What's happening
This bill creates the crime of using automated sales suppression devices to evade taxes, making it a felony and expanding related fraud definitions.
Why it matters
Targets sophisticated tax evasion tools. By specifically defining and criminalizing the use, manufacture, or sale of "automated sales suppression devices" (software or hardware that falsifies sales records), the bill addresses an emerging method by which businesses can hide revenue from tax authorities.
Strengthens prosecution options for tax fraud. Making the use of such devices a class D felony and expanding the definition of criminal conspiracy to include these actions provides law enforcement and prosecutors with clearer, stronger legal grounds to pursue individuals or groups involved in organized tax evasion.
Closes loopholes in existing tax law. By explicitly adding the use of automated sales suppression devices to the list of acts constituting tax fraud under both state and New York City law, the bill ensures that this form of digital fraud is unambiguously illegal, potentially deterring its use and increasing compliance.
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Who cares
Headline styles
Crack Down on Tax Fraud
Plain English, a few words. Used as the page title.
Sponsors
1 Co-sponsor
History
- Referred to codes
- Referred to codes
Full text
2 pagesUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
4377
2017-2018 Regular Sessions
IN SENATE
February 10, 2017
Introduced by Sens. KRUEGER, MONTGOMERY -- read twice and ordered printed, and when printed to be committed to the Committee on Codes
AN ACT to amend the penal law, in relation to creating the offense of defrauding the government in the first degree and expanding the definition of conspiracy in the fourth degree; and to amend the tax law and the administrative code of the city of New York, in relation to expanding the definition of tax fraud acts
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. The penal law is amended by adding a new section 195.22 to read as follows: § 195.22 Defrauding the government in the first degree.
A person is guilty of defrauding the government in the first degree when, he or she knowingly manufactures, sells, installs, or uses, or attempts to manufacture, sell, install or use, an automated sales suppression device for the purpose of enabling or assisting any person to evade any tax owed to the state or a political subdivision of the state or any instrumentality of the state.
For purposes of this section an "automated sales suppression device" is a software program that falsifies electronic records for the purpose of evading any tax owed to the state, or any political subdivision of the state, or any instrumentality of the state. An "automated sales suppression device" includes any software program that is (a) maintained on a USB memory stick or thumb drive, zapper, removable compact disc or other external device, or (b) embedded in the operating system as "phantom ware," or (c) otherwise accessed remotely.
Defrauding the government in the first degree is a class D felony.
§ 2. Section 105.10 of the penal law is amended by adding a new subdivision 4 to read as follows:
4. the felony of defrauding the government in the first degree as defined in section 195.22 of this part (defrauding the government in the
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD08471-01-7
S. 4377 2
first degree), be performed, he or she agrees with one or more persons to engage in or cause the performance of such conduct.
§ 3. Subparagraphs 7 and 8 of paragraph (a) of section 1801 of the tax law, as added by section 15 of subpart I of part V1 of chapter 57 of the laws of 2009, are amended and a new subparagraph 9 is added to read as follows:
(7) with intent to evade any tax fails to pay that tax; or
(8) issues an exemption certificate, interdistributor sales certificate, resale certificate, or any other document capable of evidencing a claim that taxes do not apply to a transaction, which he or she does not believe to be true and correct as to any material matter, which omits any material information, or which is false, fraudulent, or counterfeit[.]; or
(9) uses an automated sales suppression device as described in section 195.22 of the penal law (defrauding the government in the first degree).
§ 4. Subparagraphs 7 and 8 of paragraph (a) of section 11-4002 of the administrative code of the city of New York, as added by chapter 201 of the laws of 2009, are amended and a new subparagraph 9 is added to read as follows:
(7) with intent to evade any tax imposed under any designated chapter of this title, fails to pay that tax; or
(8) issues an exemption certificate, interdistributor sales certificate, resale certificate, or any other document capable of evidencing a claim that taxes imposed under a designated chapter of this title do not apply to a transaction, which he or she does not believe to be true and correct as to any material matter, which omits any material information, or which is false, fraudulent, or counterfeit[.]; or
(9) uses an automated sales suppression device as described in section 195.22 of the penal law (defrauding the government in the first degree).
§ 5. This act shall take effect on the first of November next succeeding the date upon which it shall have become a law.
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Title of bill
An act to amend the penal law, in relation to creating the offense of defrauding the government in the first degree and expanding the definition of conspiracy in the fourth degree; and to amend the tax law and the administrative code of the city of New York, in relation to expanding the definition of tax fraud acts
Purpose
1. Creates the offense of defrauding the government in the first degree. 2. Expands the definition of conspiracy in the fourth degree; relates to expanding the definition of tax fraud acts.
Summary of specific provisions
Section 1 adds section 195.22 to the penal law, creating a first degree offense for defrauding the government through an automated sales suppression device, defining automated sales suppression devices, and extending defrauding government in the first degree as a class D felony;
Read the full memo (682 words)
Section 2 adds subdivision 4 to section 105.10 of the penal law, expanding the definition of conspiracy in the fourth degree to include felony of defrauding government in the first degree;
Section 3 amends subparagraphs 7 and 8 of paragraph (a) in section 1801 of tax law and adds subparagraph 9, expanding the definition of tax fraud acts to include the use of automatic sales suppression devices.
Section 4 amends subparagraphs 7 and 8 of paragraph (a) of section 11-4002 of the administrative codes of the city of New York and adds subparagraph 9, expanding the definition of tax fraud acts to include the use of automatic sales suppression devices.
Section 5 states the effective date.
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 automatic sales suppression devices, such as "zappers" and "phantom-ware," automatically suppresses digital sales figures recorded at electronic cash registers and Point of Sale systems.
It is difficult for auditors to detect the use of automated sales suppression devices 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 automated sales suppression devices. In September 2010, the Canadian province of Quebec began requiring all restaurants to install in their electronic cash registers anti-sales suppression devices. This cost Quebec an estimated $425 million ($410 million U.S.) in 2007-2008. Richard T. Ainsworth, a Boston University school of Law tax professor and a leading expert on zappers and other automated sales suppression devices, estimates that New York has faced a loss of $1.7 billion annually due to these devices.
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. Over 20 states have already enacted legislation to prohibit and criminalize automated sales suppression devices. Ainsworth 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 of New York's northern border, it is imperative for the State to address this issue.
The legislation would establish prohibitions and penalties related to the manufacture, sale, purchase, or use of automated sales suppression technology, creation of conspiracy for those who defraud the government, and the liability of those who perpetrate tax fraud. Additionally, this legislation would increase tax revenue by over $1 billion annually.
Fiscal impacts
Estimates increased tax revenue as high as $1 billion annually.
Effective date
This act shall take effect on the first November next succeeding the date upon which it shall have become a law.
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.