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Tiny Chinese eatery gets big-league scrutiny from California tax board

Auditors say Tasty China in Sun Valley didn't pay enough sales taxes. The couple who run the bare-bones place say it's not true, but they can't afford a lawyer and will be forced to close.

May 05, 2010|Steve Lopez

Only one table was occupied Monday at noon when I walked into Tasty China, a humble Sun Valley hole in the wall, to investigate the Great Egg Roll Crackdown by the state of California.

Mama, the only name she shares with customers, was at the cash register of the mostly take-out restaurant. Her husband, Papa, also known as Sander Yi Chung Ho, was at the grill. They own the bare-bones rice palace, which is adorned with cheap cardboard cutouts of Asian cartoon characters, and they're the only employees, working six long days a week.

I ordered the cashew chicken lunch special for $4.62. My lunch date was Don Delson, a regular customer who had tipped me to the fact that Tasty China could be forced out of business soon. Delson ordered sweet and sour pork. With drinks, the bill came to just $12.01 for the two of us including tax. With complimentary egg rolls.

"I like going to local restaurants that aren't chains," said Delson, who lives in the area. "I like the food here, I like the atmosphere, and I like being greeted by somebody who says hello."

Mama, who came to the U.S. from Taiwan a "long, long time ago," says more than just hello. While I was there, she greeted the handful of customers who came in as if they were relatives, demanding to know two things from each:

First, "How are you?"

Second, "How come you don't come see Mama more often?"

Unfortunately for Mama, auditors from the state Board of Equalization have been coming all too frequently. According to the documents she handed me, auditors either camped out inside the restaurant, or watched from outside, on Feb. 1 of this year, Feb. 11, March 17 and April 8. They were counting how many customers visited the restaurant and estimating how much each spent.

And their verdict?

They decided, based on their observations, that Tasty China had underpaid sales taxes by a total of $9,293 the last three years.

"It's a robbery," cried Mama, who insisted she has collected and paid every penny of sales tax the state was due. She and her husband don't have the $9,000, and they can't afford an attorney to fight it.

When the bill comes due, she said, she and Papa will have to shut down and go home to the one-bedroom North Hollywood apartment where they raised two kids.

"I'll become a dependent of my son," she said, telling me her boy is in the U.S. Navy and has been providing financial support to keep the restaurant open.

So how exactly did the Board of Equalization do its math?

On Feb. 11, two auditors dropped anchor at one of the nine tables at Tasty China from 10:30 a.m. to 8:30 p.m., taking notes for 10 hours.

And what kind of bustling commerce did they witness?

According to the state's own records, Tasty China had 18 customers that entire time, and the total take was $136.58, which meant Mama owed the state a whopping $12.13 in sales taxes for the day.

On three additional reconnaissance missions, state investigators claimed business was more brisk. They said Mama had 21 customers between 12 and 1 p.m. on one occasion, 22 during another lunch hour, and 15 customers between 4:15 and 7 p.m. one day.

Delson said he can't believe those numbers are accurate, and even if they are, there are long stretches when no one at all is in the restaurant. Mama said many of her customers can only buy steamed rice, for a buck, so she disputes the state's estimated average of $6.59 per customer.

"I don't think she's ever had 21 customers an hour in her life," said Jay Pettit, who owns the Tasty China property and runs a print shop nearby.

Look, we all know there's plenty of off-the-books income in Southern California, and lots of legal tax dodges, as well. Squabbling Dodger owners Frank and Jamie McCourt paid no state or federal income tax on $108 million in income over a five-year stretch, as Times scribe Michael Hiltzik documented. And yet the state is counting egg rolls at Tasty China.

I can't vouch for Mama's bookkeeping. But it strikes me as overkill to pay four visits to a scruffy little discount eatery, with a broken neon sign, in a neighborhood of shuttered businesses.

"Let me assure you, the Board of Equalization is not in business to put people out of business," said Anita Gore, a spokeswoman for the department, adding that findings can be contested and payments negotiated.

Gore said she can't comment on individual cases, but some audits begin when a customer reports that a restaurant isn't ringing up every sale. And sometimes another tax agency will flag businesses that appear to be under-reporting income.

She also said the board has stepped up inspections statewide, thanks to a growing army of auditors. Gore said more than 300 employees have been hired in the last two years for the express purpose of generating revenue to help fill the state budget gap.

So there you go, a double whammy for Mama and Papa. First they lose business because of the economy, and then they're hammered with an audit.

On a brighter note, I know where they can find work if they're interested in second careers as auditors. Gore told me the Board of Equalization is still hiring.

steve.lopez@latimes.com

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