Company and Owner Failed to Pay Over $2.4 Million in Sales Tax
SSVE and Owner Also Underpaid Income Tax and Employee Withholding Tax
New York Attorney General Letitia James today announced she has secured $4.25 million from a provider of air inflation services operating throughout New York, as well as its owner, after they were caught evading taxes. The agreement resolves claims that the Nassau County-based company Service Station Vending Equipment, Inc. (SSVE) — a provider of self-service, coin-operated air machines used to inflate automobile tires — and its owner, William McCabe, knowingly failed to pay sales tax due on sales of air inflation services, as well as engaged in fraudulent tax avoidance schemes by underreporting sales and paying workers off the books.
“As New York continues to suffer budget shortfalls, we won’t allow any company to further deflate our state’s finances and avoid millions in tax payments,” said Attorney General James. “While a few quarters may not seem like a lot at once, over nearly a decade, SSVE and its owner pocketed $2.4 million through their tired scheme. If New Yorkers need to pay for their air, we’re going to ensure those selling it pay their taxes. Those who aim to cheat the system should know that their fraud will blow up in their faces because my office will continue to aggressively pursue those who defraud taxpayers and the state.”
In 1997, SSVE requested an advisory opinion from the New York state Department of Taxation and Finance (DTF) on whether sales from its coin-operated air machines were exempt from sales tax. In response, the DTF issued an advisory opinion that explicitly stated that receipts from sales of services rendered by air inflation machines are subject to sales tax.
Two decades later, in January 2016, SSVE’s newly-hired accounting firm discussed several tax and accounting issues with McCabe, including SSVE’s failure to collect the appropriate amount of sales tax. Despite that discussion, McCabe continued his behavior and refused to change his sales tax collection practices with respect to air inflation services.
In an effort to further avoid the payment of sales tax, in 2016 and 2017, SSVE and McCabe hired a lobbying firm to lobby state legislators on two pieces of proposed legislation that would have provided an exemption for sales tax on sales from coin-operated air inflation machines. Neither bill was ever enacted.
Despite their actual knowledge that sales from SSVE’s air inflation machines were subject to sales tax, an investigation by the Office of the Attorney General (OAG) found that SSVE and McCabe evaded more than $2.4 million in sales taxes for services for the period from 2010 through 2018. SSVE and McCabe also evaded income taxes, employee withholding taxes, and workers’ compensation payments to the New York state Insurance Fund by underreporting sales and paying workers off the books.
The OAG investigation commenced when whistleblowers filed a lawsuit under the qui tam provisions of the New York False Claims Act, which allows people to file civil actions on behalf of the government and share in any recovery.
In connection with this agreement, SSVE and McCabe admitted and accepted responsibility for their failure to collect and remit the full amount of sales tax for air inflation services and admitted that such conduct violated both the New York False Claims Act and the New York Tax Law. They will pay more than $4.25 million in damages and penalties.
New Yorkers can learn more about filing a claim under the New York False Claims Act on the OAG's website.