Back in January 2016, when the Erie County Industrial Development Agency approved tax breaks for Gordon Restaurant Market in North Buffalo, the plan was for the store to be a wholesale supplier for restaurants and local foodservice firms, open only to people affiliated with a restaurant.
But not long after the store opened last October, Gordon shifted gears at the Elmwood Avenue store, opening it to the general public and dropping the requirement that its customers have a membership card to shop there.
The change – which IDA officials say turned the store into a retail outlet that no longer qualified for tax breaks – put Gordon and the IDA on a collision course.
Now, the IDA wants Gordon, a Michigan-based wholesale food distributor, to repay the more than $182,000 in sales tax breaks that it received through the agency's tax incentives.
At the center of the issue is the IDA's policy, backed by state law, that forbids the use of tax breaks for most types of stores, restaurants and retail establishments.
IDA officials said they approved the tax breaks for Gordon because the company's application for incentives described the business as a wholesale operation that catered to small- and mid-sized foodservice firms and restaurants. Gordon, in its application, said that less than 20 percent of the project's cost would go toward portions of the facility that were devoted to retail sales or serving customers who visited the store. That type of use made the $6.9 million project eligible for tax breaks.
But when the market opened its doors to the general public – a change that IDA officials say was done without any notification from the company – it changed the nature of the project to "100 percent retail," said Steve Weathers, the IDA's president and CEO.
"Their business model has changed," Weathers said Wednesday. "They're in violation of their agreement, so we have demanded full repayment."
Gordon collected more than $182,000 in sales tax savings through the IDA incentives during 2016. The agency has told the company that it must repay those tax breaks, along with any other sales tax incentives it received this year.
The company has since told IDA officials that it changed the business model because it miscalculated the economic environment in Buffalo and needed to expand its retail access to shore up the store's operations. The company also has argued that less than a third of the store's sales are retail in nature.
"Gordon Food Service conducts its business with integrity and opened the Buffalo store in good faith," the company said in a statement. "We are aware of ECIDA’s position and are currently reviewing our options with respect to the matters raised. We will respond in due course."
Weathers, however, said the sales mix is not what the state law focuses on. Instead, the law focuses on the portion of a project's total costs that are devoted to retail use, and the change in strategy now means that all of the project's costs went toward retail facilities, which makes it ineligible for tax breaks.
The IDA has demanded that Gordon repay the tax breaks by the end of the month. If it doesn't, Weathers said the agency will file a lawsuit against Gordon to recover the incentives.
IDA board members said they felt deceived by Gordon's change in strategy.
"We asked them specifically here if they were going to operate a retail store, and they said no," said Richard Lipsitz, the IDA's vice chairman.
"I was driving down the road and saw the big sign that says 'Open to the Public,' and I was shocked," said Erie County Executive Mark Poloncarz. "We're not going to be railroaded. We're not going to be lied to."