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naraburns  nihil supernum  1yr ago (text post)   3576 thread views

Small-Scale Question Sunday for February 5, 2023

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Does anyone know of a good write-up on the “Patel motel cartel”? I saw a Charles Munger clip where he says they don’t pay income tax; are they taking advantage of loopholes or doing light cash business fraud?

From an accounting standpoint, depreciation expense would be the most likely way to offset income for an operation with multiple real properties, coupled of course with under-table cash deals and write offs of questionable "business" expenses. With an array of properties and investment backing, it's easy to grow the company, bring home plenty of dollars, and still be "zero income".

They keep most of the money in the business instead of paying it out to themselves as income. Most of the staff are their family members.

They live in the motel and charge as many living expenses as possible to the business.

Most anti-poverty programs are income tested instead of wealth tested. So they qualify for things like food stamps and Medicaid.

Also light cash fraud like you said.

I don't have a write-up on, or really even any knowledge about them. But often when a company isn't paying income tax its either because its not profitable or because it used to not be profitable and its using credit for it previous losses. Sometimes those losses are because of a huge amount of investment. So the company can have a lot of revenue and be expanding and look profitable on the surface if you don't have any of the financial data (maybe its a closely held private company that doesn't have to release the info, or maybe you just haven't look at the publicly available information).

I don't know if this applies to the motels your talking about. I had not heard of them until reading your post. I found a few articles about them one over 20 years old and some newer ones, but none that went in to details about their taxes. I'm not sure they are properly even considered a cartel, it seems to be different business owned by people from the same ethnic group from India, so there could be different answers for different companies. Presumably some of them do pay income tax.

Are you asking about motels run by Indian immigrants? The phrase "Patel motel cartel" smuggles in quite a few assumptions, and I'm not sure that I parsed them all.

If "they" share some tax advantage, I would expect it to be cash-business fraud rather than a loophole. A quick Google suggests that occupancy taxes are usually local or state, which suggests the feds aren't really in the business of regulating hotels/motels. I think that makes a nationwide loophole less likely.

Do you have a link to the Munger clip?

I’ll second the notion that if a specific ethnic group is avoiding taxes in a particular business at scale, it’s probably due to being good at fraud rather than having loopholes everyone else missed.

It’s the phrase of choice for the topic at hand, having been used by the NYT and hospitality organizations since the 90s, and hundreds of other journals.

https://youtube.com/watch?v=Y8UVca16Fao although I came across it on Instagram.

Thanks!

I'd definitely run across the stereotype before. Somehow I hadn't seen the phrase attached, though.

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