Failure to Remit Smaller Amounts of Sales Tax

We reprint in full below a report of a criminal conviction published on the Department of Revenue’s website. We do so because the amount of restitution ordered, some $41,000, indicates that the amount of sales tax collected but not remitted was fairly small (we have participated in audits where no criminal charge occurred even though literally hundreds of thousands of dollars of sales tax were collected and not remitted over a period of years). What is alarming here is a signal that Revenue may prosecute for even smaller amounts of sales tax where the state auditors feel that there has been intentional misconduct. In other words, it is one thing to not collect sales tax because you think it is not legally due, but it is another thing to collect sales tax and intentionally not remit it. Certainly there is also a legal distinction between intentional underpayment and negligent underpayment, but it is unwise to rely on audit’s willingness and ability to make a distinction in your favor between negligent record keeping or internal controls which result in an underpayment, and intentional underpayment. While good legal advice in preparing for an audit, and legal help during an audit are essential, the fact of the matter is that the best advice we can give is precautionary: don’t get caught in this kind of situation in the first place. If you are uncertain whether your records are adequate we recommend you consult an accountant or bookkeeper to check your systems. If you have been notified of an audit seek competent legal help immediately.

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Lynnwood car dealer sentenced for tax fraud case

OLYMPIA – Oct. 15, 2015 – The owner of The Car Store, Inc. in Lynnwood was sentenced yesterday for stealing thousands of dollars in retail sales tax he collected but did not report to the state.

William D. Powell appeared before Snohomish County Superior Court Judge George N. Bowden, who ordered Powell to serve 90 days of work release and make $41,507 in restitution payments. The Attorney General’s Office handled the case on behalf of the state.

The tax fraud came to light during a routine Washington State Department of Revenue (Revenue) audit. While reviewing Powell’s books for The Car Store, the Revenue auditor discovered evidence that Powell had purposely miscoded 118 transactions as wholesale or out-of-state sales when they actually were in-state transactions subject to local and state retail sales tax. Powell collected the sales tax but did not send all the taxes to Revenue.

“Businesses expect Revenue to create a level playing field when it comes to taxes,” said Revenue Director Vikki Smith. “Criminal prosecutions are a last resort when one business simply doesn’t see itself as subject to the same rules.”

Retail sales tax is the largest source of state revenues, supporting vital services that benefit Washington’s residents and the economy. Businesses that collect retail sales tax do so “in trust” for the state and must remit those taxes to Revenue. Failure to remit the taxes constitutes theft.

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