QUILCENE — Rohn Rutledge, the former owner of the Olympic Timber House, pleaded guilty last week to stealing more than $462,000 in sales tax proceeds from customers who ate at the rustic-looking Quilcene eatery and the Main Street Ale House in Kingston.

Rutledge, 47, pleaded guilty Wednesday in Kitsap County Superior Court to filing false tax returns to cover up the felony theft of the sales taxes, state Department of Revenue spokesman Mike Gowrylow said.

Judge Russell Hartman ordered Rutledge to pay $774,000 in restitution, penalties and interest in up to 10 years, but because interest on that amount will accrue annually, Rutledge could pay even more, Gowrylow said Friday.

The prosecutor in the case recommended Rutledge spend 30 days in jail if Rutledge pays off the amount in 10 years, a jail sentence that Rutledge’s lawyer, Steve Olsen of Seattle, expects Rutledge will have to serve, Olsen said Friday.

Rutledge operated the Main Street Ale House and Olympic Timber House between 2007 and 2010 but indicated in his tax returns that he did not generate any business whatsoever, Gowrylow said.

It’s the largest tax fraud case involving sales taxes in Clallam and Jefferson counties and one of the largest ever statewide, Gowrylow said.

“This is a tax collected from the customer, not a tax on the business,” Gowrylow said.

“Those customers have the expectation that the taxes they pay will be returned to them in the form of state and local services,” he added.

“They are not meant to prop up a business that otherwise might be failing or to line someone else’s pockets. That’s a felony.”

Rutledge could not be reached for comment.

In November, after Rutledge was charged with one count of first-degree theft and four counts of filing false tax returns, he told the state Attorney General’s Office “everything he did without minimizing what he did,” Olsen said.

“Hopefully, he’ll do relatively little jail time.”

Olsen said Rutledge had fixed up the Hungry Bear Cafe in Eldon along the Hood Canal and was ready to open the restaurant when it was destroyed by a fire.

“That created a financial crisis,” Olsen said.

“They had the opportunity to buy the Timber House and were hoping that would make up the difference. Then the market crashed, and they never got back on an even keel.”

Gowrylow said Rutledge has sold the Ale House.

Foreclosure has been completed on the Olympic Timber House restaurant, according to the Jefferson County Assessor’s Office.

The foreclosure deed was turned over to Paul Schmidt of Quilcene on Jan. 4.

Schmidt purchased the Timber House in 2002, then sold it to Rutledge, Schmidt said Friday.

Schmidt said the restaurant building, equipment and the five-acre site are for sale for $895,000.

The land and building were valued at $612,285 in 2010, according to the county Assessor’s Office.

The property, building and equipment are being marketed by restaurant broker Mark Peizer of Seattle-based Lange-Peizer Commercial Real Estate LLC of Seattle, Schmidt said.

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Senior Staff Writer Paul Gottlieb can be reached at 360-417-3536 or at paul.gottlieb@peninsuladailynews.com.