A Bellevue restaurant owner pleaded guilty Wednesday in a criminal tax theft case prosecuted by Attorney General Bob Ferguson. The restaurant owner used “sales suppression” software to hide cash transactions, pocketing an estimated $395,000 in sales tax collected from her patrons.
“Sales suppression software helps dishonest businesses steal from Washington taxpayers,” Ferguson said. “My office is committed to stopping tax cheats who siphon funding from our schools, parks and emergency services.”
This case is the first prosecution in the United States for the use of sales suppression software, the Washington State Attorney General’s Office reported.
“This case stands as an example that we take tax fraud seriously,” said Vikki Smith, director of the Department of Revenue. “Our staff is working diligently to identify this type of theft, and we are actively going after businesses that use sales suppression software. We will not allow businesses to steal from the pockets of Washingtonians.”
Yu-Ling Wong, owner of the Facing East restaurant, pleaded guilty to first-degree theft and unlawful use of sales suppression software. The court ordered Wong to pay $300,000 in restitution to the Department of Revenue in addition to $600 in penalties and fees.
The Department of Revenue will monitor Wong and Facing East for five years.
In addition, Facing East Restaurant entered a corporate guilty plea to first-degree theft, unlawful use of sales suppression software and two counts of filing a false or fraudulent tax return. The court fined the restaurant $40,000 for the four charges, suspended as long as Wong continues with the five-year monitoring agreement.
Sales suppression software
Run on a point-of-sale computer or cash register, sales suppression software surreptitiously deletes transactions. The software then re-balances the company financial records to show a lower sales figure, reducing the business’ tax obligation. Businesses then pocket the sales tax patrons paid on the unreported sales.
Sales suppression software allows the user to remove cash from the register while still reflecting balanced business records — thus the user is able to steal the sales tax collected on the eliminated transactions, shortchanging the state in the process.
In 2013, Washington passed a law making it a class C felony for anyone to “sell, purchase, install, transfer, manufacture, create, design, update, repair, use, possess or otherwise make available” software or hardware that deletes transactions.
Department of Revenue auditors discovered the theft during a routine audit of the restaurant for tax years 2010 through 2013. Auditors identified a sudden change in cash receipts and a fixed cash flow rate, indicating potential fraud.
During the course of the investigation, undercover Department of Revenue staff dined at the restaurant on a number of occasions and paid with cash. The investigators used the receipts from those visits to identify transactions deleted from the system.
Based on the restaurant’s previous receipts, which were more in line with industry standards, the Department’s investigators estimated Wong owed nearly $395,000.
Department of Revenue referred the case to the Attorney General’s Criminal Justice Division, which filed charges against the restaurant in February 2016.
Assistant Attorneys General Andrew Hamilton and Scott Marlow and Senior Investigator Lisa Gilman handled the case.