The Minnesota Department of Revenue announced Tuesday that two businessmen from Eagan, Kehui Yang and Qiuyun Huang, have been charged for tax fraud amounting to almost $43,000.
The men were charged with four counts each of filing fraudulent sales tax returns, and four counts each of failure to pay sales tax. The restaurant they owned and operated together, Shogun Burnsville, was also separately charged with four counts of aiding in the filing of false tax returns and four counts of failure to pay sales tax.
The charges were filed by the Dakota County Attorney’s office.
“Violation of our state’s tax laws harms all Minnesotans. We are grateful for the work of investigators for the Minnesota Department of Revenue in this case,” said Dakota County attorney James Backstrom.
The case was launched based on an initial complaint that alleged, from March 2014 through June 2017, Yang and Huang had used sales suppression software on their point of sale system to remove thousands of line items from sales receipts in order to underreport their monthly sales and underpay sales tax.
Such sales suppression software and devices are known as “zappers.” They delete parts of cash transactions after the fact, creating a second, misleading set of data that allows a business to report smaller-than-actual sales, and illegally keep some of the tax a customer paid in a transaction.
Minnesota is vulnerable to this activity due to its “trust tax” policy. Customers under this policy pay tax at the time of sale and it’s up to businesses to hand that over to the government.
Using zapper tactic, the defendants allegedly suppressed over $300,000 in sales overall, cheating the state of Minnesota out of nearly $43,000 in sales tax revenue.
According to court records, investigators found that just under 3,000 receipts had been deleted from Shogun’s point of sale system, and there were 422,579 additional missing line items. Investigators also found a sales suppression program called “Happy World” on the system.
Additionally, an audit allegedly revealed that cash sales were deleted during 36 of 40 total months analyzed, with $20,000 being the highest amount in one month.
“The use of sales suppression software harms all businesses that report and pay their fair share of taxes,” said Department of Revenue commissioner Cynthia Bauerly. “These charges represent the department’s growing ability to recognize when these illegal products are being used and hold those who you use them accountable.”
Apart from Burnsville, there are Shogun restaurants in Mankato and Onalaska, Wisconsin, and Burnsville is not the first location to come under investigation.
The Mankato Free Press reported in July 2017, that the Department of Revenue was investigating Shogun Sushi and Hibachi for supposed similar false record-keeping – allegedly 50,000 deleted transactions between January 2014 and July 2016, amounting to $162,000 in unpaid sales tax. No charges have yet been filed relating to that investigation, but a state official said the case is ongoing.
Regarding the charges involving Shogun Burnsville, a hearing has been set for March 4.
If found guilty, Yang and Huang face up to five years in prison, a $10,000 fine, or both.