Sales Tax Crime:
How It Hurts Texas
Sales tax provides the greatest source of tax revenue to the state. In fiscal 2013, Texas sales tax collections totaled $25.9 billion. This revenue is then allocated to:
- general revenue for state operations,
- Texas Parks and Wildlife, and
- Texas Historical Commission.
Case News Release
June 26, 2014: Jose Luis Suarez, 41, of Odessa, was sentenced to federal prison for Wire Fraud, 18 U.S.C. 1343, relating to underreporting sales tax in returns filed electronically with the Comptroller of Public Accounts. Suarez, who pled guilty to six counts of Wire Fraud in March, was sentenced to 21 months imprisonment, followed by 3 years of supervised release on each count, to run concurrently. In addition, Suarez was ordered to forfeit $264,314, the amount of sales tax estimated to have been underreported. The owner of Air One Mobile Welding Supply, Suarez was accused of filing or causing to be filed Air One tax returns to the Comptroller over the internet which materially and fraudulently underreported the amount of the company's taxable sales. The case, filed as cause number MO13CR-274, was prosecuted by the U.S. Attorney's Office for the Western District of Texas.
Sales Tax Investigations
The Texas state sales and use tax rate is 6.25% (set by the Legislature), but local taxing jurisdictions (cities, counties, special purpose districts and transit authorities) may also impose sales and use tax up to 2% for a total maximum combined rate of 8.25%. Please review Guidelines for Collecting Local Sales and Use Tax for additional information on local sales and use tax.
The crimes and penalties relating to the Sales Tax are found in Chapter 151, Subchapter L of the Tax Code. The crimes include both misdemeanors and felonies, with the highest being second degree felonies.
Conduct punishable as a felony includes:
- Intentionally or knowingly failing to pay taxes collected, when amount not paid is $1,500 or more (see §151.7032; amounts under $1,500 are misdemeanors);
- Intentionally or knowingly committing various fraudulent acts with respect to books and records required to be made or kept by law (see §151.7102).
Other Consequences in Addition to Criminal Punishment
Sales Tax permits may be suspended or revoked, and former holders of such permits may be denied new permits if the Comptroller is not satisfied that the person will comply with the Sales Tax statutes or rules in the future. (See §151.203 and §151.204)
Venue of Case Prosecutions
Sales Tax cases may be prosecuted in the county in which any element of the crime occurs, or in Travis County. (See §151.714)
House Bill 11 Criminal Cases
Passed during the 80th Legislative Session in 2007, HB 11 dramatically increased the Comptroller’s ability to identify, audit and, when appropriate, prosecute retailers who are collecting sales tax but not remitting the proper amount to the state.
HB 11 amended the Alcoholic Beverage Code and the Tax Code to require distributors and wholesalers who make sales of ale, beer, wine, cigarettes, cigars and tobacco products to Texas retailers to report those sales monthly to the Comptroller’s office. Those distributors and wholesalers are also required now to report that data electronically, unless inability to do so is shown.
HB 11 data, which has now been collected since January 2008, allows the Comptroller to compare the purchases that retailers have made of these products with the sales that retailers are required to report. Because both sets of data are largely received electronically, discrepancies can be more easily and rapidly identified. Rapid identification is essential so that the Comptroller auditors can begin their work to mitigate and recoup the revenue loss to the state. Since fiscal 2009, the Comptroller's office has identified more than $523 million due to the state.
In some cases, audit documentation may suggest that the taxpayer had criminal intent to evade taxes. If so, the case will be reviewed and evaluated by the Criminal Investigations Division for the possible filing of criminal charges.