In the retail sales tax collection arrangement businesses are charged with an obligation to collect, hold , and pay over sales tax revenue generated due to sales at the business. At its core, this system relies heavily on self-reporting by businesses. In fact, due to the way the system is arranged, it is not always immediately apparent when a business has failed to remit all or some of the collected sales tax. When businesses take advantage of the system and perpetrate a fraud on the government, it is the state government that sees decreased revenues and the citizens of the state that suffer. Tax evasion, including sales tax evasion, costs state governments millions of dollars each year.
California’s Board of Equalization is a close approximation of the IRS for the State of California. The BoE is responsible for an array of tax duties including the collection and administration of taxes in the state. California’s BoE estimates that the loss from sales tax fraud in the state costs more than $210 million every year. The BoE has repeatedly issued strong statements against zappers and has taken action to discourage their use. When these measures fail, the BoE will not hesitate to pursue a business or taxpayer that it finds using software or other means to commit tax evasion or tax fraud. In fact, one family now faces a collective 123 years in prison for using a zapper to skim cash.
A zapper is a certain type of software program that can surreptitiously alter records of transactions and sales. The zapper program is loaded onto a retail point of sale (POS) system typically via a USB drive. Once it is installed and configured the zapper program allows business owners to reduce the amount of revenue that they attribute to sales. By reducing income, the business can illicitly reduce its sales tax burden. The owner then pockets or disburses the ill-gotten gains to others participating in the scheme.
Zappers are most effective when the sale is made in cash because of the lack of other or corroborating records regarding the transaction. When the transaction is paid for via a credit card, the processing company generates and holds a record of the transaction typically making this practice unnecessarily risky. However some more resourceful fraudsters have taken to editing invoices with Photoshop and other tools to cover their tracks. According to state officials in California and throughout the nation, a sufficient number of businesses are committing fraud on these cash transactions and states are feeling the squeeze of reduced revenues.
California’s BoE sponsored a bill that was adopted by the California legislature that criminalized the mere possession of a zapper device or the software contained on it. In California, any business that is detected using a zapper can face serious penalties that include a potential three years in California state prison. Furthermore, owners of businesses who are caught using zapper software are held financially liable for the unpaid taxes and all fines and penalties that may be associated.
However, California is not the only state to take action against the practice of evading taxes through the use of a software device. In 2013, Washington State Department of Revenue advocated in favor of the passage of 2013 Senate Bill 5715. The bill makes is a Class C felony for individuals and business owners to commit tax fraud by electronic means such as with a zapper. Manufacturers or providers of the electronic device can face a penalty that is equal to the greater of $10,000 or the value of the lost tax revenue. Kentucky legislators also passed a law that criminalizes the possession of a zapper or zapper-like device as a Class D felony.
If you are facing serious tax charges advanced by the California Board of Equalization or the IRS, you face serious consequences. The prosecutors of these agencies are experienced, dedicated, and aggressively pursue convictions. You deserve to have an experienced, strategic, and knowledgeable tax attorney and CPA in your corner. To schedule a reduced-rate tax consultation, contact the Tax Law Offices of David W. Klasing today by calling 800-681-1295 or contact us online today.