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Concession cap questioned following tax fraud case

If you are in Ocean City this week, you may notice a couple of changes as you drive down Coastal Highway. The speed limit, normally 40 mph through North Ocean City, has been reduced to 30 mph, and Downtown, the speed limit has also been reduced. This is due to the expected, unauthorized H2Oi Pop-Up Rally.  It is reasonable to expect heavier than usual traffic, noise and strict enforcement of vehicle laws during the week and weekend.

Ocean City Council votes 4-3 to proceed with beach equipment rental bids

ZACK HOOPES ¦ Staff Writer

(Oct. 19, 2012) Although the City Council moved Monday to go ahead with the auctioning of beach equipment rental rights for the north end of town, the revelation that the city’s largest beach equipment franchisee had been involved in long-term tax evasion may indicate that a policy change is in the works.

Ocean City has a revolving system by which it takes bids for the rights of private operators to rent umbrellas, chairs, and other equipment on public beaches. The city’s coastline is divided into three zones – south end, north end and mid-beach. Each zone is further divided into parcels, consisting of one block’s worth of beach in the mid and south areas and several blocks on the less busy north end.

Each zone is auctioned every third year, with contracts lasting for three years with the option to renew for another three years at a 10 percent increase over the first term’s price.

This year, according to City Manager David Recor, 14 of the 18 north end parcels are up for bid, while the other four have been optioned for another three years.

The issue at hand, however, was the fact that, following the 2008 economic downturn, the council had approved an increase in the maximum number of parcels one franchisee could hold at a given time. The previous cap had been 33 percent, to prevent a certain level of beach monopolization by one vendor. But that share was upped to 50 percent, in order to encourage an economy of scale.

“One of the reasons the change was made in 2008 was that the number of people who bid on those parcels had decreased dramatically, and there were a number of parcels not being bid on,” said Mayor Rick Meehan. “It has resulted in an increase in revenue received from the beach parcels.”

Councilwoman Mary Knight later tabulated that this boost was to the tune of $125,000.

“The cost saving for the operator is in the amount of equipment he can buy. If you can get enough stands, you can buy enough chairs and umbrellas to bring the cost down and make it worthwhile,” Council President Jim Hall said.

“We did it for a reason. Some people weren’t bidding on streets and didn’t want them and an operator picked them up … Right now, I think go out to bid and see how it comes out,” Council Secretary Lloyd Martin said.

“I would agree … we’re right up against the actual mail-outs and the actual auction time,” Hall said. “I would hope that we would leave it for this year and in the next cycle take the time and really look at it.”

The council voted 4-3 to proceed with the bids, with Joe Hall, Brent Ashley and Margaret Pillas opposed. Pillas said she had received several letters from beach stand operators on the matter, and that it warranted further discussion.

“I felt it was a risk to move to 50 percent of the parcels when we did it in the first place,” Joe Hall said.

During the public comments portion of the meeting, beach stand operator Will Edmonds told the council that he and other operators “feel pretty strongly about this one-third.”

“We feel like our businesses have been very impacted over the last 10 years,” Edmonds said. “The operator who does own 50 percent of the concession just pled guilty to not filing federal income taxes, to the tune of $300,000.”

On Oct. 5, local businessman Patrick McLaughlin was sentenced to 10 months in prison for failing to file tax returns and employment tax withholdings. McLaughlin operated 85 N Sunny, the town’s largest beach equipment rental, as well as two beach photo companies and an ice cream truck fleet.

McLaughlin dodged $20,000 in Social Security and Medicare withholdings for 85 N Sunny. His total IRS tab for all four businesses, though, was $296,701.46.

As a result of tax fraud-aided dominance, Edmonds said, “we have lost a lot of concessions and are paying a lot more.”

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