EXCLUSIVE: Resigned SF supervisor responds to texts detailing questionable business practices

SAN FRANCISCO (KGO) -- Fallout continues as San Francisco's newest supervisor resigned Thursday night, just a week after Mayor Daniel Lurie appointed her to the office.

Questions about 29-year-old Beya Alcaraz's conduct as a small business owner quickly came under fire, resulting in her stepping down and sending shockwaves throughout the city's political circles.

City Hall insiders tell ABC7 political reporter Monica Madden they've never seen anything like this, as critics are asking how the mayor's office missed these red flags.

PREVIOUS: Newly-appointed San Francisco Supervisor Beya Alcaraz agrees to resign from role: mayor

First, there were the accusations about the pet-supply store in the Sunset that Alcaraz used to own and operate.

The new owner, Julia Baran, shared videos with ABC7 News on Wednesday of the shop in squalor.

When she took over the business this year, she said she found hundreds of dead mice, piles of trash, and cages covered in urine and feces.

When ABC7 News asked Alcaraz about these allegations on Wednesday, she didn't deny them, and said it's hard being a small business owner in San Francisco.

Text messages reveal details on taxes

ABC7 News then wanted to learn more about the financials of Alcaraz's former pet store, the Animal Connection, and obtained profit and loss statements showing Alcaraz was losing tens of thousands every year from 2020 to 2023.

Baran shared text messages between her and Alcaraz in March, where Baran was asking about the financial operations of the pet store. ABC7 News has verified these text messages in which Alcaraz claims to have skimped out on taxes.

Texts show Alcaraz claimed business was profitable despite her filings to the IRS.

"The business can be very lucrative, but if you can outsource some work, it would become even more," Alcaraz wrote.

Alcaraz claimed that by classifying personal expenses as business expenses, she turned what looked like a struggling pet store on paper, into a personal ATM.

"I also live off a big portion of the non-cash revenue. I spend (sic) expense a bit of money on my personal life so I can use it as tax deduction. E.g. I pay for my dinner and drinks with my friends or 'clients' as a business expense and they may or may not pay me back in cash."

She laid out which items she used to enrich herself.

"When you see meals and entertainment, office meals, travel, ect that's usually what that's for."

Alcaraz in 2023 spent $15,659.92 in those categories, according to profit and loss statements for the business obtained by ABC7 News.

That same year, she claimed a net $20,748 loss on her tax return for the business.

It's also not the only way Alcaraz claimed she saved money on taxes.

In text messages obtained by ABC7 News, Alcaraz claims that she saved on taxes by paying people under the table, assuring the new owner that taxes will be lower.

"Yeah so that's usually all the taxes we pay. It will be less since I pay people under the table now..."

ABC7 News speaks with Alcaraz

After learning all this, Madden wanted to ask Alcaraz directly about these messages. And after spending over four and a half hours outside her City Hall office on Thursday, ABC7 News got five minutes with her.

MADDEN: "So you did pay some employees under the table?"

ALCARAZ: "Well, if my college, my friend's kids want to come into town and take summer jobs at the store, you know, sweeping the floor and stocking shelves. I'm going to pay them for that."

MADDEN: "With cash, not reporting how you were paying them to the IRS?"

ALCARAZ: "I think if you look at restaurants and all the other businesses in the area, the summer jobs and the summer hires, they should get paid. And and that's what I did."

MADDEN: "So you're not denying that you paid them in cash and didn't report it?"

ALCARAZ: "I, like I said, if you go to restaurants, you get to stores, you go to other businesses. My college summer hires deserve to get paid. They needed a little extra cash. I paid them extra cash because I think they should get paid."

MADDEN: Not reporting how you're paying people is widely considered tax evasion.

ALCARAZ: I fought tooth and nail to keep my business open. The city makes it really hard to be able to operate a small business.

MADDEN: I heard you say that. But you're a public official now and so not properly filing your taxes, if that's the case, which you don't seem to be denying, I mean, to be in charge of taxpayer dollars here in San Francisco. What's your message to people?

ALCARAZ: First, I don't owe any taxes. I, as a small business owner, it was really hard. We didn't as a business, every cent got poured back in. We didn't make any money. And so these are the things I did as a small business owner. We're to keep our lights on, to keep our employees, paid and to keep our animals well cared for.

What does this all mean legally?

ABC7 News spoke with an accounting professional who says if the allegations are true, it is not legal - but it is somewhat common for small businesses to write off personal expenses.

"You cannot use your business account to pay for personal expenses and deduct them on your tax return," CPA and certified financial planner Larry Pon said. "And also, you have to report all your income that you received in your business. And you have employees. You have to put them on payroll. You can't pay them, 'under the table.' Generally, first you're hit with civil penalties. And if it's really bad, it could be referred to criminal penalties."

The mayor said he spoke to Alcaraz late Thursday night where she told him about her intention to resign as supervisor.

"We also agreed that the new information about her conduct while running her small business, which I learned today, would be a significant distraction from that work," he said in a statement Thursday.

In a press conference Friday afternoon, Lurie said he takes full responsibility for the situation.

"This is not the first time that I have gotten something wrong. It won't be the last. But what I commit to all of you to the people of San Francisco, is that I'm going to learn from this, and I'm going to grow," he said.

When asked about what the vetting process was for Alcaraz, the mayor declined to share specifics.

"I wish I had done more to help her succeed. The news that came to light yesterday was new to me. But we are going to thoroughly review our vetting process. And we will get better," Lurie said.

The mayor did not provide a timeline for choosing another person to take over as District 4's supervisor. He'll have to balance political issues like his upzoning proposals in the neighborhood - as well as the contentious Great Highway debate that initially led to the recal of Supervisor Joel Engardio.