Eight months ago, the state Attorney General’s Office announced theft charges against the owner of six Tacos Guaymas restaurants, including West Seattle, accusing him of using “sales suppression software” to avoid paying millions in sales tax. We’ve been tracking the case as it proceeded slowly through the system. Then last week, in King County Superior Court, the criminal charges against Salvador Sahagun were dismissed, as part of an agreement in which his Green Lake restaurant, as a “corporate defendant,” entered an “Alford plea” (pleading guilty but asserting innocence) to second-degree theft. The subsequent announcement sent by Sahagun’s lawyers notes they are hoping next that the civil actions will be dropped too. They wrote:

The cases filed March 10th in King County Superior Court, along with a parallel action in Snohomish County, accused Salvador Sahagun of pocketing more than $5.6 million in state sales taxes through the use of sales suppression software in what the state described as a wide-ranging scheme to defraud the state.

Attorneys Robert Chicoine and Richard Ainsworth announced that the King and Snohomish charges were dismissed after demonstrating to state prosecutors that the Department of Revenue (DOR) had made erroneous assumptions, used unreliable evidence, and drew unsupportable conclusions about Sahagun’s sales reports and payments of sales tax due, as well as business and occupation taxes.

The Attorney General prosecutors and the defense agreed that one of Sahagun’s corporations did, in fact, owe $800 on a reporting error unrelated to the use of sales suppression software, not $5.6 million as charged, court documents show.

“My client, a good man who is well known for being a leader in the community, decided that it was in his company’s best interest to agree to an additional tax of $800 rather than become entangled in expensive and time-consuming litigation. The important thing is that the prosecutors saw the light and agreed to dismiss all charges against Sahagun,” Chicoine said.

The Attorney General’s Office filed charges against Sahagun personally, relying on the DOR’s claims that six Tacos Guaymas restaurants had used prohibited sales suppression software to hide receipts when, in fact, none of the restaurants had used suppression software.

Ferguson’s office filed the case, prompting significant media coverage not only due to the size of the alleged fraud, but also for the sophistication of the technology allegedly employed by Sahagun.

According to the Attorney General Robert Ferguson’s press release, Sahagun was accused of “pocketing more than $5.6 million in sales taxes.” DOR representatives said the case marked only the second time state prosecutors had brought tax theft charges on behalf of the Washington DOR for alleged use of sales suppression software.

At the time the charges were filed, the state claimed that it was the largest sales suppression software case in Washington state history, and potentially the largest in the country. Although claims of tax fraud by sales suppression technology were ultimately shown to be untrue, the extensive media coverage cost Tacos Guaymas sales and unfairly damaged Sahagun’s reputation, Chicoine noted.

“When I came into work, one of my employees showed me the story in the paper. I was shocked the state filed criminal charges against me based on unrealistic assumptions and unsupportable estimates,” said Sahagun. “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. Fortunately, Chicoine and his team understood the technology and relied on the facts and computer analysis to convince the prosecutors that the DOR could not support its charges and they should be dismissed.”

According to Chicoine, a Seattle tax lawyer who represents a number of restaurateurs accused of electronic sales suppression tax fraud, the defense team was able to show the trial prosecutors that many of the DOR audit conclusions were flawed and that the DOR agents did not fully understand the technology involved.

“We got down in the technological weeds with this case, and helped the state see that Sahagun’s stores were following the rules in terms of reporting sales,” he said. “It’s unfortunate that the charges were brought in the first place, but we are thankful the prosecutors reviewed all of our evidence, and with the Attorney General’s approval, did the right thing in dismissing the charges.”

Chicoine anticipates that the Attorney General’s Office will revamp criminal tax referral procedures in the future as a result of the Sahagun case. This is a positive outcome not only for Mr. Sahagun, but also for many other Washington business owners who may be suspected of tax fraud by the DOR. He hopes that the DOR will follow suit and dismiss the civil tax loss claims against Sahagun’s businesses based on unsubstantiated and disproven electronic sales suppression assumptions.

“I am so relieved to put this criminal charge behind me and focus all my attentions on running my business, and taking care of those around me,” said Sahagun.

Court documents in the criminal-case agreement say the Green Lake “corporate defendant” was sentenced to pay a $750 fine. In that agreement, Sahagun wrote that while he didn’t believe the “corporate defendant” was guilty of theft, “I discovered evidence that a former management employee embezzled collected receipts, including sales taxes, from the corporation and therefore from the DOR, which likely resulted in an underreporting of the corporation’s receipts in the amount stipulated in the plea agreement. The embezzlement was unknown to me when returns were filed and sales taxes were remitted.”