Summit Communications Inc., a local telecommunications firm that filed Chapter 11 reorganization bankruptcy a month ago, is more than $700,000 behind in state and federal taxes. Bankrupt Summit has
$700,000 tax billBy Tim Ruel
truel@starbulletin.comSummit, which was formed in 1996, owes at least $722,776 in back taxes, including $415,545 to the state and $307,231 to the federal government, according to a financial statement the company filed in U.S. Bankruptcy Court last week.
Including penalties and interest, Summit owes $462,579 to the feds, primarily for payroll and withholding taxes, according to the Internal Revenue Service. "It is large," said Carol Muranaka, an attorney for the IRS in Honolulu. Summit's total assets are valued at $474,952, according to the company's statement.
The IRS hit Summit with a $366,290 tax lien on Jan. 25, which was part of the reason the company filed for bankruptcy protection three weeks later on Feb. 14, said Grant Johnston, president of Summit and son of firm co-founder Harry Johnston. The lien covers three quarters of federal tax returns during 2000 and 2001. The state's claim includes $125,000 in withholding taxes and $280,272 in general excise taxes, covering the years from 1998 to 2002.
"How are they going to pay this down with both state and federal? $700,000 is really amazing," Muranaka said. Tax claims take priority over other unsecured claims in a bankruptcy, and must be paid under any plan of reorganization.
Summit is confident that it can successfully emerge from bankruptcy, in part by paying its debts with promissory notes, Grant Johnston said. The firm is also trying to renegotiate some of the tax liability to a lower amount, he said.
Summit provides local and long-distance telephone service as well as call center services for clients including the Hawaii Visitors and Convention Bureau.
The 6-year-old firm has never produced a profit, and ran into extreme cash flow problems that were more pressing than paying taxes, said Johnston, who noted that he took the helm of the firm shortly before Summit filed bankruptcy. The company changed some management and discovered the tax problem around last summer, then immediately began discussing it with the government, he said.
"We fully intend to pay whatever tax liabilities we have," Johnston said. The firm's reorganization plan is primarily based on paying off debt in the future by focusing on profitability. "We're scrutinizing every single dime that we spend," he said.
Summit has recently closed a small office at the Renaissance Ilikai Waikiki Hotel and is reducing the size of its headquarters at 1132 Bishop St. The company has also cut back on employees, primarily service technicians, to 35 workers from 40, Johnston said. At its peak, the firm had 55 employees in June 2001.
Summit is also hoping to grow its revenues with some key projects that lie on the horizon, said Johnston, who declined to discuss specifics. The intention is to pay 100 percent of all of debts, most likely by issuing notes, he said.
Apart from the Hawaii state government, Summit's largest local creditor is Internet data storage firm NetEnterprise Inc., which is owed $45,103. Summit also owes a total of $12,288 to several of its employees for on-the-job expenses.
An official meeting of Summit's creditors is scheduled to take place Friday.