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*Note: Sunflower River Cleanup tomorrow, Saturday, Feb 8th, meet at 1pm behind Quapaw Canoe Company, 3rd & Sunflower in downtown Clarksdale. Bring gloves and trash bags and dress for the weather which is forecast to be cloudy, high of 42. Barn boots and wool socks are best for the sticky, stinky mud and icy edges. (Also: Barefoot Workshops Photo Screening Sat Feb 8th 7pm Hopson Shack Up Inn Juke Joint Chapel). Next Saturday Feb 15th General Annual Membership Meeting of the Friends of the Sunflower River with potluck lunch at 12noon. Another Sunflower River Cleanup to follow at 1pm. Canoes or paddlboards provided with paddles and life jackets, or pick up trash from the riverbank.

DEATH & TAXES?

Dear Friends, Family, Fellow River Rats: Quapaw Canoe Company is at an impasse and caught in an imbalance that might eventually lead towards good results -- and then again might lead to our downfall. If you have an activity planned with us in 2014 or 2015, don’t worry, we aren’t going anywhere this year, or the next. We will fulfill all current obligations. But our long-term success is in question -- and maybe the success of any businesses involved with nature tourism along the Lower Mississippi River.

LIFE & TAXES

Introduction

Sorry for the sobering reality, but we have been quietly fighting a two-year battle with the Mississippi Department of Revenue, and now it feels like time to share the story. As the 2nd year drags on I’m not sure if we’ll survive the fight. But you might be able to help us out. The root of the problem is that there is no place in the Mississippi State Tax Code for us. Federal Law says no taxes shall be charged on navigable waters. States with long traditions of river runners (like Utah and Idaho) have dedicated whole sections of their tax law in accordance with this federal exemption. States like Tennessee have honored the Federal preemption in rulings involving guiding companies on their rivers. We have always operated under the assumption that we would be covered under the same, and have never charged taxes for our services (although we have for sales and rentals). Now Mississippi wants to assess us for taxes on all of our income (regardless of source or service) for the past 4 years, which now amounts to over $41,000 including interest & penalties. This includes income sources like schools, non-profits and government agencies (and other entities not normally considered taxable). This seems a bit unfair, but I’m not here to complain. I'm trying to figure out how to resolve this -- not only for us, but anyone else following in our footsteps in nature tourism, here and the rest of the Deep South: Louisiana, Arkansas, Alabama, and etc. Whatever we do here is likely to be mimicked in other Southern States.

Long story short: we’re going to try and get this corrected in the tax code. How can you help? Keep reading below. We might need legal help. We might need legislative help. We’ll probably need both. I’m not exactly sure. The process has been very mysterious, kind of like the river! We also might need you -- our friends, family, and past clients -- to vouch for us. More on that later. This is a complicated story. Quapaw Canoe Company is a multi-dimensional business with many layers of service including research, education, documentation, mapping, photography, painting, canoe construction, rentals, sales, and of course guiding & outfitting. I of course understand if you have no interest in any of this. Its actually kind of boring.

On the other hand, if you have any interest, and possibly have some connection with state legislators, or to a lawyer who might represent our case pro bono, keep reading. And thank you for your attention and understanding. Many blessings! How this is is resolved could effect the health of all nature tourism industry in the South. At the very least with river guides and outfitters. We at Quapaw Canoe Company want to get this right if at all possible. For our own future, and for the future of all businesses involved in nature tourism. We’re a small business in a small but highly popular and quickly growing category. This could be detrimental to economic development along the Lower Mississippi if decided against us.

Background

Since the beginning (1998) we have taken the road less taken, on the river less traveled. We are pioneers in our business of building big canoes and paddling them down the Lower Mississippi. I have always assumed that if we were doing something wrong it would be responded to with the same spirit of goodness that we have operated under as we carve our beautiful wooden vessels and paddle them on the wildest and most beautiful river in North America. And that any mistakes made along the way would be met with forgiveness. This has worked. In fact this is probably the reason for our success. The love we have shared has been reflected manyfold over in return, even if we trip up along the way. The joy we feel on the river has been shared and made to glow stronger all around us in the friendships made, stories told and experiences lived. But now we are faced with a possibly insurmountable challenge from a source that has responded with no goodness, no forgiveness, and no attempt to comprehend the nature of who we are and what our business is, the Mississippi Dept. of Revenue.

The tax people never talked to me about what it means to be a river guide on the Mississippi River and I never knew any different. I never looked into the details myself. In hindsight I of course wish I had. I just knew that steamboat clients didn’t pay tax, and that the Mississippi River was a interstate navigable waterway. I assumed we were exempt. After the initial letter came during the Summer of 2012 I knew I needed help. So I turned to my accountant here in Clarksdale to represent us in this fight, and thankfully she agreed to the challenge. We scrambled to prepare papers, and then waited. And waited. Months later an agent appeared, reviewed our boxes of papers, and then disappeared. Not a word was communicated. We started to think they forgot about us. More waiting. Finally about year later, on June 7, 2013, we received a letter assessing us for $37K + interest and penalties. We decided to appeal.

Fast forward 18 grueling months of retrieving receipts, invoices, contracts, itemized checks and charges. My normal 12 hour day became regular 14-hour days, then 16-hour days, then 18-hour days, and some all-nighters thrown in. A balancing act: to survive we have to continue our business. We are being assessed from 2009 forward, so we had to go back four years and carefully recreate a financial trail from all of the papers I have boxed away over the years. (While I haven’t been so good at organizing everything, I never throw anything away, and have saved copies of all transactions and negotiations.) My accountant and her staff have laboriously arranged everything neatly into rows and columns. Armed with these facts we went to square off with the revenue people to show them where they have been wrong in their assessment of us.

Board of Review

In the system there are several steps we can take as taxpayers: 1) the Board of Review. 2) the Board of Appeal. 3) The Chancery Court. 4) The Supreme Court. The Board of Review was our first step. It took us months to get prepared and settle on a date for the review. Finally we agreed upon a date, November 11, 2013. The Board of Review was attended by the agent who made the original assessment, his colleagues, superiors, and a counsel. My accountants went head to toe with them over the faulty details of their assessment. We pointed out that we shouldn’t be taxed for income from non-profits organizations like the Community Foundation. We showed how income from US Fish and Wildlife (or any federal agencies) is not taxable. Ditto for income from State agencies like the Mississippi Museum of Natural Science. We shouldn’t have to pay tax on our Federal income tax refunds. We argued that we should be exempt from taxes involving film productions. (When big companies like Dreamworks come to Mississippi to shoot their films they are offered tax breaks; why should we be charged for our film production income?). We argued that we should not be taxed for our educational workshops for schools like the KIPP School of Helena. We argued that all of our grants for research and documentation on the Rivergator: Paddler’s Guide to the Lower Mississippi River is not taxable.

Unfortunately, none of this seemed to have any effect with the Board of Review. They lumped everything together and are continuing to assess us for tax on everything regardless of source. They are still saying we owe the $37K + more penalties and interest = $41K. My accountant was astounded at this irrational decision. And so now we are preparing for the second step, the Board of Appeals. Meanwhile the clock is ticking as my accountant and her staff accumulate documentation. At present I owe $20K in accountant and lawyer fees, and it will likely grow to $25K regardless of result, and maybe more. So we are now stuck between a rock and a hard place. We will either have to pay $25,000 - $30,000 in accountants and lawyers fees, or we will have to pay $25-30K PLUS $41,000+ in the tax assessment fees, or some portion of it. This is a daunting challenge for a company that emerged from last year with exactly $5,117.80 in the bank account (that has to last us three months until the season starts warming up again and we are able to provide our services and refresh our sources of income).

Amusement?

So here’s the part that’s really hard for me to understand: the Revenue people have lumped us in as an “Amusement,” along with festivals, football games, beauty pageants, mud wrestling, concerts, drag races, and other periodic public displays and events. Any of you who have paddled with us knows this is not the nature of what we do. We are not an amusement. We don’t put on shows or exhibitions for your entertainment. You have to paddle (sometimes with great vigor) as we concentrate on the navigation. This is rewarding work, paddling, but it couldn’t be described as “entertaining.” Not by any stretch of the imagination. It’s meditative. It’s invigorating. It’s enlivening. It’s educational. You want to pay attention as we teach you the paddle strokes and point out the dangers of the river. You have to listen to the guides when we advise you where to set up your tent in a safe place in the event of oncoming storms. And it’s not just physical. You also enjoy exercising your mental faculties we describe the biology, geography and history of the river. This is not amusement. This is education.

Mississippi Tax Code

And so we have to look at the tax code and find a place befitting who we are and what we do. Guiding & outfitting could not be considered “sales.” We do not fit into the definition of “amusement,” even though that’s where they want to place us. Where else might we fit in?

Professional Service?

We could be considered a “professional service” since learning the river and learning to safely guide clients and educate them requires years and years of training, with constant continuing education. “Professional services” like ours are not taxed. Not for the service they provide. Classes, workshops, apprenticeships, hands-on-training, presentations, guidebooks and manuals are all examples of the great lengths we go through in training our guides for the rigors of the Lower Mississippi River. I have personally penned over 200,000 words, and shared thousands of photographs describing the Lower Miss which our apprentices and guides use as training manuals for learning the river's secrets (as well as up-to-date customized google maps and hand painted poster-maps -- much of which can be seen at www.rivergator.org).

Interstate Tourism?

We could be viewed as “interstate tourism,” like the steamboat companies who ply the same muddy waters we paddle and do not charge tax to their guests. We are interstate. It doesn’t matter how short of a trip we go on. We always cross state lines. We have to. It’s the nature of the river. The Mississippi observes no state line as it rolls back and forth from one state to the other, between Mississippi and Arkansas, or between Mississippi and Louisiana, or between Missouri and Kentucky, or whichever of the five states along the Lower Miss that we happen to be paddling between on one of our expeditions. The only possible exception to this would be a route in lower Louisiana (below Angola, or St. Francisville), where the river is entirely bounded by that state. And that’s not even Mississippi. So why should we add taxes to our clients when other boat operators (like the steamboat companies) don’t?

Board of Appeal

So now we are preparing a letter to get a date for the Board of Appeal. Unlike the Board of Review, which is composed of all Dept. of Revenue employees, the Board of Appeal involves three independent accountants/lawyers who are appointed by the governor. Perhaps our case will be met with more rational analysis. We are hoping that the ridiculous charges will be struck out, and that the federal pre-emption will be recognized. There are many precedents found around the nation as close as Tennessee and as far away as Alaska; but also in Utah, Idaho and Arizona. Ideally, we’d like the federal law to be adopted into Mississippi State Code with language specific to river guides so that future generations of river guides and outfitters (and others involved in the same as small businesses) will be fairly treated within this state. This seems like a good step for creating a favorable environment for river-related businesses. After all, the Mississippi River creates 440 miles of the Western boundary of the State of Mississippi, from DeSoto County down to Fort Adams, including Tunica, Friars Point, Rosedale, Greenville, Vicksburg and Natchez. Any enterprising individuals considering opening a similar business along the Lower Mississippi could easily cross the river to another more friendly state if they are not met with a favorable tax environment in this state.

Federal Preemption

According to the The National Maritime Transportation Security Act of 2002 (reinstating the Rivers and Harbors Appropriation Act of 1884) no tax shall be charged on harbors and navigable waterways (see citation below). This is how we have operated. We have never charged tax for our guided river trips (which many of you have been on with us), and we have never paid tax. This is according to Federal Law. But we are in Mississippi.

Idaho, Utah

How have other states used this federal law? Companies like ours don’t pay taxes for river guiding in the States of Utah and Idaho. Idaho observes the Federal Rivers and Harbors Act of 1884 (which was refreshed in 2002). There is an entire chapter in the State of Idaho Tax Code regarding river guides and outfitters like us. They don’t pay taxes on the services they provide as river guides. Idaho has a long tradition with guiding and outfitting. But we are in Mississippi.

Tennessee

Tennessee recently recognized the Federal preemption in a 2009 case involving a river guiding company on the Ocoee River. The Tennessee amusement taxes are similar in nature to the sales taxes in Mississippi. In Tennessee, the courts interpreted the statute to preempt the state amusement tax laws relating to rafting trips on the Ocoee River. The court plainly stated that this tax was in violation of federal law and was void. Once the court determined that the Ocoee was a navigable waterway subject to the authority of the United States, the state law was preempted. But we are in Mississippi.

Mississippi

Here in Mississippi there is no precedent for a river guiding and outfitting business such as Quapaw Canoe Company. Each state tax code is independent. Mississippi has never seen a company like ours. Not surprisingly, it has no chapter on river guides and outfitters. But it could easily amend its laws to accommodate this healthy and thriving business model. Paddling is the fastest growing sector in outdoor recreation. The bright side of all of this is that we have the opportunity to create a new definition in the State of Mississippi Tax Code. We’re the state with the big river name, right? What better way to honor the big river and the endless economic possibilities in nature tourism with changes to the tax code! This would be the best case scenario as far as we’re concerned. We’d still be liable for sales and rentals, of course, (less than 1% of our activity), but we’d be able to provide our main service as river guides and educators in harmony with Federal law.

It’s a win-win situation. Nature tourism leads to healthier citizens, healthier communities and a healthier river. It improves quality of life. It attracts other businesses. It attracts new employees to existing businesses. Healthier rivers mean cleaner water. And clean water is the basis of all life. River guiding endeavors like Quapaw could be an integral player in this cycle of health along the Lower Mississippi. But nature tourism in Mississippi doesn’t stand a chance if the tax conditions are not favorable when compared to other states such as Tennessee whose courts recognize the Federal law. Why do business in Mississippi when it could be easier done in Tennessee? Our clients wouldn’t care. They just want to get on the river. And the Mississippi River doesn’t care. The Mississippi river don’t say nothin’. It just keeps rolin’ along… through Missouri, Kentucky, Arkansas, Tennessee, Louisiana… and of course Mississippi.

Why am I sharing this?

One, because I had to get it off my chest. Thanks for allowing me the opportunity to do so.

Two, I have always felt like this is a community-based company -- that community being the greater community of river rats, river lovers, river citizens, naturalists, and friends and family like yourselves. Everything we have done, we have done for you, and for the river. To make your life more meaningful, and to bring greater understanding to the river for its long-term health. And so I wanted to share the story of this fight with everyone who might possibly have any interest. I have spent the last twenty years of my life loving and studying this river. I know it is equally important to many of you.

What can you do?

1) Pray for us. Pray for us as we enter this next phase of the assessment, going before the Board of Appeal. Send prayers to the four winds, and the seven seas, and along the rivers wherever they are freely-flowing.

2) Legal Help. If this Appeal fails we might need your help in finding a tax lawyer or law clinic that would take or case pro bono for the same reason we have done things, for the greater good, for better business opportunity, for the good of the river.

3) Legislative Help. If you know someone in the Mississippi State legislature, you could put in a good word for us.

4) Rescue Campaign. If all of the above strategies fail and we are indeed cast into the “amusement” category with all-star wrestling and rock concerts (and that will be a dark day for future of nature tourism in Mississippi), we might need to initiate a “rescue campaign” of some sort. We will pursue all other possibilities before initiating this.

5) Other spinoffs. Facebook? Crowd-sourcing? Kickstarter Support Campaign? Petition the legislature? One of my friends who heard about this wants to establish legal advocacy to help small businesses who are having similar struggles within Mississippi. Sounds like a great idea. Small businesses account for 80% of overall employment. It has been suggested that I file a formal letter of complaint when this is all over about the very unprofessional way this was handled in the original assessment. It has also been suggested that this be taken to the courts to recoup all of the accumulated fees and all of the lost business due to the trails of this affair. I don’t know about any of this. I'm struggling to keep my head above water. One step at a time.

Conclusion

For the better part of 2 decades I have operated Quapaw Canoe Company under the simple principle of doing good will result in good. That’s the way my Catholic parents raised me, and I have delighted in being able to put that practice to work with the creation of Quapaw here in the great State of Mississippi. If charged as assessed by the Department of Revenue, we will be given one year to make payment, and would likely be forced to sell a major portion of our property. This might render us unable to continue business as usual. This possible negative outcome would not only hurt me, my wife, my family, my business, my guides, my students and my apprentices, and all of you who enjoy our many services on the river, but it would also have negative bearing on countless other businesses and non-profits like ours, and would set a bad precedent for any others involved in the same.

Thanks for hearing our tax story out. We want to turn Death & Taxes into Life & Taxes. I sincerely hope we can straighten this out with an amendment of the Mississippi State Tax Code, or some similar measure, for our own future and for the future of all small businesses involved in nature tourism along the Lower Mississippi River.

Yours humbly in the service of the big river,

John Ruskey

Quapaw Canoe Company

Clarksdale, Mississippi

Helena, Arkansas

FEDERAL

*Note: According to the 2002 National Marine Transportation Security Act no tax shall be charged on harbors and navigable waterways. Here is the citation:

Federal Preemption. The National Maritime Transportation Security Act of 2002, enacted November 25, 2002,

SEC. 445. PROHIBITION ON NAVIGATION FEES. (2002)

Section 4 of the Rivers and Harbors Appropriation Act of 1884 (33 U.S.C. 5) is amended as follows:

(1) The existing text is designated as subsection (a).

(2) The following is added at the end:
'(b) No taxes, tolls, operating charges, fees, or any other impositions whatever shall be levied upon or collected from any vessel or other water craft, or from its passengers or crew, by any non- Federal interest, if the vessel or water craft is operating on any navigable waters subject to the authority of the United States, or under the right to freedom of navigation on those waters, except for-

'(1) fees charged under section 208 of the Water Resources Development Act of 1986 (33 U.S.C. 2236); or

'(2) reasonable fees charged on a fair and equitable basis that-

'(A) are used solely to pay the cost of a service to the vessel or water craft;

'(B) enhance the safety and efficiency of interstate and foreign commerce; and

'(C) do not impose more than a small burden on inter- state or foreign commerce.'.

*Note: Here is the link if you want to see the entire document:

http://www.gpo.gov/fdsys/pkg/PLAW-107publ295/pdf/PLAW-107publ295.pdf

IDAHO:

*Note: Here is how the Federal law is applied in the State of Idaho:

Federal Preemption. The National Maritime Transportation Security Act of 2002, enacted November 25, 2002, prohibits the states from imposing tax on any vessel or other water craft, or its passengers or crew if the vessel or water craft is operating on any navigable waters. The Tax Commission interprets this statute to mean that states are prohibited from taxing sales of rafting and jet boating trips if they occur on navigable waters. See 33 U.S.C. Section 5. If Congress repeals the preemption sales of rafting trips will become taxable on the effective date of the repeal. This interpretation is subject to judicial review and could change, depending on rulings from state or federal courts.

http://adminrules.idaho.gov/rules/current/35/0102.pdf

*Note: Here is a business-friendly document created by the Idaho State Tax Commission regarding river guides:

http://tax.idaho.gov/pubs/EBR00018_04-02-2007.pdf

Utah

*Note: Here is an example of another river guide friendly state that has conscientiously applied the Federal Law:

http://tax.utah.gov/forms/pubs/pub-69.pdf