FOLLOWUP: Tax-underpayment charges against Tacos Guaymas owner dismissed

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.”

18 Replies to "FOLLOWUP: Tax-underpayment charges against Tacos Guaymas owner dismissed"

  • Rick November 14, 2018 (3:50 pm)

    Who exactly did he piss off? 5.6 mil as oppose to 800.00? Is Ferguson running for guv yet?

  • The thruth November 14, 2018 (4:20 pm)

    I am disgusted that Ferguson made such a big production out of this!  I promise you this small business lost sales because of these accusations when in fact they were totally wrong about the use of suppression software.  I’ll remember your grandstanding when you run for governor sir!

    • CS November 14, 2018 (5:45 pm)

      What? “Someone” stole $5M that should have been paid to the state, there was massive wrongdoing, they just stuck a “former management employee” with the blame. I hope someone goes to jail.

      • Seattlelite November 16, 2018 (10:32 am)

        It’s clear you actually didn’t read this. The case was dismissed. The prosecutors agreed to dismissal that means they also didn’t believe it could justly go forward. The explanation of the former employee only answers the separate case of $800 being due and is a separate matterlooking at other articles we see that the state was using gaps in a number sequence and a few missing tickets to argue that there was theft. 

  • Scarlett November 14, 2018 (5:11 pm)

    I love their food and have been going there for 25 years. It is the best Mexican food around.  I would focus attention on the Department of revenue expert auditors  and managers instead of the attorney generals office.  The state of Washington consistently refuses to pay state employees well enough to keep people around long enough to be really good at their jobs. Let’s thank the republican legislators refused to pony up for decent pay to get really skilled workers who stay long enough to develope the skills needed. 

    • Seattlelite November 16, 2018 (10:36 am)

      I agree. It clearly is a case of gross incompetence. The auditor was clearly looking for something and when they didn’t find they failed to take occums razor into account. If only they had thought hey what other reason could there be for the number sequence skipping in the computer besides an advanced technology. Or if they had experience ordering Mexican food and they would see a taco could be ordered for $2.75

  • Quill November 14, 2018 (5:13 pm)

    Remember folks, this is a statement from the defendant’s lawyers, not an unbiased news source.  Of course it sounds like nothing bad actually happened.  I have a hard time believing the DOR didn’t do their research to the extent alleged on this one.

    • WSB November 14, 2018 (5:24 pm)

      The blue-blocked (or indented if you’re viewing some versions of mobile) section is the news release from the lawyers. But I didn’t publish it until I could verify via court documents what actually happened in terms of the court case – which took extra time because the King County Superior Court document system was down from Friday until last night. The information before and after the news release is from our accessing and examining court documents independently to verify and assess – the Alford plea and the embezzlement contention, for example, were not mentioned in the news release. And FWIW we also included the attorney general’s news release in our original report, linked in the first line of this one, also supplemented with our own research via independently accessed court documents. – TR

      • AJP November 14, 2018 (7:59 pm)

        Cause you’re awesome, WSB. 

  • Jethro Marx November 14, 2018 (7:01 pm)

    Remember how we were ready to tar and feather this guy back when the story broke? One guy wanted to deport him, which is tough to do with a citizen. Are any of those West Seattlites ready to revisit their comments? The wheels of justice may be slow and occasionally unjust, yet the fervent mobs are always quick and mindless.

    • newnative November 15, 2018 (9:22 am)

      I certainly did. I simply stated “this is heartbreaking” because I didn’t know if the charges were true. If he was guilty, then it was heartbreaking for the community and his employees. If he was innocent, then he’s been slandered and libeled and dealt with costly legal fees. So, it’s the latter and I stand by statement. This is heartbreaking. I hope he and his business recovers. 

  • 1994 November 14, 2018 (8:14 pm)

    So how much food in pre-sales tax dollars would he have to have sold in 4 years to skip out on $5.6 million in sales tax? Seems like the Dept of Revenue should have been able to make that calculation. 

    • HG November 14, 2018 (10:56 pm)

      Roughly $55 million over 4 years, or $14M a year. Or, if you’re measuring in tacos, a ****-ton of tacos. I know I cut back my business there after the charges were filed, and assume many others did the same. I’m shocked that such seriously charges could be pursued with innocence as the outcome. It’s certainly a lesson for me. 

  • Swede. November 15, 2018 (5:53 am)

    I’m keeping those lawyers names! Not only did they spin it to look like the made a ‘slight’ calculation mistake (I mean, 800 is easily mistaken for 5,600,000 right!) but they got them to fine LESS than the ‘wronged’ amount! Zero incentives to do the right thing when you gain no matter what right. They will get ‘Lawyer of the year’ award for sure. 

    • Seattlelite November 16, 2018 (10:38 am)

      Not sure if you also missed the part where the $800 due  was an entirely separate matter and case

  • Dana November 15, 2018 (7:38 pm)

    I think we should all be a little more thoughtful and supportive of our neighborhood businesses. This is their livelihood and gossiping and jumping the gun is inappropriate and cruel. Everyone go enjoy an amazing burrito!

    • WSB November 21, 2018 (3:22 pm)

      That article is largely a rewrite of the legal firm’s news release, as featured in our report but with some added court-document research on our part.

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