City Hall is demanding that a Black-owned Richmond sandwich shop pay $37,000 in uncollected meals tax along with penalties and interest after telling the owners not collect the tax when they applied for a business license in June 2021.

Sheila White, director of finance, has virtually unfettered discretion to eliminate the bill, but has rejected the appeal from Philly Vegan to do so even though the license application shows that the city was responsible for the mistake.

Problems with the meals tax are not unusual and appeals are rarely granted.

According to a city report, Ms. White relies on an attorney general’s opinion that “taxpayers have a duty to investigate the amount of tax and to pay it,” and a locality’s failure to provide notice “does not relieve the taxpayer of fault.”

One restaurant owner reported being forced to pay $68,000 to settle a bill for a missed payment from 2020 while another who owns 16 restaurants and markets reported spending three years getting a business license due to a mistake in a meals tax payment the Finance Department never disclosed.

First District City Councilman Andreas D. Addison said he and other members are fully aware of the city’s shortcomings based on complaints they have received, but he acknowledged that the council has never sought to require the Finance Department to issue notices of late payments or of the assessment of penalties to prevent initially small tax problems from becoming large ones.

In some cases, tax bills have been wiped out for those with the right connections.

In 2018, as the Free Press reported, then-Finance Director John Wack wiped out a $240,000 admissions tax bill owed by the nonprofit Richmond Jazz Festival that is run by a political associate of Mayor Levar M. Stoney, Kenneth S. Johnson.

But Philly Vegan has no such connections. What it does have is evidence of the city’s responsibility, which the shop provided to the Free Press and published on social media.

The approved application for the shop at 1126 Hull St. shows a city employee did not check the meals tax box. Instead, the employee circled the box and put the word takeout next to it to explain why the tax would not be collected.

“We were told not to collect the tax,” said Samuel Veney, one of the three co-owners of the shop that offers plant-based alternatives to standard offerings that rely on meat, eggs and cheese and that has gained a following for its meatless version of a Philly-style cheesesteak. “We followed the city’s direction.”

But the employee, who represented Mayor Stoney’s administration, was completely wrong.

Seven months after opening in June 2021, Mr. Veney said a city tax auditor stopped by to find out why the shop was not paying meals tax, the additional sales tax the city imposes on prepared meals.

In Richmond, the state and local sales tax totals 6 percent; the meals tax adds 7.5 percent, putting the total tax at 13.5 percent. That includes a portion that goes to fund new city school buildings.

The auditor verified that the approved application provided notice the shop should not collect the tax, but still sought payment because no such exemption exists for takeout food.

Mr. Veney said the employee who had filled out the application reached out and told him that she was wrong. He declined to identify her.

In response to a Free Press query, city spokeswoman Petula C. Burks declined comment, noting the “city cannot legally speak to an individual’s tax information.”

Based on the shop’s sales receipts for the first eight months, the city first demanded $27,000, but the total has grown by $10,000 with penalties and interest – a potentially damaging amount for a low-margin small business, Mr. Veney said.

“This is a huge amount for us,” he said. “And we’re being told to pay up even though this was the city’s mistake, and we did nothing wrong. It’s just not right.”

He said the shop started collecting the tax in April 2022 and has paid on time each month.

The outstanding debt has had other consequences for the shop whose owners include Celicia Partridge and Ratcha Chhay.

The shop has not been able to get a new business license, he said, which leaves its operation at risk. And the fact the shop has unpaid taxes on its financial record also has cost the shop a $25,000 grant from a private group that seeks to support small businesses, he said.

The dispute has added stress to a shop that has enjoyed growth since it opened.

“We have had people from Richmond and other parts of the world come by,” said Mr. Veney. “We’ve had people from Japan and Ireland and other places who want to taste what we offer.”

He said the shop once a month offers its sandwiches for whatever people can pay and gives them away for free for people who have no money.

Since opening, he said the shop has served 7,500 people through that program.