What happened at Tougo — UPDATE

We’re learning more about the financial issues that have hit Tougo Coffee as owner Brian Wells continues his quest to raise donations to pull his business out of a $10,000 hole. We talked to Wells as he stood under a rain tent in front of his shuttered 18th Ave shop and greeted neighbors who stopped by to show support — as well as confused customers who had only stopped by to grab a cup of coffee. We are also gathering information from the city and others close to the situation to try to learn more about what happened to Tougo and what comes next for the Central District and Westlake shops. Here is what we know so far.

Because of unpaid City of Seattle business taxes going back over multiple two quarters of 2010, the license for Tougo Coffee Inc. to operate its business in the city has been revoked cannot be renewed, CDNews has learned.

But Wells tells us this is not a case of somebody trying to sneak one by the tax man. Wells is cautious about how much he will say about the tax issue because he says his work with the City of Seattle to get Tougo back in business is going well and he doesn’t want to jeopardize the progress. But he would tell CDNews that the unpaid taxes are the result of mistakes made by an accountant being paid to manage Tougo’s finances. “This isn’t a Bernie Madoff situation,” Wells said.

Wells said he needs to raise money to put Tougo back into good standing with the city and have his license reinstated. We are working to get more information from the city’s Revenue and Consumer Affairs but the department is typically reluctant to discuss particulars in cases like this.

Even once the city has agreed to reinstate the license, Tougo will still owe on additional quarters when its taxes went unpaid, CDNews has learned. The question of what happens to people’s donations if Wells can’t re-open is moot — there’s a big financial hole to fill with the coffee shops open or closed.

In the meantime, no word on whether Wells will be back under a tent on 18th Ave on Friday. You can keep in touch with Wells and the Tougo situation via the Tougo Facebook page.

0 thoughts on “What happened at Tougo — UPDATE

  1. as customers, we ALL already paid for the services of Tougo, INCLUDING sales tax.

    where is that money? the owner already spent this money on who knows what – now he wants more?

  2. businesses that cater towards kids usually fail. parents don’t like to spend much of their $$$$$ (hard to blame them, kids are expensive). and people that do not have kids stay away from these places because of the parents that allow their kids to be loud and obnoxious.

  3. if this is about business license taxes/quarterlies then it is a separate tax that isn’t collected through sales tax.

  4. Tougo seemed to have a good number of customers. As for the children, most of the families bought drinks and snacks there as far as I could tell, and I always noticed quite a few people without children too, a pretty good mix. Many take up hours of space using the WiEi, but I don’t think that that discouraged business, either. Usually the “how” of how someone gets into these situations includes a more complex set of circumstances than meets the eye. I miss the place and the staff and hope a resolution is soon found to get it reopened.

    Once I noted a table had brought there own snacks, very rude and mostly is not tolerated by businesses. The staff had decided to ignore that and would take action only if it happened again. I suppose that is reasonable. Such a hassle for a one-time happening could be disruptive of everyone’s morning.

  5. I admit to being a parent who sometimes brought snacks and drinks for her child when she was younger (under 2). When your only option is a pastry for your hungry toddler, of course you’re going to bring something healthy along (while you drink coffee and eat the yummy dessert)! I don’t think parents occasionally bringing in kid snacks and/or drinks for their kids was the root cause financial distress. Adding healthy (or at least, healthier) menu items for those parents who might bring snacks would be a nice option. But, I don’t really think this was the issue. Now, if the whole family dined on their own picnic lunch while in the shop, that’s another matter.

  6. a couple of side notes to this B&O tax issue.

    – B&O tax is calculated on the gross income of the business. So a business such as this that most likely has small margins will, even if business is booming, have to pay a hefty tax.

    – small businesses such as this will pay .415% tax. The billion dollar Russell Investments just lured to Seattle was given a new tax rate of .15% by Nickels and Jean Godden. This new tax rate is the lowest in the city and is about 1/2 million dollars/year of a break. Tough to justify when when we see our budget shortfall and small businesses such as Tuogo struggling…

  7. I hate to digress, but your post really bothers me. It’s indicative of the navel-gazing that seems to drive the general attitude Seattle has toward commerce.

    Do you think Russell would’ve relocated to Seattle had the city not offered this preferential tax rate? Do you really think Tacoma wouldn’t have offered a lower tax rate had Seattle just offered their standard tax rate?

    Think about the sheer volume of tax revenues that will be brought to the city by Russell, even at their discounted tax rate. In these budgetary tax times, we can’t forgo that sort of revenue. And think about all of the additional revenue that will come with expenditures from Russell’s employees while downtown during the workday and from those that choose to relocate to Seattle altogether.

    Had this big-business-is-always-bad attitude driven the decision-making process to lure Russell to Seattle, we would be in an even deeper budgetary hole and tax pressure on small business like Tougo would be more likely to increase, rather than decrease. Also, consider the tax revenue-dependent community resources that would’ve suffered even more than they will in the future; is it really so hard after all to justify Russell’s lowered tax rate?

  8. In the case that I noted, the group had brought a basket of pastries for the whole group to enjoy with coffee. And no, I don’t think this happened often. Nonetheless, it bothered me that they felt free to do so.

  9. Speeedwreck–Has the city published an ROI assessment of tax breaks like these? In general, I think commons sense would agree, but curious if the city has done anything to put numbers behind these tax breaks.

    Tougo is not alone. Samayra Yoga on Yesler has raised their rates over 50%, starting Jan 1. I was pretty shocked, and while I think they could have handled it better, I understand. They have been hit hard by the City’s crackdown on their use of “contractor” employees, which is amusing since many of their employees work only a few hours a week. Moving from contractor to payroll employees has increased their monthly costs by $6k, significant cheddar for a yoga studio.

  10. Mr. Wells has been adamant about taking FULL responsibility for this debacle (despite having hired an accountant, whom logic dictates he SHOULD have been able to expect to do something as basic as paying the required taxes).

    I really hope the neighborhood is able to show support to him and Tougo through this, as I think it would be a huge loss if the shop disappeared.

  11. Let’s get this straight: we’re comparing coffee shops and non-profit yoga centers to a leading investment management firm that employs 1,200 people (and, moreover, helps to build Seattle’s reputation as a city that is willing to work with, rather than against, business). Both examples are canards and did not bear any crosses for the sake of Russell. Besides, Samaraya is a 501c3 and therefore faces an entirely different taxation structure than a for-profit business. While I empathize with their difficulties and sincerely hope they weather their challenges well, their payroll difficulties are an issue with little relation to issue of tax breaks for medium and large size companies.

    While the comparisons are understandable given the neighborhood scope of this blog, we cannot underestimate the fact that Seattle must compete not only with other US cities, but also globally. Seattle won’t continue to be the beautiful, vital city that it is if we don’t demonstrate that we are willing and capable of being a city that takes commerce seriously. That’s how we got here, and that’s the only way we’ll stay here.

    In other words, you can have a vibrant, citywide collection of soulful coffee shops and fantastic Yoga studios with the presence of major players like Russell, Amazon, and Boeing, but you can’t have it the other way around. One word to underscore my point: Detroit.

    And just to be completely clear, despite my apologetics for Russell, I have zero stake in them. I’m just a CD citizen that is deeply appalled at how insular and smugly self-affirming the Seattle political climate has…
    read more
    come in recent years, especially when it comes to discussions on the centrality of economic vitality to our city’s long-term health.

  12. Larzipan,
    Very eloquently put!!! It’s very heartening to see the voice of reason.
    Many thanks,

  13. I believe that it has been widely recognized that taxing by revenue rather than profit has been hard on the smaller businesses with smaller margins. Of course, the problem with doing it the other way is that large businesses would still have more ways to decrease the amount of profit shown. There has to be a better way to find balance here, especially if then some large businesses are given special breaks. These large entities need and use City services and have a greater impact n those services than most.

    I know that there has to be a better way and I’m sure that if I were to do a little research into the structure of taxes for other cities and areas I could come up with one.

  14. Actually, I’m not comparing them at all, which is why there is a friggin’ paragraph break between them. The first is a question; the second is simply a statement about the pressure small businesses and non profits are under in this economy in this city. Try actually reading it again and you’ll come to realize I didn’t compare a non-profit yoga studio to Russell. They were two unrelated points in the same post.

    In reality, what’s smug is your tone. I actually agree that we need to create a great business climate for businesses (both large and small) in this city, but your decision to wield a hachet at even the slightest challenge to your position is just as counterproductive as the kneejerk reaction of the anti-business faction in Seattle.

  15. Something smells awfully funny to me about this whole situation. I own a small business in Seattle as well. The city has several taxes and fees that small businesses might be obligated to pay, but they’re all tiny. The B&O tax (sometimes referred to as the business license tax) we pay to the city the largest of them, and at 0.415%, it’s a pretty negligible part of our revenue. Here’s my back-of-napkin analysis. In order to incur a tax bill of $10,000 in two quarters, Tougo’s gross revenue would have to be a little over $4.8 million a year. At $3 per coffee drink, that would be 1.6 million drinks during the year, or almost 4500 drinks a day, or assuming a 12-hour day, an average of over 6 drinks a minute, every minute they’re open. Frankly, in a small space like that, I doubt it. Looking at the situation from another direction, coffee shops are a high-margin business – that’s why you see them on every street corner. The materials for a $3 coffee drink cost about 30 cents; the labor, utilities and rent cost more than that probably, but still, lots of margin. If the place really were grossing $4.8 million a year, and he’s making good margin at it, why would $10K be impossible for him to come up with? He’d have to be a spectacularly bad money manager to be in the predicament described above.

    The obvious answer to me is that we aren’t hearing the whole story here. What is the $10K really for? I don’t know, but I’ll bet there’s something going on here that he’s not coming clean about.

  16. I’d love to see more analysis on how many Russell employees have bothered to relocate (from what I hear from downtown property management friends most are still commuting). More importantly, much like the State’s tax breaks, and as Elvis suggests, what kind of ROI can you actually demonstrate for the deal? I’m thrilled to have Amazon and Starbucks and Microsoft call the region home – but the majority of job growth happens from small businesses, who certainly aren’t getting the same tax breaks that Seattle gave to Russell. I don’t believe it’s “anti-business” to question the rationale behind a deal like that, and your ‘coffee shops and Yoga studios’ straw man doesn’t answer it either.