Gas stations cheating state out of tax money?

More than one-fourth of Illinois gas station operators have pocketed millions of dollars in sales taxes owed to the cash-strapped state by underreporting the amount of fuel they sell to the public, according to a newspaper report, spurring criminal charges that state officials say still don’t curb the problem.

The Chicago Tribune reported in its Sunday editions that indictments returned over the past year and a half accuse at least 14 of the state’s roughly 2,400 gas station operators of illegally withholding a portion of the sales taxes their customers paid at the pump.

But that’s just a fraction of the 651 operators the Illinois Department of Revenue says have cheated the state, which has recouped $54 million in back sales taxes, interest and penalties largely through settlements or after scofflaws acknowledged wrongdoing under the threat of greater penalties.

Illinois law bars the state from publicly identifying operators who have not been indicted. But the Tribune said the numbers reveal that 27 percent of the state’s gas station operators had underreported their sales at some point during the past four years.

“I think it’s certainly the case that the industry knows that we’re on to the widespread cheating,” Illinois Department of Revenue Director Brian Hamer said, pointing out that his office has noticed in many cases where gas stations suddenly increased their monthly remittances, at times dramatically.

Five of the 14 indicted operators have pleaded guilty either to tax fraud or failing to keep financial records, with some agreeing to testify against two tax preparers accused of helping six station operators try to evade $5 million in taxes.

“It’s illegal and infuriating,” Illinois Attorney General Lisa Madigan said. “Gas is expensive enough. And if you’re not going to give my taxes to the state, you should at least let me keep it.”

Big oil companies don’t own the stations, which are run by individuals who sometimes lease the station to another business owner to operate.

The three-year probe began with tips from distributors, who also operated gas stations and were curious how some rivals managed to sell fuel so cheaply.

“There are gas wars where people lower the price to stimulate their business, but this lowering went on for months, years at a time,” said William Fleischli, executive vice president of the Illinois Petroleum Marketers Association, which represents distributors. “And (some of my members) also did their own inquiries. I don’t know what they did, but they were convinced there was cheating going on.”

Investigators uncovered the fraud by tracking how many gallons distributors deliver to each station, then calculating each station’s sales based on publicly reported average gas prices for the area. Those figures then were compared with the station operators’ reported sales on their monthly sales tax returns.

Hamer believes the cheating has been going on for some time but peaked in 2008, when gas prices “went through the roof.”

As part of a “voluntary disclosure compliance program” the state announced in 2009, station operators were given the opportunity to file amended returns and pay what they owed, though they still could be prosecuted even if they confessed.

Then last summer, Gov. Pat Quinn signed a law creating a tax amnesty program under which the cheaters would be spared prosecution if they paid any tax debt from mid-2002 to mid-2009 by Nov. 8, 2010. Any interest or penalties on that debt would be waived, though penalties and interest would be doubled if they were caught cheating on taxes during the amnesty period.

Hamer said that only then did station operators come forward in large numbers.

Another state law that took effect in January changed the way sales taxes on gasoline are collected, making it more difficult for gas station operators to manipulate.