Closed Edmonds car lot dodged hundreds of thousands in taxes

For years, Kero’s Auto Brokers greatly underreported its sales, and how much it owed the state.

EDMONDS — For years, a shuttered car lot in Edmonds did just about everything it could to dodge hundreds of thousands of dollars in taxes, prosecutors wrote in charging papers filed in March.

According to prosecutors, Kero’s Auto Brokers greatly underreported its sales — and the amount of taxes due — to the state Department of Revenue between 2010 and 2016.

Formerly located at 22324 Hwy 99, the company also did business under the names Quality Auto and Quality Auto 1998. The business does not appear to be associated with Quality Auto Center in Lynnwood, according to state records.

State Attorney General Bob Ferguson charged Kero’s Auto Brokers on March 16 with first-degree theft in Snohomish County Superior Court. The owners were not specifically identified as defendants, and were not directly implicated in charging papers.

The Department of Revenue learned early that something was amiss in the company’s financial records. In 2014, a representative of Kero’s reportedly “panicked” and gave 59 sample sales records to state auditors, 45 of which appeared fraudulent. A corporate lawyer then reported that any additional records had been destroyed by a roof leak.

Auditors found that between 2010 and 2013, Kero’s underreported its sales by an estimated 43.6%, low-balled how much it made in sales, misidentified retail sales as wholesale, said a large portion of sales were to out-of-state buyers, and claimed inappropriate trade-in deductions.

As a result of that audit, the Department of Revenue imposed a 50% tax evasion penalty against Kero’s.

An accountant with the Department of Revenue and an investigator with the Attorney General’s Office continued reviewing the company’s alleged fraudulence. With the financial records supposedly flooded, they obtained sales receipts from customers, and obtained a judge’s permission to review transaction history at a credit union where many of the deals had been financed.

The new evidence corroborated what the auditor found. In 2013, for example, the credit union’s records showed the auto dealer collected more than $475,000 in sales taxes, compared to the $108,000 it reported. Such incongruencies were also found in each year from 2010 to 2016.

During the investigation, employees and loan officers said the owner deferred to the comptroller for financial decisions. The comptroller signed and filed the company’s tax returns, and was the main point of contact with the Department of Revenue.

According to state records, the business license for Kero’s Auto Brokers became inactive in 2017, after nearly two decades. Kero’s Food Mart, located on the same property, also has closed down.

An arraignment was supposed to take place Monday, but the hearing was canceled due to the COVID-19 pandemic.

Zachariah Bryan: 425-339-3431; Twitter: @zachariahtb.

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