Mackay, Caswell & Callahan, P.C.
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What CPAs and Clients Should Know About Tax Zapper Software

CPAs who assist clients with sales tax obligations can build credibility by educating themselves about the increasingly well-known phenomenon of tax zapper software.

Jan 20th 2020
Mackay, Caswell & Callahan, P.C.
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Tax zapper software – also referred to as “sales suppression software” – is a technology which can enable businesses to deliberately underreport their sales in order to underpay their true sales tax burden.

As we know, most states collect sales tax on standard business transactions. Typically, no sales tax is imposed on produce, but it is imposed on most other items. If you buy a cup of coffee or a magazine, sales tax will likely be collected, unless you happen to live in a state without sales tax.

Many business owners have already been caught, charged and sentenced for using zapper software to commit sales tax fraud. Cash businesses are at a higher risk for zapper software tax fraud, and so CPAs can counsel clients who run cash businesses (such as restaurants) accordingly. In any event, it’s a wise policy to discuss this issue with clients so you can prevent tax fraud in the future.

Tax Zapper Software Can Create Two Sets of Books

Zapper software is installed on a “point-of-sale” (POS) system, or directly onto a cash register. This software can then delete certain transactions after they’ve been made, and thereby create a second set of books on top of the original set. This second set of books can then be used as the “official” or “original” set of books because, without any special investigation, it can easily pass off as such.

This second set of books can therefore be used to deliberately underreport sales and commit sales tax fraud. The software user simply pockets the unremitted sales tax which was leftover. The thing that can make this operation very tough to discover is the occurrence of cash-based transactions.

Suppose this software is installed in a business which sees a large percentage of cash transactions, such as a diner. In this case, using the software to “delete” the transaction from the books would be quite easy, and very hard to track down for authorities. 

Tax Zapper Software is Banned in Many States

As of right now, many states have already outlawed the use or possession of tax zapper software even without evidence of use for fraudulent purposes. For instance, Washington, Michigan, West Virginia, Florida, Utah and Georgia have already put forth direct bans against the use or possession of zapper software.

Other states, such as Mississippi and New York State, have proposed similar bans. This is something CPAs need to know and should bring up with clients whenever appropriate. If a client has purchased this software, but hasn’t used it, and lives in one of these states, you should counsel them accordingly. Let them know that even possession can be criminal and that they should come clean immediately. 

Authorities are Cracking Down on Tax Zapper Software

As mentioned, part of the reason why some business owners use zapper software is because it is so difficult to detect. The software produces an entirely new set of books, and so authorities often have to conduct extremely thorough investigations in order to identify foul play. But, CPAs and business owners should be aware that many state authorities have cracked down on illegal zapper software use, and the consequences have been harsh.

For instance, the owners of a sushi restaurant in Michigan were recently charged and convicted of sales tax fraud using zapper software. The penalties were quite severe, as reported in this Michigan news outlet. One tactic used by state authorities to crack down on zapper software is to use undercover agents to pose as customers.

The agents obtain receipts for an item, and then later use those receipts to demonstrate that their transaction had been (or had not been) deleted from the books. This tactic has been used in multiple zapper software investigations across the country.

Little by little, state governments and authorities are learning about this software and how to detect it. CPAs should take note and counsel their clients accordingly.

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