Enacts the automated sales suppression act

3 Co-sponsors

• Martin Malavé Dilan
• Kevin S. Parker
• Toby Ann Stavisky

BILL NUMBER:S3314

Title of bill

An act to amend the executive law, in relation to enacting the automated sales suppression act

Purpose

1. Requires the Department Of Taxation and Finance to prepare an automated sales tax suppression study.

Summary of provisions

§ 170-c. Automated Sales Suppression Study.

1. Definitions.

2. Directs the Department of Taxation and Finance to prepare a comprehensive study on the prevalence of automated sales suppression technology (e.g. zappers and phantom-ware) within the state's retail industry, focusing on, but not limited to, restaurants, movie theaters, hairdressers, amusement parks, grocery stores and convenience stores.

3. Automated Sales Suppression report deadline.

4. Report information exemptions.

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 countermeasures that make it easier for auditors to detect the use of zappers and phantom-ware. In September 2010, the Canadian province of Quebec began requiring all restaurants to install in their electronic cash registers anti-sales suppression devices. Zappers cost Quebec an estimated $425 million ($410 million U.S.) in 2007-2008.

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 that the first zappers were made in the United States and that this technology is widely used in the Canadian province just above of the New York's northern border, it is imperative for the State to address this issue.

Prior to requiring restaurants in the province to install anti-automated sales suppression technology in electronic cash registers, Quebec conducted two empirical studies on the problem. This legislation, likewise, would direct and authorize the Department of Taxation and Finance to prepare a study on the prevalence of zappers and phantom-ware in cash-oriented businesses statewide, such as restaurants, movie theaters and convenience stores.

Fiscal impacts

Approximately $250,000 to cover auditor expenses throughout the 18-month study and to produce a report, according to an estimate by the Senate Select Committee on Budget and Tax Reform.

Effective date

This act shall take effect ninety days after enactment.