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New York Attorney General Letitia James announced on Monday, April 5 that she has secured $4.25 million from Nassau County-based Service Station Vending Equipment (SVEE), as well as owner William McCabe, for "knowingly failing to pay sales tax due on the sales of air inflation services, as well as engaged in fraudulent tax avoidance schemes by underreporting sales and paying workers off the books."
James said that the company and McCabe failed to pay more than $2.4 million in sales tax while underpaying income tax and employee withholding taxes.
According to James, 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.
Decades later, in 1996, a new accounting firm hired by SVEE discovered several tax and accounting issues with McCabe, including SSVE’s failure to collect the appropriate amount of sales tax, James said.
Despite that discussion, McCabe continued his behavior and refused to change his sales tax collection practices with respect to air inflation services.
James said that “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.
The investigation by James’ office determined 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.
James made note that the investigation by her office was launched after 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.”
Under the settlement, 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.
“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,” James said. “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,” James added. “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.”
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