Enacts the anti-automated sales suppression act

Summary of provisions

§ 396-ttt. Automated Sales Suppression Countermeasures. 1. Definitions. 2. Zapper and phantom-ware prohibitions and presumptions. 3. Zapper and phantom-ware penalties. § 1113. Automated Sales Tax Suppression Tax Amnesty. 1. Establishes an amnesty program for individuals who have used zappers or phantom-ware to distort their sales tax liabilities to the State. 2. Applicable tax liabilities for taxable periods ending or transactions or uses occurring on or before February 28, 2012. 3. Amnesty eligibility. 4. Penalty waivers for amnesty program participants. 5. Prohibitions against civil, administrative or criminal actions or proceedings concerning a tax liability which is subject to a waiver. 6. Excludes from the amnesty program taxpayers who are part of various types of criminal, investigation or administrative proceeding or civil or criminal litigation. 7. Amnesty tax return forms. 8. Refund prohibitions. 9. More refund prohibitions. 10. Amnesty program payment requirements. 11. Amnesty program administration. 12. Definitions.

§ 4. Monthly zapper tax amnesty reports.

§ 5. Final zapper tax amnesty report, due February 28, 2013.

Existing law

None.

Justification

For years, foreign countries with national sales taxes have struggled to combat technology that enables retailers to skim sales taxes and under report other tax liabilities (e.g. personal income tax, corporate income tax) by concealing from auditors their actual sales data. This technology, which includes so-called "zappers" and "phantom-ware," automatically suppresses digital sales figures recorded at electronic cash registers.

It is difficult for auditors to detect the use of zappers and phantom-ware through the traditional process of cross checking transaction documents because the technology conceals almost all traces of the digital manipulation. Countries such as Germany and Greece have required retailers to install technological counter measures that make it easier for auditors to detect the Use of zappers and Phantom-ware.

Because the United States lacks a national sales tax, there is no federal initiative to combat this tax fraud and most states are ill-prepared to deal with this issue. Nationwide, only a handful of people have been Caught using this technology, including two in Michigan and one in Connecticut. Richard T. Ainsworth, a Boston University School of Law tax professor and a leading expert on zappers, has published several papers documenting the spread of zappers and phantom-ware in Quebec, Greece, Germany, the Netherlands and other European nations. Given that the first zappers were made in the united states and that this technology is widely used in the Canadian province just above New York's northern border, it is imperative for the State to address this issue.

The legislation would establish prohibitions, presumptions and penalties related to the use and sale of automated sales suppression technology. These prohibitions, presumptions and penalties are modeled after provisions in Quebec's anti-zapper statutes. A first-of-its kind tax amnesty program would also be established under this legislation for taxpayers with tax liabilities stemming from the use of zappers or phantom-ware.

Fiscal impacts

Through the enforcement of the penalties and prohibitions established by this legislation and aggressive auditing, New York State could recover an estimated $107.9 million to $197.8 million of the estimated $1.798 billion the State fails to collect annually from the restaurant industry due to automated sales suppression technology, according to Richard T. Ainsworth, an Adjunct Professor of Law at Boston University School of Law and the Tax Director of International Government Affairs at ADP. These estimates are based on the 6 percent-to-11 percent recovery rates that European nations such as the Netherlands, have experienced after enacting similar statutory prohibitions and penalties for zappers and phantom-ware.

The $1.798 billion statewide estimate, also provided by Professor Ainsworth, is based on zapper-related income and consumption tax information from the Canadian province of Quebec, which has conducted multiple studies over the past decade on the impact of automated sales suppression technology in the Canadian province. The $1.798 billion estimate assumes that if New York State's economy is three times the size of Quebec's economy then the volume of restaurant business in New York is approximately three times the volume of restaurant business in Quebec. The estimate is also based on the assumption that New Yorkers eat out at least as much as people in Quebec do, and pay for their meals in cash roughly at the same ratio as they do in Quebec. Statistical measures for losses in other sectors of the cash economy have not been performed in Quebec, and Professor Ainsworth has not estimated

or speculated on the size of additional losses in New York from similar sales suppression activities in other vulnerable sectors of the economy.

Effective date

This act shall take effect ninety days after enactment.