Tax Zappers

Max Behlke 7/1/2016

Tax PapersForty-six states and the District of Columbia levy a sales tax at the state and/or local level. A device called a “tax zapper," however, may mean these jurisdictions are being short-changed. Automated sales suppression devices, or zappers, have proliferated with the computerization of cash registers and have given retailers the ability to cheat state and local tax departments out of owed sales taxes through the falsification of electronic records of point of sale (POS) systems (modern cash registers).

Zapper software is stored on a portable USB device that can quickly and easily be linked to the cash register system. At the end of the day, the software systematically modifies the machine's records to reduce the value of the day's sales. For instance, a $5 receipt may become $4.50 or a $3 purchase may be erased altogether. For every dollar in sales a store deletes from its records, the owner gets to keep the extra cents that would otherwise be sent to a state and local government as sales tax. While it's only pennies at a time, after enough transactions, the money adds up.

How Big is the Problem?

It's difficult, however, to quantify just how pervasive the problem is in the United States. During the 2011 NCSL Legislative Summit in San Antonio, leading tax zapper expert Richard Ainsworth delivered a presentation on the topic and commented that he thinks this problem is costing states billions of dollars in lost revenue annually. He made the point that if states can find a way to solve the problem, they can increase revenue without having to raise taxes.

Proving wrongdoing, on the other hand, has been especially hard for auditors as zappers overwrite original records and some devices can even tweak inventory records and other financial reports to help owners cover their tracks. And while it may be hard to prove exactly which businesses employ the devices, the types of business that use zappers are typically cash-heavy businesses, such as restaurants and convenience stores, as debit and credit cards leave a paper trail.

Is Legislation the Answer?

Georgia Senator Don Balfour, a past president of NCSL, sponsored the first bill in the country to have passed that prohibits the use of zappers. Law-abiding establishments, he said, have an interest in supporting efforts to combat zappers because a crackdown would eliminate the competitive advantage enjoyed by those who avoid paying taxes. He also commented that jurisdictions are doubly hurt from the use of sales suppression devices as governments receive less income tax from businesses as less overall income is reported at the end of the year.

On the flipside, there has been little opposition to legislative proposals banning the zappers to date. However, some retailers have expressed the concern that if a crackdown on zappers were to go into effect, retailers would constantly fear being bothered by tax departments to prove the legitimacy of their business operations. 

“Tax Zapper” Legislation in the States

While legislation varies state by state, legislative proposals generally aim to prohibit the possession or use of automated sales suppression devices. The chart below details the legislation and its status.

State

Bill

Date of Last Action

Last Action

Alabama

H
18

8/10/2015

Enacted

Arkansas

S
718

4/9/2013

Enacted

California

AB
781

10/4/2013

Enacted

Connecticut

H
5421

6/15/2012

Enacted

Florida

CS/H
7081

5/12/2014

Enacted

Georgia

H
415

5/3/2011

Enacted

Hawaii

H
958

2/5/2014

Introduced (dead)

Illinois

H
0049

8/16/2013

Enacted

Indiana

H
1546

6/12/2013

Enacted

Louisiana

S
616

6/14/2012

Enacted

Maine

H
1297

3/18/2012

Enacted

Massachusetts

H
958

2/5/2014

Introduced (dead)

Michigan

S
768

5/31/2012

Enacted

Minnesota

H
848

5/24/2016

Pocket vetoed by governor

Missouri

S
771

2/13/2014

Introduced (dead)

North Carolina

S
465

7/18/2013

Enacted

North Dakota

S
2126

4/24/2013

Enacted

New York

S
3612A

6/18/2014

Referred to Ways and Means Committee

Oklahoma

S
1230

5/7/2012

Enacted

Rhode Island

H
7133

6/19/2014

Enacted

South Dakota

H
1051

3/10/2016

Enacted

Tennessee

H
2226

4/19/2012

Enacted

Texas

S
529

6/14/2013

Enacted

Utah

H
96

3/15/2012

Enacted

Vermont

H
511

4/29/2013

Enacted

Virginia

S
611

4/6/2014

Enacted

Washington

S
5715

5/20/2013

Enacted

West Virginia

S
411

4/2/2012

Enacted

Wyoming

S
68

2/15/2013

Enacted