QUILCENE — Rohn Murray Rutledge, the owner of the rustic, shuttered Olympic Timber House restaurant, has been charged with fraud in what the state Attorney General’s Office has termed the largest sales-tax theft case in at least 10 years in Jefferson, Clallam and Kitsap counties.
The state Attorney General’s Office this week charged Rutledge, 47, of Seattle with stealing at least $462,817 in sales taxes from business generated at the Olympic Timber House at 295534 U.S. Highway 101 in Quilcene and the Main Street Ale House at 11225 N.E. state Highway 104 in Kingston.
Rutledge, charged with one count of first-degree theft and four counts of filing false or fraudulent tax returns, will be arraigned at 10:30 p.m. Dec. 6 in Kitsap County Superior Court, Attorney General’s Office spokesman Mike Gowrylow said.
In an interview with a state Department of Revenue agent in 2010, Rutledge admitted he “deliberately falsified tax returns filed with the DOR,” Attorney General’s Office investigator Gregory Mixsell said in his probable-cause affidavit.
“Rohn M. Rutledge stated he was struggling to meet expenses and filed ‘no business’ returns because he knew no way out of his dilemma,” the document said.
Rutledge, who ran the restaurant with his wife, Carin, could not be reached for comment.
Bainbridge Island lawyer Steve Olsen, who is representing Rutledge, did not return a call Thursday requesting comment.
In total, the case is the largest dollar amount of retail sales taxes stolen in any single case in Jefferson, Clallam and Kitsap counties in at least 10 years, Gowrylow said Thursday.
“I’ve been here 20 years, and I can’t think of a bigger one in your area.
“It’s actually one of the largest ones statewide, although some are a million dollars and above,” he said, adding sales tax proceeds, which are routed to state and local governments, are intended to pay for state and local services, including education.
“This is a pretty egregious case of someone diverting public funds for his own purposes,” Gowrylow said.
“Patrons of his restaurants should be pretty upset that the money part of their bills that should have come back to them in the form of services went into his pocket, apparently.”
Scott Marlow, an assistant attorney general with the agency’s financial crimes unit, will prosecute the case.
“I’m expecting this case will resolve ahead of time, but I’m not positive,” Marlow said Thursday.
Rohn Rutledge was charged and not his wife because he did the books, Marlow said.
Here’s what Rutledge did, according to the allegations in the charging document:
■ Stole $148,540 in retail sales taxes generated from doing business at the Olympic Timber House between July 2007 and June 2010.
■ Stole $314,277 in retail sales taxes generated from doing business at the Main Street Ale House between July 1, 2005, and June 30, 2010.
Former Olympic Timber House manager Jim Marshall, 54, who was living on the property, rescinded in mid-October an offer to buy the business after learning the Rutledges’ financial problems “were getting worse and worse and worse,” Marshall said Thursday.
After he withdrew his offer, the Rutledges immediately closed the business, leaving 14 employees jobless and without their last paychecks, Marshall said.
“I didn’t realize I was dealing with such scoundrels, and I was left high and dry,” he said.
“I just want the community to know we did all we could to keep it going, and those people just let it go,” Marshall said.
Marshall said he intends to buy the business and the property by next year.
The restaurant and property, owned by the Rutledges, are valued at $612,285.
The Rutledges’ Sea Restaurants and Catering LLC of Indianola, doing business as Olympic Timber House restaurant, owes $12,262 in delinquent property taxes for 2010 and 2011, according to the Jefferson County Assessor’s Office.
The company was formed in September 2005 to operate the Hoodsport-area Hungry Bear Cafe, a name allegedly falsely used in the fraud scheme, according to court documents.
Authorities said the Hungry Bear was destroyed by arson Oct. 31, 2006.
After Rutledge began operating the Olympic Timber House restaurant, his tax returns identified the restaurant as the Hungry Bear Cafe, court documents said.
In 2008, Rutledge reported that the Olympic Timber House had closed, yet it was still operating, Gowrylow said.
The Olympic Timber House and Main Street Ale House were required to file combined tax returns on a monthly basis, Mixsell said in his court affidavit.
Rutledge allegedly reported “zero business” to the state Department of Revenue, yet advertised they were open, Gowrylow said.
Rutledge did not file any returns during the period he allegedly pocketed sales tax proceeds, according to court records.
That’s how the “tax discovery guys” at the state Attorney General’s office caught Rutledge, Gowrylow said.
For example, from January through December 2009, copies of sales records from cash registers at the Main Street Ale House showed Rutledge generated $750,258 in total income and reported no income on his tax return, Gowrylow said.
Marlow successfully prosecuted Catherine Betts, the former Clallam County Treasurer’s Office cashier.
Betts was sentenced to 12 years after a Clallam County jury found her guilty July 27 of stealing between $617,467 and $793,595 from the Treasurer’s Office cash drawer between June 2003 and May 2009.
Marlow did not return a call for comment Thursday.
Rutledge never lived in Jefferson County while he operated the Olympic Timber House and Main Street Ale House, Gowrylow said.
The Main Street Ale House is under new ownership, he said.
A voice message at the Olympic Timber House had this greeting Thursday morning: “We will be closed for the wintertime. Sorry for any inconvenience. Thanks for the call.”
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Senior Staff Writer Paul Gottlieb can be reached at 360-417-3536 or at paul.gottlieb@peninsuladailynews.com.