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Brian McGrory

The tax man tries to devour a restaurant

I thought I would have the unfortunate responsibility today of announcing the death of common sense, which was unceremoniously yanked off life support recently by a collection of state workers who probably had no idea what it even was.

The end nearly came, as these things often do, with little more than a proverbial whimper — in this case, a decision in a Department of Unemployment Assistance case that botched facts and butchered dreams.

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Let’s roll it back to the beginning. Ted Epstein, a veteran restaurateur, decided to open a new eatery in the quaint community of Newburyport in 2009. He learned that an upscale dinner-only restaurant and martini bar named Aquatini was looking to shut its doors.

Epstein paid the owner $160,000 for a transfer of its liquor license, the ability to renegotiate its lease, and a short list of incidentals — barstools, some of the appliances, a few hundred dollars in glassware, a music system, cash registers, and table bases. What Epstein didn’t buy: the restaurant’s name, the customer list, the restaurant’s so-called goodwill, or the expertise of anyone who worked there.

Aquatini closed. The entire staff left. Its owner was off for places unknown.

Over the next six weeks, Epstein redecorated the storefront restaurant from top to bottom. He hired a new kitchen crew, which in turn developed a new concept that involved an entirely new menu — good comfort food, lunch and dinner, seven days a week. Epstein hired about 20 workers and called the place Loretta after his late mother.

This is exactly what we want, right — a risk-taking entrepreneur who creates jobs and improves a community at the same time?

Well, apparently not, at least according to officials from the state Department of Unemployment Assistance. Because here’s what the state did. It decided in 2011 that Loretta and Aquatini were the same restaurant, even though they had different owners, menus, and workers. After most of Aquatini’s workers filed for unemployment, the state hit Loretta with an unemployment insurance tax rate of more than 12 percent to pay for it — more than four times the norm for a new business.

Then it got worse. The agency taxed Loretta retroactively to its opening in 2010, then assessed interest and penalties. Epstein estimates it’s costing him $100,000 more than it should.

Epstein and his lawyer, Peter Fenn, had an appeal hearing in March that was cut short when the agency didn’t bother showing up. It didn’t show up at the second hearing, either. Unbelievably, none of this stopped the hearing officer from ruling against Epstein.

I get that a burger restaurant in Newburyport may not be the biggest deal in the world, but if Ted’s last name were, say, Kelly, politicians would be hurling multimillion-dollar tax breaks at him and racing for the microphones to brag about creating jobs. It’s a different story when there are no lobbyists or cameras.

But just as I was about to toss a shovel of dirt into the gravesite of common sense Thursday afternoon, Epstein received an unexpected fax from the state. The high tax, it said, was “not supported by substantial evidence,” “wrong as a matter of law,” and would be revoked.

Moments later, Joanne Goldstein, the state secretary of Labor and Workforce Development, called me to say that my questions had prompted her to review the restaurant’s file. “We like to get things right,” she said.

No, really, a public official acknowledged getting it wrong and made it right. If Goldstein’s ever in Newburyport, the Loretta Burger is on me.

Brian McGrory is a Globe columnist. He can be reached at mcgrory@globe.com.
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