Bellevue restaurant owner charged in tax fraud case

By: Amy Clancy

Updated:

We all pay taxes when we go out to eat, but KIRO 7 has obtained court documents that show restaurants aren’t always passing that money along to the state.

According to a search warrant filed in King County Superior Court by the Washington Attorney General’s office, the owner of a very successful Bellevue restaurant is under investigation for theft and tax fraud.

Attorney General Bob Ferguson filed charges against Yu-Ling Wong, who runs Facing East Taiwanese Restaurant on Bellevue Way Northeast. Facing East has received many glowing reviews and was packed with customers every time a KIRO 7 crew dined there in recent months. 

She is charged in King County Superior Court with first-degree theft, “utilizing sales suppression software,” and 21 counts of filing a false tax return. In all, the standard sentencing range as charged is 43 to 57 months.

Wong is the restaurant’s majority owner, and is suspected of stealing hundreds of thousands of dollars; money investigators say she dutifully collected from her customers as retail sales tax, but never handed over to the state.

Wong allegedly used what's commonly known as "zapper" software to hide taxable income, where purchases and taxes are entered then easily deleted from a business’s accounting system.

“It’s quite sinister in a way,” Washington State Attorney General Bob Ferguson said of the practice. 

Zapper software “enables them to avoid paying sales taxes on those sales that essentially disappear from the transaction sheet, and makes it hard to track.”

Hard to track, but not impossible.

Wong has been under investigation for a year, and is expected to be the first charged under Washington's 2013 law that makes sales suppression software illegal. Click here to read the law.

According to documents filed by the AG’s office, Wong admitted to Washington State Department of Revenue investigators that she used Zapper software "for many years” which "helped the restaurant under-report its taxes."  Wong also admitted she kept "a second set of books" and paid staff "under the table."

Between 2010 and 2013, investigators estimate Wong short-changed Washington state more than $400,000.

Those uncollected tax dollars should have helped pay for schools, law enforcement, public health and more. 

Because Washington doesn't have an income tax, retail sales tax is the primary way our state is funded. “It’s collected in a trust by a business for the state’s purpose,” Kim Schmanke of the Department of Revenue said. 

Any business that purposefully hides retail sales tax for personal gain is, according to Schmanke, “outright stealing from you and from me and from the public.”

KIRO 7 made repeated attempts to get Wong's side of the story by visiting her home and business but she never responded.

However, after charges were filed on Friday, her attorney Robert Chicoine released the following statement.

“We are in the process of reviewing the information and factual allegations filed today in preparation for Ms. Wong’s defense. We will reply at the appropriate time during the legal process.

I can say that while we work to resolve this matter, the restaurant’s daily operation continues to serve its many customers. 

The restaurant is open, employees and suppliers are being employed, customers are being served, and state taxes are being timely filed and paid.” 

However, Facing East isn't the only Washington restaurant allegedly using Zapper software to hide money. 

According to documents, there are other restaurants currently being investigated, along with the man who allegedly sold the software throughout Washington state.

Attorney General Ferguson is now prosecuting these cases because the loss is huge. 

According to the country’s leading expert on Zapper software, Boston University Law Professor Richard Ainsworth, Washington state misses out on an estimated $485,000,000 each year because of just restaurants that use Zapper software. 

That amount of money could pay the salaries for 9,000 teachers, 8,000 Washington State Patrol troopers, or 11,000 prison officers every year. 

Additionally, that $485,000,000 unpaid by restaurants doesn't even include other businesses in Washington state that are also hiding sales tax. Ainsworth estimates the total loss each year in Washington is around half-a-billion dollars.

Schmanke of the Department of Revenue explained how important it is to stop the use of Zapper software now. 

“When you have the Legislature going into overtime in extra sessions in order to pass a balanced budget, and when you have a Supreme Court decision requiring the state to fully fund education, every tax dollar counts,” she told KIRO 7.

“We want the larger community to be aware,” Ferguson added.  Hiding sales tax “is wrong, it does cost our community and we will hold you accountable if you use it.”

According to the state law, any business owner convicted of using Zapper software or any other means to hide sales tax will have to pay what is owed to the state, could lose their business license, and won’t be able to get that license back unless he or she agrees to five years of electronic monitoring.

Ainsworth of Boston University thinks Washington’s law is a good way to begin fighting back against this type of tax fraud, but he would also like to see additional laws passed nationwide that require all cash registers be encrypted so that all transactions are preserved. 

That information could then be reported back to the state daily, and in real-time. 

Ainsworth told KIRO 7, business licenses shouldn’t be awarded without first agreeing to that encryption.

More links:

DOR Release when bill was signed

More info on Prof Ainsworth’s work

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