Committee Explores Increasing Revenue Without Raising Taxes
by Christine Stuart | Feb 27, 2012 1:56pm
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Posted to: State Budget
The co-chairs of the legislature’s Finance, Revenue, and Bonding Committee have decided not to touch last year’s tax package, but that doesn’t mean they aren’t looking for revenue.
Instead, they will be drafting legislation to outlaw zappers—a software program that allows cash businesses to skim cash off receipts and possibly cheat the state out of sales tax revenues.
Department of Revenue Services Commissioner Kevin Sullivan said these commercially available zappers are hooked into the cash register to create two sets of books, “one you don’t show anybody and one you use to report your taxes.”
He said if someone buys something for $100, the software program could be set to skim $10 off the top to make it look as if the item was purchased for $90. So instead of paying sales tax on $100, the company is only paying sales tax on $90.
“Think of it as the butcher putting his thumb on the scale,” Sullivan said.
And while “underreporting taxes” is illegal, these zappers are not.
Currently there’s no way of knowing how many of these software programs may be installed in the thousands of cash businesses across the state, but at least one lawmaker believes the state could see millions from the move.
Rep. Chris Perone, D-Norwalk, who chaired a panel discussion in 2011 for the National Conference of State Legislatures on the issue of zappers, said it’s something that’s worth looking into both as a fraud protection method and consumer protection.
He said at the end of the day if you go into a restaurant where zapping is happening you won’t necessarily be hurt as a consumer, but it means that fewer state services will get funding because the money is going to the business instead of to the state. The pennies, he said, really start to add up.
Connecticut has already fallen victim to tax zapping back in the early 1990s when U.S. Customs officials detained Stew Leonard, founder of the popular grocery store chain, as he boarded a flight to the Caribbean. Federal officials found $70,000 of cash on him and in his luggage.
By 1993, Leonard pleaded guilty to his role in trying to conceal $17 million in sales, which resulted in $6.8 million in unpaid federal taxes. According to a paper by Richard Ainsworth, a tax attorney and Boston University School of Law professor, the Leonard scam was notable because of the sophisticated use of computer software to alter sales records. Ainsworth has been warning policymakers and officials both in the U.S. and abroad to take notice of these devices for years.
The devices have become more popular over time as technology has grown more sophisticated, making it easier to use and easy to hide from investigators. But Sullivan said his department is up to the task of rooting out the devices.
The devices can now be embedded in the hard drive of the cash register or they can be operated remotely, making it difficult for tax investigators or the local police to spot.
“It takes a tool away from somebody,” he said.
Connecticut is not the first state to look at outlawing the devices. The Maine legislature is currently debating a bill and Georgia passed legislation in 2011.
The Finance, Revenue, and Bonding Committee is in the process of drafting legislation.
Tags: finance, revenue, tax zappers, receipts, fraud, scam, Kevin Sullivan, Chris Perone, Norwalk.
(8) Comments
posted by: Noteworthy | February 27, 2012 2:57pm
When taxes are confiscatory, people will cheat. We have one of the smallest states and among the highest tax burden.
posted by: AndersonScooper | February 27, 2012 4:55pm
IMHO, the State should take this one step further by mandating that all retailers use a State certified cash register,—maybe even with a mandatory internet connection.
Here’s an example:
My favorite New Haven indian restaurant routinely tallies all orders via a calculator. Then they make change out of a cash register’s open till, without ever recording the extent of the sale?!!?!!!
Meaning on a $30 take out order, the restauranteur likely keeps a big chunk if not all of the $2.00 in sales tax I am forced to pay. Not good.
Do I blame the restaurant owner? Somewhat. But what about a system that easily allows fraudulent behavior?
The technology to prevent this type of fraud is cheap these days. Why not set up a system that can’t be readily gamed?
fwiw.
posted by: DirtyJobsGUy | February 27, 2012 5:17pm
So exactly what will this address? Deliberate under reporting is illegal, so a device to do this contributory evidence. Our ace state auditors are spending more time doing political audits than actual malfeasance audits. But Noteworthy is correct that a high tax rate will create tax avoiders of the most solid citizen.
posted by: state_employee | February 27, 2012 6:12pm
“fewer state services will get funding because the money will go to the business.” what a joke.
the business owners must need to zap their taxes because state government keeps reaching into our pockets and taking our money. malloy is on a spend-a-thon.
maybe they should cut spending and lower the taxes.
posted by: state_employee | February 27, 2012 8:56pm
to andersonscooper; mandate a state cash register and internet connection? Really??? This is America. Get real.
Government needs to get out of our pockets, period.
posted by: ... | February 27, 2012 9:30pm
It is completely reasonable to outlaw a product if its practice has been historically known to cheat both the consumer and the state of monies over the past two decades.
posted by: AndersonScooper | February 27, 2012 9:32pm
@state_employee,
Wherein the Constitution does it include a retailer’s right to perpetually cheat on his or her taxes? Is that some guaranteed freedom I am somehow overlooking?
Where I’m from, one is for mandatory compliance if he or she is:
A. An ordinary CT taxpayer.
B. An honest retailer forced to compete with tax cheats.
The only folks who should be against mandatory compliance are habitual tax cheats. If you aren’t cheating, why do you care if the State monitors your actual sales.
What irks me is the idea I am forced to pay 6.35% in CT State sales tax, but that some jerk pockets a big chunk of what I’m forced to pay.
