by Brian Mahany
It’s ironic that if you rob a bank with a gun you face less jail time in many states than if you fail to collect or remit sales tax. In Florida, the threshold for a felony offense is as low as $300. While a first offender who pockets a few bucks in sales tax probably isn’t going to prison, having a felony record and having your face in the local paper doing the “perp walk” is never good for business.
State and local governments are strapped for cash. With less money coming from Washington and many more people needing government services, tax officials are chasing every dollar they can find. That means more criminal prosecutions for unpaid business taxes.
Why criminal prosecutions? Because an arrest and subsequent criminal prosecution is guaranteed to get the attention of local business owners.
Florida and many other states are targeting restaurant owners, convenience store operators and others that do significant cash business. In the case giving rise to this headline, Florida Department of Revenue arrested a restaurant owner in Clearwater, Florida for pocketing sales tax. According to published reports, he faces 30 years in prison if convicted.
In most states, being broke is a defense to a criminal charge of failing to pay taxes. The revenue department can file liens, garnish wages and seize bank accounts but in most instances they can’t put you in jail because you are poor. All bets are off, however, when it comes to sales and withholding taxes.
These taxes are called trust fund taxes. Theoretically, the business owner already collected these taxes from customers or from employees who had a portion of their wages withheld. The government says these taxes must be held in trust. If you spend that money and don’t turn it over, it becomes a felony. In the state’s eyes, the money collected from employees and customers is property of the state the second it is collected.
Failing to turn over sales tax is not the only thing that will land you in jail. Keeping two sets of books is also a felony in most states.
If you are faced with an audit and know you have unreported income or have not turned over trust fund taxes, seek legal counsel immediately. As the economy worsens, the government is getting more and more aggressive with tax scofflaws. For most businesses, the decision not to turn over tax money starts innocently enough. The business owner is having trouble paying bills and holds back some tax money thinking that it can just be made up next month. The “one time” event soon snowballs, unfortunately.
With many states now paying cash awards to whistleblowers, the chances of getting turned in by a disgruntled employee or competitor are at all time highs.
The criminal tax lawyers at Mahany & Ertl have helped many taxpayers with a wide variety of criminal tax, audit and compliance issues. Our team of lawyers includes a CPA, former tax prosecutor and even a former state revenue commissioner. We have the talent and experience to help both businesses and individuals.
For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). All inquiries are protected by the attorney client privilege and kept in strict confidence.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California. Legal services available in many jurisdictions.