Home Waynesboro business owner shares his side of story after embezzlement charges

Waynesboro business owner shares his side of story after embezzlement charges

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Aaron and Bethany Mallory opened Farmhaus on Main Street in  2016 in downtown Waynesboro.

The coffee shop serves a variety of coffee, tea, pastries and breakfast foods. Customers are welcome to work remotely in the shop while enjoying their favorite breakfast and coffee, sit and chat with friends, read or play board games

In September 2022, Aaron Mallory said that the city called him at the shop to make him aware that the shop owed several months of meals tax to the city. On top of state sales tax, the shop pays a food and beverage tax to the city every month.

However, one of Farmhaus’s checks to the city bounced and Mallory was unaware. Funds for the taxes were in the account when he delivered the check to the city but the city delayed cashing the check after a payroll cycle and other expenses were paid by the business. The balance of $6,000 went unpaid and Mallory was not immediately notified by the city.

In October 2022, Mallory said that the city’s commissioner of the revenue moved to file charges against him: six felonies, one for each month of taxes due, March to August of 2022. Failure to file by the 20th of each month also resulted in misdemeanor charges.

“They’re saying I misappropriated funds. I used them for payroll, rent, whatever, instead of paying [taxes] to the city,” Mallory said.

According to Mallory, he sent letters of request to settle the matter and pay the taxes without going to court. Waynesboro Commissioner of the Revenue Sabrina von Schilling did not respond to the letters except to say they should communicate with each other through their lawyers.

He went to court Jan. 30, where Mallory pled guilty, and all but one felony charge and one misdemeanor charge were left in Circuit Court.

Mallory said that Waynesboro’s meals tax of 7 percent “is among the highest in the country.” New York City’s is 10 percent.

The city is in the process of pursuing similar charges with two other businesses in the city that Mallory knows, but the business owners are reluctant to speak with local press about their situations.

Mallory is not reluctant.

“Her actions have really created an unsafe environment to do business in Waynesboro,” he said.

He is planning to work with Waynesboro City Council on legislation to help other businesses and prevent what happened to him from happening to other business owners.

In discovery for his Jan. 30 court date, Mallory said lawyers found that von Schilling had sent letters to Farmhaus about the six months of delinquent taxes. He said he never received any letters at the coffee shop. He received a letter October 21 from the city’s treasurer at his home that a check had bounced.

“The restaurant industry is not thriving in Waynesboro,” Mallory said of owning a small business after COVID-19 pandemic lockdown three years ago.

He is willing to meet with city council members and find ways to improve the situation for business owners, including automatic payments of meals tax from businesses to the city. He said individuals have expressed to him that they are afraid to do business in the River City.

On Oct. 22, Mallory said he turned himself in, paid the $6,000 in taxes and another month in advance of meals taxes.

He is now on probation for one year, at the end of which the charges will be downgraded. He set up a separate bank account just to pay meals taxes to the city.

“Per the tax code, sure, I was wrong, I made a mistake [by] not paying, but it was absent mindedness, not intentional, not to defraud the city,” Mallory said.

Because of the alleged embezzlement charges, Mallory said funding for his second business venture, Happ Coffee Roasters in Basic City, was delayed. A couple of investors backed out, but the business is still scheduled to open in April.

Von Schilling said she could not comment on Mallory’s case because it is an ongoing case.

According to von Schilling, the city’s food and beverage tax is 7 percent. Meals tax and lodging tax are considered a Trust Tax, which means taxpayers pay the restaurant or hotel the local taxes due. The business is entrusted with filing meals or lodging taxes by the 20th of each month after the sale. Purchases made in March are due by April 20.

“These funds are not for the business owner to use, and these funds are not coming out of the business owner’s pockets, these funds have been paid by the customer who trusts the business to file the taxes to their locality,” von Schilling said.

Rebecca Barnabi

Rebecca Barnabi

Rebecca J. Barnabi is the national editor of Augusta Free Press. A graduate of the University of Mary Washington, she began her journalism career at The Fredericksburg Free-Lance Star. In 2013, she was awarded first place for feature writing in the Maryland, Delaware, District of Columbia Awards Program, and was honored by the Virginia School Boards Association’s 2019 Media Honor Roll Program for her coverage of Waynesboro Schools. Her background in newspapers includes writing about features, local government, education and the arts.