New York State Attorney General Letitia James at a news conference...

New York State Attorney General Letitia James at a news conference in Hauppauge on Thursday. Credit: James Carbone

The Floral Park-based operator of coin-operated tire inflation self-service machines has agreed to pay New York State $4.25 million in damages and penalties after failing to pay sales tax of more than $2.4 million from 2010 to 2018, Attorney General Letitia James announced Monday.

In a news release about the agreement, James said the company, Service Station Vending Equipment, Inc. (SSVE) and its owner, William McCabe, "knowingly failed to pay taxes" due on sales of air inflation services and said SSVE and McCabe engaged in "fraudulent tax avoidance schemes" by underreporting sales — and paying workers off the books.

In 1997, James said, SSVE requested "an advisory opinion" from the state Department of Taxation and Finance on whether sales from its coin-operated air machines were exempt from sales tax and said that, in response, the DTF issued an advisory opinion that "explicitly stated" receipts from sales of services rendered by the machines were subject to sales tax. In January 2016, the news release said, an accounting firm hired by SSVE outlined tax and accounting issues with McCabe, including the company's "failure to collect" the appropriate amount of sales tax.

But, the news release said: "Despite that discussion, McCabe continued his behavior and refused to change his sales tax collection practices with respect to air inflation services."

Court documents charged that, "For over ten years, Defendants failed to remit the full amount of sales taxes due for customers' uses of air machines, despite the fact that SSVE was well aware that it had an obligation to remit these sales taxes to the State."

The documents said technicians hired by SSVE went to various client locations, collecting and weighing quarters from both air inflation and self-serve vacuum machines — providing the company with actual knowledge of revenue collected. Despite that knowledge, the attorney general said, SSVE and McCabe "evaded more than $2.4 million in sales taxes for services" between 2010 and 2018 — and said SSVE and McCabe also evaded income taxes, employee withholding taxes, and Workers' compensation payments to the state Insurance Fund by underreporting sales and paying workers off book.

The investigation commenced when a whistleblower lawsuit was filed under the qui tam provision of the New York False Claims Act, James said. The act allows someone to file civil actions on behalf of the government — and share in any recovery.

Attorneys for SSVE and McCabe could not immediately be reached for comment.

But, in a statement, 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 tire scheme."

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