AUGUSTA, Maine – The biggest scam to cheat on sales taxes used to be two cash registers, one that got reported and one that did not. Today tax collectors are battling increasingly sophisticated computer programs that accomplish the goal of cheating the state but are more difficult to detect.
“There is always somebody trying to find a new way to cheat,” said Jerome Gerard, the acting executive director of Maine Revenue Services. He said the agency has been working to ferret out tax cheats since the agency was created.
“We have several tools that we use to make sure that a retailer is paying the sales taxes to us that they have collected from customers,” he said. “Our approach is rather old fashioned, but it has worked pretty well.”
Gerard said his staff looks at the vendor sales to the retailer or restaurant and does a “mark up analysis” to estimate what the seller is expected to pay for sales taxes. He said if there is a significant discrepancy between what has been paid into the state and what the analysis indicates should have been paid, the business is asked to explain.
“Sometimes there is a legitimate explanation,” he said. “Other times we get a check for what we believed was owed.”
But some lawmakers are concerned the state may be loosing significant revenue from a recent computer technology called “zappers” because they alter sales records in a more subtle way that still yields a lot of cash for the seller.
“It’s clearly subversive and against our process of treating people fairly, equitably and everyone paying their fair share of the tax burden,” said Rep. Garry Knight, R-Livermore Falls, co-chairman of the Taxation Committee. “I would suggest that zappers be outlawed in this state.”
He said his panel has not looked at the expanding use of technology to cheat on tax laws, but he said if it is happening in other states, Maine should assume some is happening here.
An example of how the zapper programs works: A restaurant may charge $6 for a burger and fries combo, but the software alters that after the sale to just a $4 burger sale. In Maine, that would mean 14 cents going to the restaurant owner that should be paid in taxes.
In other states, that difference has added up to a lot of lost revenue.
A retailer can have the program change the sales price on an item. For example, a $20 shirt is reported as selling for $18. In Maine, that’s a loss of a dime, but all of those nickels, dimes and pennies add up.
“Tax evasion is something that we always should take seriously,” said Rep. Seth Berry, D-Bowdoinham, the lead Democrat on the Taxation Committee. “Zappers are something that Maine Revenue Services is not able to track; it is a very difficult enforcement problem.”
He said Maine should watch what other states are doing and consider adopting policies and laws that seem to work the best. He agreed Maine may want to outlaw the computer programs, although he is not sure how effective that may be.
No one has an estimate of how widespread the use of zappers is in Maine, but a report last month by the Canada Revenue Agency found over a three-year audit of 424 restaurants that a third of them tried to reduce their tax bills by changing electronic cash register data. There has not been a similar study in the United States, although other states are passing laws outlawing the tax cheat programs.
In Georgia, it is now unlawful to sell, install or even possess the computer programs. That state estimates it has lost more than $372 million a year in sales taxes.
The New York Department of Taxation and Finance reportedly has conducted four sting operations in that state in which agents posed as owners of new restaurants seeking to buy equipment from equipment dealers. Most of the cash register sales staff said they would help the restaurant owners evade taxes by selling them zappers.
Gerard said state agencies talk with one another and discuss collection issues. He is aware there are computer programs to track and identify altered data, but he does not have the expertise on staff to do that sort of investigation.
“If it is a criminal matter we can ask the state police Computer Crimes Unit to investigate,” he said.