Even though laws against electronic sales suppression software have been elected in most of the United States, (NY State introduced it almost a decade ago), the battle against ESS is still on-going. This is naturally not a result of an ineffective government; we are witnessing a lot of states doing their best to catch taxpayers who commit this type of fraud. The problem lies much deeper than that – it’s in the complexity of the system itself.
Professor Richard Ainsworth of Boston University, an expert on international sales tax collection and fraud prevention, offered an overview of the extent of the problem at the forum on modernizing sales tax collection in NYS held by State Senator Liz Krueger in 2016. According to Ainsworth, New York State loses around a staggering $1.7 billion each year due to sales tax suppression. “Zapper” software, which allows users to falsify sales receipts, previously came in the form of CDs or USB thumb drives, but increasingly sophisticated software is now available to download online, making it nearly impossible to track down producers. Professor Ainsworth’s written statement can be viewed here.
The zapper Case in Minnesota roots from New York City
Recently, a fraudster from NYC caused a lot of troubles for the Minnesota Department of Revenue. Mr. Hailong Li was charged with manufacturing and providing Sales Suppression devices to businesses, helping them commit tax fraud. This is known as the first case to be charged under Minnesota’s sales suppression devices law elected in 2017.
This specific software was called “Happy World” and it helped business owners modify their sales records so they could reduce the amount of sales tax they owed to the state without one shred of audit trail. And although Mr. Li, the creator of the software, denies ever selling it to people since the law came to force in 2017, he was still arrested due to firm proof he did just that. He provided his customers with remote support using TeamViewer to log into their terminals and tweak the sales records. During the first investigation of Osaka Duluth, Minnesota Revenue officers seized a flash drive containing Mr. Li’s software program. Happy World was discovered in a second criminal investigation of Shogun Burnsville and the third case of Raku, Inc. and Raku Sushi and Lounge, Inc.
According to this law, (Minnesota Statute: 289A.63.2(b), with reference to 609.03.1), a maximum sentence of 5 years in prison or $10,000 fine. Sometimes, it can be both.
Having firm and harsh laws against tax fraud is a very good way to fight it, however, it is usually not enough. Mr. Li is only one of the people who was caught red-handed; all over the USA, sales suppression devices and software are stopping the States from collecting taxes properly. This is further feeding the grey economy, as well as endangering consumers’ rights. If a certain business owner isn’t paying sales taxes, shouldn’t this mean that the prices for the consumers are lower as well? No, it’s not.
How Can TaxCore Help?
TaxCore is not new to the American market. Moreover, it already works in the State of Washington. To be more precise, the State of Washington Department of Revenue has entered into an agreement with well-known restaurants – and its proving to be working effectively.
The owner of the restaurant was caught using sales suppression software, however, the plea that resulted in an agreement helped TaxCore enter the US market. The business owner accepted that monitoring software should be implemented into their restaurant. Naturally, by breaking the law, the fines were huge. The business owner even had to pay for all the taxes they tried to hide.
The reason why TaxCore was the one chosen as a monitoring system for the restaurant was due to its transparency and flexibility. The owner still had access to the full functionality of the POS, including plug-ins for popular delivery services, while the monitoring in the background is active.
In a developed country such as the USA, there are usually no issues with internet connectivity, which allows for business owners to be connected to the Department of Revenue 24/7. This means that with TaxCore, every single receipt issued by a business is digitally signed and directly forwarded to the DOR server.
This leaves no space for tax and sales fraud because any discrepancy shall be noticed (e.g. receipts not being forwarded all of a sudden for a certain amount of time, mismatches with the POS ticket sequences and similar). Even if the internet connection is unstable, using a secure element, TaxCore lets business owners save their receipts until the internet connection is back, without customers noticing because verification service will work regardless of the mode POS is in at the moment.
Moreover, TaxCore’s proof of audit technology can easily disable a business from issuing any receipts at all in case some of them are missing and cannot be audited. Additionally, TaxCore’s receipts come with a QR code that can be scanned by a customer (or in this case, a guest) and easily reported if something doesn’t sit right with them.
Using a taxpayer who committed tax fraud as testing grounds for a pilot project was a very good decision by the State of Washington. It proved that taxpayers can easily be educated and corrected, but more importantly, it proved that TaxCore is the perfect system that leaves no space for tax evasion. Years after being caught committing tax fraud, the business owners in Seattle are still using TaxCore and are completely abiding by the law.