State drops tax-theft charges against Tacos Guaymas owner

By Heidi Groover / The Seattle Times

Six months after accusing the owner of a Mexican restaurant chain with undertaking the largest tax-theft scheme of its kind in state history — and maybe even the history of the U.S. — the Washington Attorney General’s Office has dropped felony charges against Tacos Guaymas owner Salvador Sahagun.

In March, Attorney General Bob Ferguson announced that his office had charged Sahagun, of Bothell, with six counts of first-degree theft and three counts of using illegal sales-suppression software at six Tacos Guaymas restaurants he operates at locations in Marysville, Lynnwood and Seattle. The office claimed Sahagun had used the software, which can delete or under-report sales, to pocket more than $5.6 million in sales taxes he should have paid to the state.

“When businesses pocket sales tax, they are stealing from Washington taxpayers,” Ferguson said in a news release. “That money should be funding our schools and parks, not deceptive businesses.”

Now, Ferguson’s office has largely reversed course, dropping the criminal charges against Sahagun. His business pleaded guilty to one felony count of second-degree theft, although Sahagun maintains the company’s innocence.

Robert Chicoine, the lawyer who represented Sahagun, argued the state’s initial accusations against Sahagun were based on a faulty audit from Department of Revenue employees who didn’t fully grasp the tax-evasion software they accused Sahagun of using.

“They just didn’t have the facts,” Chicoine said. “They made bad assumptions that we think don’t even make sense.”

In a statement Tuesday, the Attorney General’s Office did not address the criticism and declined to discuss its actions.

Spokesman Dan Jackson said the office would represent the Department of Revenue in any future civil proceedings against Sahagun or his business. “In all criminal prosecutions, the state bears the burden of proving its charges beyond a reasonable doubt,” Jackson said. A spokesperson for the Department of Revenue declined to comment.

In a widely distributed news release announcing the charges in March, the attorney general’s office accused Sahagun of “pocketing more than $5.6 million in sales tax.” The release called it “the largest ‘sales suppression software’ case in Washington state history — and potentially the largest in the country.”

According to court records, the case was based on a Department of Revenue audit of Tacos Guaymas locations. The audit covered four years from 2012 through 2016. The auditor compared tax returns with point-of-sales records and “concluded that income from each of these restaurants had been substantially under-reported,” court documents say. The auditor also reported that the majority of receipts were missing from the point-of-sale system used at the cash registers in Sahagun’s restaurants and suspected he was using sales-suppression software.

Sales-suppression software can misrecord cash transactions to reduce the sales taxes a business appears to owe. In 2015, Department of Revenue employees visited the Tacos Guaymas locations undercover and paid in cash. The auditor then reviewed the restaurants’ records and determined the software was in use at several locations, court documents said.

Chicoine claims the auditor misread company documents, “cherry picked” information that made it seem as if the company had underreported its sales and failed to provide evidence Sahagun had access to millions of dollars during the time frame he allegedly stole the money. When the auditor found some missing receipts, the department inaccurately “extrapolated” that to claim the use of the illegal software, Chicoine said.

“They came up with what we think were absurdly high numbers,” Chicoine said. The alleged $5.6 million in stolen sales tax would have indicated nearly $56 million in sales over four years, Chicoine said. “That’s a lot of tacos … It just didn’t make sense.”

Chicoine said he believes the government was overly anxious to get another case involving sales-suppression software after the owner of a Bellevue restaurant pleaded guilty to using the software in 2017. Chicoine represented the business owner in that case, as well.

“The Department of Revenue assumed that I was using advanced technology designed to cheat the government in ways that I never could, and never would,” Sahagun said in a statement provided by the law firm.

While the original charges were dropped, Sahagun pleaded guilty on behalf of his company to a separate count of second-degree theft for about $800 in unreported income. The business will pay a $1,250 fine. In an Alford plea, Sahagun maintained the company’s innocence, claiming a former employee embezzled from the business.

Chicoine said state agencies should revamp their processes for referring future tax-theft charges and be sure they can “show the prosecutors have expertise to bring these cases.” Neither the Attorney General’s Office nor Department of Revenue commented on possible policy changes.

Herald staff contributed.