment Systems Inc.? ? Heartland Payment Systems Inc. Latest from The Business Journals Will swipe fee cap translate to lower prices for shoppers?Swipe-fee cap saves Oregon businesses average of 7Study shows Durbin amendment's impact on Alabama retailers Follow this company of Lisle, Ill, indicated Mattress World still owed the state nearly $1.7 million.
?This order requires that you immediately withhold all wages, funds, payables, credit, property or effects of the taxpayer in your possession,? it reads in part.
And on Dec. 20, 2011, the U.S. government levied a $202,680 tax lien against Mattress World in Clackamas County. Hiner said she fell behind on federal tax and other payments as a result of the Washington nexus case.
Mattress World has few assets beyond a fish-filled aquarium in Hiner?s office. It leases its stores, office and warehouse. Hiner said her car is company property and she expects to be evicted from her home for nonpayment of the mortgage.
In a 2009 interview, Hiner acknowledged that Mattress World was coming off a difficult period of faltering sales. Undaunted at the time, she anticipated opening new stores.
Earlier this week, she broke down in tears as she recounted how employees accepted pay cuts to avoid layoffs and vendors, including some landlords, helped her stay in business.
?I?m not mad at anybody. It has given me faith,? she said.
Hiner said Mattress World will die quietly. She doesn?t have the money to file for bankruptcy. In any event, tax debts can?t be erased in bankruptcy.
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