The Internal Revenue Service has refunded part of a former downtown movie theater owner’s payroll tax payments after he argued that Conseco Fieldhouse caused an undue hardship on his business.

Ted Bulthaup, who operated Hollywood Bar and Filmworks on South Meridian Street before closing it in 2006, touted the IRS decision in an advertisement he purchased in the May 17 issue of IBJ. His ad was a lengthy diatribe refuting the results of a recent study that found the Indiana Pacers have a positive economic impact on the city.

What’s unusual about the tax case is that such refunds, which are based on economic hardship, more typically are associated with natural disasters such as earthquakes and hurricanes.

“It boils down to something like [Hurricane] Katrina,” Bulthaup told IBJ. “That’s what the general rule was put together for. You just have to prove your disaster, which we did admirably well.”

The IRS granted Bulthaup's refund in early April after he convinced the agency that increased parking rates following the opening of Conseco Fieldhouse in 1999 led to a severe downturn in his business. Bulthaup said he skirted payroll tax obligations in order to keep his theater open.

He failed to pay payroll taxes for about a three-year period before he closed his theater. Bulthaup estimated he owed as much as $90,000, which he paid before filing for a refund. He declined to divulge exactly how much was refunded, describing it as "mid five figures."

The IRS decision came three years after Bulthaup and his attorney made the request for relief.

“The reasonable cause that was established was based upon the economic circumstances that resulted from Conseco Fieldhouse opening less than two blocks from Hollywood,” said his attorney, James Gilday. “That was considered and accepted to be a circumstance beyond the taxpayer’s control.”

A spokeswoman for the Indiana office of the IRS declined to comment on Bulthaup’s case, citing federal disclosure regulations that prohibit her from divulging details about individual tax matters.

The Capital Improvement Board, which commissioned the economic impact study and is wrangling with the basketball team over who will pay at least $15 million in annual fieldhouse operating costs, was among Bulthaup’s targets in the newspaper advertisement. Pacers executives, who say the team is losing money, want CIB to assume the cost.

CIB President Ann Lathrop said the board never received any type of notification from the IRS about Bulthaup’s claim. She declined to comment further.

Bulthaup closed the 15-year-old downtown fixture in October 2006 to focus on a similarly styled theater that serves alcohol and food, which he opened in the suburban Chicago community of Woodridge in 2003. He since has opened another theater, in nearby Naperville.
 
Bulthaup had a long-standing feud with the city of Indianapolis and CIB over parking issues following the arena’s opening, which he blamed for driving patrons from his theater.

While operating Hollywood Bar and Filmworks, Bulthaup founded the Indianapolis Downtown Restaurant Association, which spearheaded an unsuccessful effort to persuade the city and CIB to lower event parking rates.

The downtown restaurant association that Bulthaup founded now is affiliated with the Indiana Restaurant Association, led by John Livengood. He recalled Bulthaup as being “very aggressive” in standing up for what he believed.

Livengood agrees with Bulthaup’s assessment that the Pacers' economic impact on downtown is minimal, at least for bars and restaurants. Livengood pointed to the recent study commissioned by CIB, which shows the team’s home games generate just $175,300 annually in city food and beverage taxes.

The food and beverage tax, which applies to sales at restaurants and bars, was raised by one percentage point, to 2 percent, in Indianapolis to help fund the construction of Lucas Oil Stadium.  

Livengood said he hopes the Pacers stay but also wants the public to realize sports teams often don’t create as much business for downtown establishments as one might think.

“Everybody always comes to us to pay for this stuff,” he said, “and we’re not the big beneficiary, in every case.”
 
The study, released May 10 by Chicago-based Hunden Strategic Partners, found the city would lose nearly $18 million in tax revenue and other expenses if the Pacers were to leave Indianapolis.

It also said the Pacers and Indiana Fever contribute an estimated $55 million a year to the Indianapolis economy.
 
The Indianapolis Bond Bank paid Chicago-based Hunden Strategic Partners to perform the study. The firm is led by Rob Hunden, a former economic development official for the bond bank during the Goldsmith administration.

That relationship has led critics of any plan to provide financial assistance to the Pacers to question the results.