The mission of the Criminal Investigation Division is to deter intentional criminal conduct against the state tax laws administered by the Texas Comptroller of Public Accounts. This deterrence is achieved by detecting and investigating felony and misdemeanor tax-related crimes, and by informing the public of the results of case prosecution.
Spotlight on…Dyed Diesel Crime
Most gasoline and diesel fuel is purchased by businesses and private citizens for use on public highways. Texas’ motor fuels tax rate, as set by the Texas Legislature, is 20 cents per gallon. In fiscal 2011, the motor fuels tax was the state’s third-largest source of tax revenue, at $3.1 billion. Texas allocates most of this revenue to the state highway fund.
The motor fuel tax is paid early in the supply chain, by distributors who purchase fuel from terminal operators. Distributors pay the tax to the terminal operators who remit it to the Comptroller’s office. Distributors recover this cost by passing it along as part of the sales price to retailers, who in turn recover their cost by passing it along to consumers.
SB 934 Punishes Sales Tax Cheats Same as Theft
When a consumer pays sales tax, he or she does so trusting the retailer will forward that money to the state. When an unscrupulous retailer obtains that tax money, then breaks the trust by intentionally failing to remit that money — perhaps keeping, investing, or spending it — the consumer and the entire state are victimized. SB 934 dramatically raises the stakes for anyone caught defrauding Texas taxpayers in this way.
Senate Bill 934 (2011), signed by the Governor, amends the Tax Code to treat tax cheats the same as property thieves. Beginning Sept. 1, 2011, anyone who collects and intentionally doesn’t remit sales tax will face the same criminal penalties as property theft.
- Sales tax cheats pocketing amounts from $50 to $1,500 could face county jail time.
- Felony penalties carrying possible prison time can be assessed for sales tax fraud if as little as $1,500 is pocketed; that’s down from the minimum threshold of $10,000 under the existing statute.
- Stiffer penalties have been authorized right up the scale with a first-degree felony defined, which can bring a punishment of five to 99 years or life in prison for failing to remit $200,000 or more.
SB 934 also amends the Penal Code to allows investigators to:
- Use state organized crime laws to pursue groups of three or more persons who collaborate to commit tax felonies, which enhances the severity of charges by one degree;
- Pursue sales tax cheats under state Money Laundering statutes when the trail of the criminal proceeds (unremitted sales tax) – is known; and
- Charge retailers that intentionally fail to produce legally required records of taxable retail sales of alcohol and tobacco products to the Comptroller and base the punishment on the amount of tax avoided when the goods were purchased wholesale.
Sales tax fraud harms all Texans. Now with SB 934, this scam can be punished in tough new ways in the criminal justice system just as strongly as theft and pursued as money laundering and organized crime when appropriate.
Tobacconists Accused of State Tax Evasion
Two Eastland County residents have been indicted on felony tax evasion charges following a criminal investigation of Tobacco Plus, an Eastland smoke shop, by the state Comptroller’s office.
On Jan. 27, Nazia Javaid, 37, was indicted for failing to remit sales tax collected, a third-degree felony. Ilyas Javaid, 52, was indicted for two third-degree tobacco tax felonies. The cases are currently pending in the 91st District Court of Eastland County.
According to court documents, Tobacco Plus made wholesale purchases of more than $307,000 worth of cigarettes and tobacco during an eight-month period beginning in December 2009. During that same period, Tobacco Plus reported only $129,000 in retail sales to the Comptroller — a difference of more than $177,000 in taxable sales.
The discrepancy was discovered by using a recent state law (House Bill 11, 80th Legislature) requiring distributors and wholesalers who sell beer, wine, ale, cigarettes, cigars and tobacco products to Texas retailers to report those sales monthly to the Comptroller’s office. State tax auditors can compare those monthly reports with retailers’ reported sales to ensure that sales tax is collected on taxable merchandise and the revenue is forwarded to the state. If fraud is suspected, a criminal investigation may follow.
Ilyas Javaid allegedly evaded Texas tobacco tax by purchasing some of the store’s tobacco products from out-of-state distrbutors who do not hold Texas tobacco tax permits. Permitted distributors are required to pay Texas’ tobacco tax directly to the Comptroller, and retailers are required to keep records that show their tobacco products were purchased from a permitted distributor. By purchasing from an unpermitted distributor, an unscrupulous retailer can obtain products whose price does not include a markup for tax already paid. This not only results in a loss to the state, but it gives unscrupulous retailers an unfair advantage, because they can sell tobacco products at a lower price than their competitors.
“Since House Bill 11 took effect, it has helped uncover more than $230 million in potentially unreported sales tax,” said Texas Comptroller Susan Combs. “In the Javaid case, our investigators also discovered tobacco tax violations that might have gone undetected if House Bill 11 reporting requirements hadn’t drawn our attention to this particular store. I am very pleased with the way the law is working to ensure that businesses pay the tax they owe and to protect honest retailers against cheaters.”
Investigators from the Comptroller’s Criminal Investigation Division worked with the Eastland County Sheriff’s Office and District Attorney’s office to arrest and charge Nazia and Ilyas Javaid.
State Tax Evader
Sentenced to Federal Prison
The owner of a Lubbock business has been sentenced to six months in federal prison and ordered to pay the state Comptroller $200,000 in restitution for a scheme involving state tax evasion and wire fraud.
Mike Wooten, 48, the owner of West Texas Lighting Management, pled guilty in Lubbock federal court to misprision of a felony, which is defined in the U.S. Code as having knowledge of the commission of a felony and failing to report the crime to authorities. His sentence, handed down on Oct. 15, includes a year of supervised release after completing his prison term.
Court documents allege that in 2006, Wooten began underreporting his company’s taxable sales to the state Comptroller’s office, knowing the amounts shown on his tax returns were materially false and fraudulent, and using wire communications to file the tax returns. Wooten admitted in his guilty plea that he did not disclose the actual amount of his company’s sales to the Comptroller.
Filing falsified state tax returns and failing to remit taxes collected from a business’s customers are state law violations. When a false tax return is filed electronically, the filer can be charged with the federal offense of wire fraud or misprision of a felony based on wire fraud, which is what happened in the Wooten case.
“This was a complex case involving multiple serious crimes and state and federal jurisdictions,” said Texas Comptroller Susan Combs. “I am pleased that investigators in our Criminal Investigation Division were able to work with the FBI and the U.S. Attorney’s office in Lubbock to see that justice was done.”
Combs reports that the number of felony tax cases filed by her office increased dramatically in fiscal 2010, after the Criminal Investigation Division streamlined its caseload to focus on the most serious tax law violators. The Comptroller’s office filed 129 felony charges in fiscal 2010, compared to 25 in fiscal 2009.
South Texas Convenience Store Owner Sentenced For Tax
Fraud Detected Under New Law
Hidalgo County convenience store owner Rogelio Ramirez this week received a punishment of 10 years deferred adjudication after pleading guilty to two counts of sales tax fraud. Ramirez admitted to intentionally failing to remit more than $100,000 of sales tax collected from customers, a second degree felony. Ramirez also admitted to intentionally making false entries in and failing to make entries in sales tax records, a third degree felony.
In December 2009, Ramirez, the owner of two Pepe’s Drive In stores, was the first person arrested for tax fraud under a new law giving the Comptroller a new audit tool for detecting tax fraud.
“This case should send a strong message that we are serious about prosecuting those who commit tax fraud,” Texas Comptroller Susan Combs said. “By going after the bad guys, we protect the good guys – the honest business owners – against unfair competitors.”
Ramirez agreed to pay the state more than $116,000 in restitution as part of his plea bargain, paying $60,000 prior to sentencing. He will pay the balance of $56,290 as a condition of his deferred adjudication. Ramirez will also perform 200 hours of community service under the agreement.
The case was prosecuted by the Travis County District Attorney’s Office.
House Bill 11 passed by the 2007 Legislature requires distributors of alcohol and tobacco products to report sales to retail outlets monthly, giving the Comptroller’s auditors the ability to compare the distributors’ reports against taxable sales reported by retailers.
“Since alcohol and tobacco distributor reporting began in January 2008, our auditors have used this new tool to identify nearly $164 million in sales tax due to the state,” Combs said. “This tax might have gone unreported without the fraud detection capability offered by HB 11 and the deterrent effect of the new law on those who might be tempted to underreport sales tax.”
The End of the Road for a
Motor Fuel Tax Evader
A Houston area man has received a 12-year prison sentence and an order to pay $1 million in restitution to the state for his part in a scheme to blend and sell untaxed motor fuel to unsuspecting gas stations. Sidney Baldon II, 47, pled guilty in a Travis County court to three indictments for motor fuel tax crimes connected to the scheme that operated in 2002 and 2003. He was sentenced June 23.
Baldon owned a company that transported kerosene and other motor fuel products. The company purchased kerosene from a Louisiana refinery and, to avoid paying excise taxes, falsely claimed the fuel would be exported to Mexico. Instead, Baldon trucked the kerosene to Texas and blended it with other additives to produce more than 22 million gallons of diesel fuel. Baldon distributed the diesel to retail gas stations, where it was sold as taxable motor fuel. State taxes were collected from consumers, but were never remitted to the state, defrauding taxpayers of $4.5 million.
“When a business collects tax and keeps the money, it not only defrauds the state, but also steals from every customer who pays the tax in good faith that the money will be used to benefit Texas,” Comptroller Susan Combs said.
Convenience Store Owner Arrested for Tax Fraud Under New Law
A new audit tool used by Texas Comptroller Susan Combs has led to the indictment and arrest of a South Texas convenience store owner for tax fraud.
Rogelio Ramirez, owner of two Pepe’s Drive In stores in McAllen, was arrested today after being indicted for four felony counts of failure to remit sales tax collected on alcohol and tobacco and two felony counts of falsifying records.
According to the indictment issued Nov. 30 by a Travis County Grand Jury, Ramirez is alleged to have collected and not remitted $100,000 or more in sales tax in 2008, and between $20,000 and $100,000 in the first eight months of 2009. He is charged with collecting but failing to pay the state $100,000 or more in calendar years 2006 and 2007 as well.
The indictment is the first in Texas based on an investigation using a fraud detection tool initiated by Combs and passed by the Legislature in 2007. The law requires distributors of alcohol and tobacco products to report sales to retail outlets monthly, giving the Comptroller’s auditors the ability to compare the distributors’ reports against taxable sales already reported by retailers. Distributor reporting under the law began in January 2008.
“This law passed with the overwhelming support of convenience store operators,” Combs said. “It helps protect legitimate, law abiding convenience store owners against competitors who attempt to profit from tax fraud.”
So far, the Comptroller has assessed nearly $90 million in sales tax that might have gone unreported without the fraud detection capability offered by the new law.
Houston Man Sentenced to 25 Years For Role in Forgery Ring
A Houston man has been sentenced to 25 years in the state penitentiary for check forgery, including forgery of state government checks.
On Oct. 14, 2009, Dwaine Allen Collier, 38, pled guilty in Harris County state district court to the third degree felony offense of Engaging in Organized Criminal Activity – Forgery. As part of the plea, Collier admitted to serving two previous sentences for forgery, increasing his minimum prison sentence due to his criminal history. He was sentenced in the current case, filed as cause number 1204040, on Dec. 9, 2009.
Collier admitted being involved with six others forging checks, including checks that appeared to be issued by the state Comptroller’s office. The counterfeit checks were made out to Collier and the other co-defendants, and were cashed at Houston-area stores, including major grocery and discount chains, before the forgeries were detected. Collier has been ordered to pay $15,000 restitution to these stores.
Co-defendants Latasha Brown, 29; Wanda Brown, 48; Steve Brown, 21; and Kimbra Lockridge, 21, all of Houston, pled guilty and were placed on deferred adjudication probation in spring 2009. The cases against co-defendants Willie Roy Tolder and Josie Ekoh are still pending in Harris County.
Abilene Man Receives Prison Sentence for State Tax Evasion
An Abilene man has been sentenced to prison for two years for trying to avoid paying motor fuel tax. Tommy Eugene Aaron, 51, pled guilty to the second degree felony offense of evading motor fuel tax on March 3 in a Travis County court. Aaron was charged with stealing dyed diesel fuel valued between $1,500 and $20,000, storing it without a required permit, using it in vehicles driven on the highway and failing to pay motor fuel tax.
Dyed diesel is untaxed diesel fuel intended to be used in off-road vehicles such as farm tractors and construction equipment. It is colored so law enforcers can easily tell when untaxed fuel is illegally used in highway vehicles.
In fiscal 2009, the state collected about $3 billion in gasoline and diesel fuel taxes.
“Through the motor fuels tax, drivers pay to build and maintain Texas highways,” Texas Comptroller Susan Combs said. “We will continue to pursue tax evaders to the full extent of the law to ensure that revenue for state operations gets collected.”
The Criminal Investigation Division of the Comptroller’s office, the Winkler County Sheriff's Office, the Loving County Sheriff's Office, the Jones County Sheriff's Office and the Commercial Vehicle Enforcement Service of the Texas Department of Public Safety participated in the investigation. The case was prosecuted by the Motor Fuel Tax Fraud Division of the Travis County District Attorney's Office.
Milam County Pair Arrested for Motor Fuel Tax Fraud
Texas Comptroller Susan Combs announced today that Milam County resident Don H. Roddam, 78, was arrested March 24, and his daughter, Sandi Roddam Richter, 50, was arrested March 25 for felony motor fuel tax fraud. The pair was indicted by a Travis County Grand Jury on March 10, following an investigation by the Comptroller’s office into Cam-Rock Oil Company, a motor fuel distribution company based in Cameron.
Separate indictments allege Roddam, Richter and Cam-Rock Oil Company intentionally failed to remit motor fuels taxes they collected on fuel sales.
Two additional indictments allege Richter falsified fuel tax reports during a three-and-a-half year period ending in 2004 and that she failed to retain documents as required by law.
The cases are being prosecuted by the Motor Fuels Tax Fraud Division of the Travis County District Attorney’s Office, a state-funded unit with jurisdiction over motor fuels tax felonies.
“The experience and expertise of the Motor Fuels Tax Fraud Division is invaluable in bringing complex motor fuels cases to justice,” Combs said. “Our partnership helps ensure motor fuel tax evaders will be prosecuted and assures all Texans that motor fuel tax dollars are used as intended – to build and maintain the highway system that is so valuable to the state economy and to fund our public schools.”
All of the charges against Roddam and Richter are second degree felonies. If convicted, both could be sentenced to up to 20 years in prison and up to a $10,000 fine each.
“Violating the motor fuel tax laws of Texas undermines the confidence of all taxpayers and causes public schools and highways to lose valuable resources,” said Travis County District Attorney Rosemary Lehmberg. “The Legislature has given my office statewide authority to work with state and local law enforcement agencies to hold people accountable for such violations, and these indictments are the results of such team work,” added Lehmberg.
To find out more about the Criminal Investigation Division of the Texas Comptroller of Public Accounts, visit www.window.state.tx.us/about/cid/.For more information about these cases from the Travis County District Attorney’s Office, contact Ruth-Ellen Gura at (512) 854-9530.