Recent Sales Tax Scandals

May 31, 2019

In our blog, we’ve spent a fair amount of time discussing tax and financial scandals which have made major headlines. For instance, we’ve discussed the bankruptcies and tax problems faced by prominent celebrities. We’ve also examined insider trading cases. These kinds of stories are very useful for many reasons. For one, these stories show how easy it can be to fall into tax and financial potholes. Here we have people who, in some cases, have made millions of dollars, and yet financial issues still plague them. In a way, these stories are almost comforting because they remind us that no one is above falling behind on financial obligations.

Of course, all of us would very much prefer to avoid these types of pitfalls, but we have to remember that rough things can happen to everyone, including high income earners. For those who run a company, one of the more difficult things to do is remit (or transfer) sales taxes they collect to the state. Transferring these funds after a business owner receives them from customers is never an easy task. And this is precisely how many business owners find themselves in trouble.

In this post, we’ll tale a look at a couple of recent scandals involving sales tax. We recently went over some of the fundamentals of sales tax audits here in New York State. We also looked at some of the more bizarre aspects of the New York State sales tax. Complying with sales tax laws and regulations is usually a daunting task. And in some cases, business owners have resorted to outright fraud or evasion to get around this task. Let’s take a look at a couple of recent sales tax scandals. 

Denny’s Owner Convicted of Sales Tax Evasion 

Back in 2015, the owner of three separate Denny’s Restaurants in California paid upwards of $800,000 to the state for sales tax evasion. The owner, Abdul Halim, failed to pay roughly $525,000 in sales taxes for the period of 2007 to 2011. Halim, who was in his 70s at the time of the scandal, was ultimately charged with three separate criminal counts. Halim faced two counts of felony sales tax evasion, and one misdemeanor count of evasion to report taxes. Records show that Halim’s taxes were only about $525,000. Nonetheless, Halim had to repay the state substantially more due to applicable penalties and interest. In addition to restitution, Halim’s sentence also included probation and community service. 

At sentencing , Halim was on the receiving end of some harsh words from the Deputy District Attorney as a result of his conduct. As the Deputy DA stated, sales tax evasion harms both the state’s pocketbook as well as individual consumers. Halim could have faced jail time for missing a quarterly payment, he warned, but jail time was practically removed as a possibility following a renegotiated sentence.

Furniture Store Owner Convicted of Sales Tax Fraud 

In another case, Michael Steven Rock, an owner of a furniture store, was sentenced to one year in jail and five years probation for multiple counts of tax fraud. Rock is based in Roseville, CA, a suburb of Sacramento, and runs a business called “Rock Bottom Beds.” During a five year period, Rock collected approximately $300,000 in sales tax from his customers, which he then failed to remit to the State of California. What’s more, Rock also understated his state income. In 2011, for instance, Rock failed to report some $77,000 of income to California’s Franchise Tax Board (FTB). Ultimately, Rock was order to pay restitution to both the FTB and the California Department of Tax and Fee Administration. The case was formally resolved in the summer of 2018, even though the offenses stretch all the way back to 2008 (when Rock first began failing to remit sales tax). 

These offenses are clearly objectionable, as they demonstrate avarice and willful noncompliance with tax law. They also highlight the heavy burdens faced by successful business owners. If, like Rock, you run a business you too will have to transfer large amounts of sales tax money to the state. And doing so won’t always be any easier for you than it was for Rock. No doubt, Rock figured there were many more useful things he could do with the $300,000 rather than transfer it to the State of California. But this, of course, was in violation of his legal obligations to the state and wound up getting him into a lot of trouble.

Facing a Sales Tax Audit? Call Us!

These are just two recent examples of sales tax noncompliance. In the future, we may come back and discuss a few others. Stories like these are invariably fascinating, and potentially useful for demonstrating the various issues associated with tax compliance. At Mackay, Caswell & Callahan, P.C., we know how easy it can be to fall into serious tax trouble. We focus on tax resolution and take pride in helping our clients navigate the complexities of tax law, including sales tax law, and helping them resolve their tax issues. In almost every case, grappling with tax problems is not something that should be faced alone. In many cases, good representation can make all the difference in the world. If you need our assistance, give one of our top New York City tax attorneys a call today. We’d be happy to review your situation immediately.

Image credit: Creditscoregeek 

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