AUGUSTA, Maine — Some Maine lawmakers are hoping to outlaw so-called zapper software that allows businesses to skim sales-tax revenues from customers while hiding it from tax officials.
The software is a modernized method for a business to manipulate its sales records so that only a portion of actual sales taxes are reported. Zappers have been increasingly problematic in European countries and Canada, where governments have reported massive losses of revenue.
Tax officials in Quebec Province recently reported $425 million in lost revenue from restaurants. An investigation by the Canadian government estimated $2.5 billion in losses nationwide.
More recently, states have adopted laws to prohibit the possession, use and manufacture of sales-suppression devices amid increasing concern from lawmakers. Some of that alarm has been sounded by Boston University Professor Richard Ainsworth and the nonpartisan National Conference of State Legislatures.
State officials aren’t sure whether sales-suppression software use is widespread in Maine, or whether Maine Revenue Services has the capacity to detect it and enforce a ban.
Zappers are often thumb or USB drives that plug into an electronic cash register. Because the units are so small, and sometimes built into the point-of-sale operating system, the software can be difficult to detect.
The software works by linking to a cash register system and modifying its sales records at the end of the day. An oft-cited example is that a customer will purchase a $5 cheeseburger and the software will modify the sale to become a $4 hamburger. Whatever amount that is deleted is pocketed by the business owner. The state loses out on the tax revenue because of unreported sales.
The issue was highlighted by the New York Times in 2009. The report focused on a 12-restaurant chain in Detroit that used a zapper to skim more than $20 million over four years.
The bill, LD 1764, is modeled after a law recently enacted by the Georgia Legislature. It is sponsored by Rep. Seth Berry, D-Bowdoinham, and co-sponsored by Rep. Gary Knight, R-Livermore Falls.
As written, the proposal would make the use of zappers a Class C crime.
Berry said Tuesday that while tax evasion is illegal, it is currently legal to use and possess the zapper software.
He acknowledged that Maine businesses might not be using sales-suppression software. However, he said, like bath salts, the problem could arrive in Maine.
“The losses will come not only in sales tax, but also in other taxes and business profits,” he said.
He added, “Let’s take action now and close the door on this emerging threat before it’s too late.”
The bill would also order Maine Revenue Services to study the use of sales-suppression software and to report its findings to the Legislature in 2013 and 2014.
In a memo to the Legislature’s Taxation Committee, Maine Revenue Services acknowledged that the agency lacks the capacity to detect and control zapper use.
The bill has bipartisan sponsorship. However, it will likely see some amendments following comments during Tuesday’s public hearing.
The Maine Restaurant Association testified in support of the bill during the public hearing. However, Ralph Pears, representing the group, said that some language in the bill could cast aspersions on Maine businesses.
The Maine Merchants Association testified neither for nor against the bill. Curtis Picard said his association’s board of directors wanted to support the measure but worried that enacting a law might not have the intended effect.
“We could not take a supportive stance with the bill as drafted, nor did we want to oppose the bill because we do not condone illegal behavior,” Picard said.
He said the MMA had seen no evidence that zappers, also known as phantom-ware, was being used in Maine.
The Maine Grocers Association had similar concerns.
Both groups indicated they could support the bill if it simply outlawed the use of sales-suppression software.
Berry and Knight said the bill would inevitably undergo amendments reflecting those concerns.
To see more from the Sun Journal, visit sunjournal.com.
The best way to kill a tumor is to cut off its blood supply.
And the thought that business’ know best or are honest gets a little tarnished.
I’m sure this will be shot down. The American way is to rip off the working class and keep the money for yourselves if you own a company of if you’re a politician with a comnpany. the Busch tax breaks for businesses will never go away as long as the greedy are in charge!
Has Anheuser-Busch decided to get in the tax break industry? I thought the Canadians LOVED to pay their high taxes, hmmm maybe not?
Only a class C? Its tax fraud! Arnt the numbers reported to both state and federal?
“Gummint” is the problem, or rather it has an “uncontrolled spending” problem, that is killing our state and our nation. We have to come to grips with it sooner or later, and “gummint” does not want to cut spending.
Therefore the people have little choice but to resist the tax man. Anyone that can resist, should do so, and the more power to em.
The only way to kill this out of control monster…..is to cut off it’s blood supply, other people’s money, any way we can.
Wow! Libertarianism to the extreme. Sanctioning illegal activites. More like treasonous.
Want to remove yourself from that big scary government? well, stop driving on that road I paid for, and see how long you get by. And when your house is on fire, have fun trying to put it out without either your municipal water or electricity to power your well pump from the government-regulated grid.
If it is unknown if it is a problem, but the bill cites offenses and penalities and all the while require Maine Revenue to study the problem, how on earth does this become an “emergency bill” and being considered in this short session?
Why is it that this Legislature is taking up bills that really aren’t emergencies, and possibly enacting bills that they acknowledge they don’t know alot about. Kinda cart before the horse isn’t it. Me Revenue first needs to find out if it is a problem, figure out how to detect those using the device, and then bring all of the pertinent information to the Legislature.
It’s silly to set an offense and a penalty just because a few other states have the problem. This is a waste of time. The only “emergency” here is to get it looked at before it starts happening, period. And the governor can do that on his own by ordering Me. Revenue to do so without using general fund moneys for a study.
You really need to get yourself a job.
Have one, thanks. You should offer an idea or comment every now and again. One that doesn’t have a skew towards how the whole state should kiss Nocket butt.
Perhaps you can go work at the landfill that we own?
What part of the public trough do you feed from since you retired from Augusta?
you see posts all the time on here tax cuts for business and they will pay higher wages and hire more people it doesnt look that way from this bill it looks the strong and crafty survive better then the honest people
“Like bath salts”, i wonder if articles such as this only aid in furthering the problem. As i am sure with bath salts, and now this software, many people who were well unaware of such things are now made aware of not only the product, but how easily available it is to get because its currently not illegal. I know the salts are illegal now, but i wonder how many people that ended up on it only because they read these articles and saw how this new drug was cheap and available most everywhere..I understand people need to be aware of such things, but i know for many its just enabling them to seek other ways to get around the system. I bet after this article, there will be a boost in sales for this zapper software, and a decrease in tax revenues from sales that the State will see.
you mean small business, the backbone of our country, cheat on taxes?
why am I not shocked?