Lawsuit: Salem sues Shilo Inns for more than $143,000 in unpaid taxes, fines

Jonathan Bach
Statesman Journal

The City of Salem is suing Shilo Inns for refusing to pay more than $143,000 in unpaid room taxes, penalties and interest dating back to the summer of 2018, according to a lawsuit filed in Marion County Circuit Court last week.

Salem's Shilo Inns on Market Street NE failed to pay taxes from July 2018 through March 2019, with the exception of February 2019, court records show. The company also failed to pay interest and penalties, according to records.

Salem collects a 9% transient occupancy tax from hotels, motels and even Airbnbs. Travelers are charged the tax when they rent their rooms. Business representatives are then supposed to send the lodging tax to city officials on a monthly basis. 

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The taxes pay to promote Salem tourism, market the Salem Convention Center and maintain city parks. City officials collected more than $3.9 million annually in lodging taxes in the 2017 and 2018 fiscal years, budget records show.

The budgeted lodging tax revenue for fiscal year 2019 was upwards of $4.4 million, though the latest actual revenue figures weren't immediately available.

Seeking court intervention is a rare tax-collection tactic for the city. "To our knowledge we have never initiated an action in circuit court to collect TOT," said city spokesman Kenny Larson.

Shilo Inns collected room taxes from customers and sent tax returns to the City of Salem "but failed to remit to the city the requisite transient occupancy tax payments," Assistant City Attorney Brian Luse wrote in court records.

City of Salem is suing owners of the Shilo Inns on Market Street NE to collect more than $143,000 in room taxes and unpaid fines.

Shilo Inns owed the City of Salem $108,818.63 as of May 10, "based on reported and/or presumed income," Luse wrote.

Salem officials also are charging the company $35,000 in civil penalties, bringing the amount Salem is seeking to $143,818.63. 

"The city provided notice to the defendant of defendant’s tax obligations, the city demanded payment and it informed defendant of the potential for up to a $2,000 civil penalty for each of the violations," Luse wrote.

Larry Chank, chief executive officer of Shilo Management Corp. in Portland, in an interview attributed the unpaid taxes to bookkeeping issues partly brought about by the company last year moving its corporate offices across town.

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"It created, let's just say, some challenges," Chank said. "It disrupted the accounting and administrative departments quite a bit."

In the midst of the move, the accounting manager and chief financial officer resigned, meaning the company had to search for replacements, Chank said, though he didn't elaborate on why they left.

The search "took until basically the beginning of February, when I was brought in, and a new accounting manager was brought on," he said. "We're now playing a little bit of catch-up."

Chank said he expects Shilo Inns to pay the tax bill in coming weeks — possibly in June — after Shilo Inns and the City of Salem agree on a number. He called it an "unfortunate situation."

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"I've been working with the City of Salem to resolve the TOT issue and get everything caught up," Chank said. "It's a normal course of business that they're protecting their legal rights while the ongoing negotiations are going forward to get this matter settled."

Chank said the balance owed was about $62,000.

However, tax records filed by the city in court show Shilo Inns owes at least $108,818.63 with penalties and interest. That's without thousands of dollars in additional civil penalties.

"We want to get this matter resolved," Chank said. "We want to get it resolved in a professional manner. That's what I was brought on board to do with Shilo."

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He also pointed to Shilo Inns' more than 30-year tenure in Salem, saying the company has been a large local employer and a leader in the business community.

Separately, the Oregon Department of Revenue sought in April to collect more than $10,500 in taxes from Shilo Inns, according to a distraint warrant obtained by the Statesman Journal. The tax account type is listed as "state lodging" on the warrant, which was recorded in Marion County.

"A distraint warrant is a legal document that establishes Revenue's right to collect the tax debt from the debtor who received the warrant," said agency spokesman Rich Hoover.

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Such a warrant is typically issued after a letter notifying a taxpayer of unpaid taxes and a subsequent demand for payment are unsuccessful. The warrant allows state officials to garnish wages or withhold state refunds.

Chank said the company has paid that balance.

This isn't the first time Shilo Inns has faced a lawsuit over unpaid lodging taxes.

The City of Portland in February took the hospitality company to court for $314,045.54, claiming Shilo Inns failed to pay city and county transient lodging taxes, interest and penalties, as first reported by The Oregonian/OregonLive.

Portland has an agreement with Multnomah County to collect county room taxes. The city in April filed a notice of dismissal in the lawsuit, saying the matter was settled.

Shilo Inns, founded in 1974, has operated in Salem since at least 1983, when it had a location at 1855 Hawthorne Ave. NE, newspaper archives show. That building was demolished in the early 1990s for an Interstate 5 expansion. The hotel at 3304 Market St. NE opened around the same time.

The privately held company based in Portland manages lodgings across eight states mostly in the West, but also in Texas.

Jonathan Bach has been a business and City Hall reporter with the Statesman Journal since 2016. To support his work, Subscribe to the Statesman Journal. Contact him by email at jbach@statesmanjournal.com, call (503) 399-6714 or follow him on Twitter @jonathanmbach.