Cash-strapped state governments that are searching every crevice for money have found a new target: computer programs that enable businesses to keep two sets of books simply by plugging a flash drive into their cash registers.
The so-called tax-zapper software lets businesses, especially those that deal mostly in cash, underreport taxable sales and pocket money that should go to the government.
Five states – Florida, Georgia, Maine, Utah and West Virginia – have enacted laws cracking down on the programs, and about a dozen others are considering similar proposals.
One expert says states are losing billions of dollars to the software.
“Maine, like all of the other states, has revenues that should be coming in but are not,” said Democratic state Rep. Seth Berry, who sponsored one of the measures. “It’s our job to make sure that everyone’s pulling their weight.”
It always has been illegal to cheat on taxes, but the new laws are the first to target tax zappers, making it illegal to possess or install any devices designed to falsify a cash register’s electronic records.
The software, which sells for around $500, can be installed directly in registers or through small memory devices that plug into them.
The system works like this: During business hours, cashiers record the true sales and give customers accurate receipts. A log of real sales can also be stored electronically.
But after hours, a memory stick that contains the zapper is inserted to remove a given amount in sales from the day’s receipts, say, $500. For each altered transaction, the zapper also will re-total and recalculate the receipt. That changes the tax due and produces a second set of books.
Boston University tax law professor Richard Ainsworth, an authority on the issue, estimates 30 percent of the predominantly cash businesses in states are using tax zappers.
The programs are most likely to be found in businesses such as restaurants, where cash volumes are heavy, because transactions using credit or debit cards leave a paper trail. To catch tax zappers, revenue agents have to visit small businesses, Ainsworth said. “You have to dig.”