High‐Tech Sales Tax Evasion

• DOI: http://doi.org/10.1002/jcaf.21904
• Author: Ouadie Akaaboune,Jim Cali
• Date: 01 November 2013
• Published date: 01 November 2013

27

© 2013 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.21904

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Ouadie Akaaboune and Jim Cali

Dishonest businesses and individuals now have a

high-tech device to help them evade paying taxes:

the tax zapper. The authors explain how it works,

the threat it poses to honest companies, and what

can be done to stop fraudsters who would use it.

© 2013 Wiley Periodicals, Inc.

High-Tech Sales Tax Evasion

OVERVIEW

Since the imple-

mentation of the first

laws to collect taxes,

individuals and busi-

nesses have been devis-

ing means and methods

to evade the payment

of some or all of their

taxes. In the past, these tax

cheats had to exert a great deal

of effort and skill to create the

perfect “second set of books” to

hide their income from the tax-

ing authorities.

With the technological

advances that have brought us

the smartphone, tablet comput-

ers, and sophisticated artificial

intelligence software called tax

zappers, the ability to cheat gov-

ernmental agencies has become

easier than ever. For a few hun-

dred dollars, a business can pur-

chase this automated sales sup-

pression device, plug it directly

into their cash registers, and

immediately begin to skim cash

and delete credit card transac-

tions to underreport sales taxes

and income taxes.

A tax zapper works like this:

During regular business hours,

the cash register records the true

sales and provides the customer

with a correct and accurate

receipt. But after the business

closes for the day, the tax zapper

is inserted into the cash register.

Once the tax zapper is activated,

it quickly accesses the real sales

data and begins to remove or

reduce sales by a preset percent-

age from that day’s receipts.

When the tax zapper has fin-

ished, the daily sales totals have

been altered, the original sales

data have been electronically

deleted from the cash register,

and the “second set of books”

has been created to support

the documentation for the

bogus sales tax and income tax

returns.

If states do not take action

to enact strong laws making

it illegal for businesses and/

or individuals to possess or

install automated sales sup-

pression devices or tax zappers

designed to falsify the electronic

records of cash registers, then

they must increase their audit

and investigation

resources to root

out the use of tax

zappers, or else the

state and the gov-

ernmental agencies

that depend on sales

tax revenue stand to

lose a great deal of

tax revenue.

TAX ZAPPER SOFTWARE

POSES SERIOUS CHALLENGES

During the current down-

turn in the economy, many cities,

counties, and school districts

that depend on sales tax receipts

are experiencing huge shortfalls.

As these governmental agencies

rack up huge deficits resulting

from reduced tax receipts, they

are forced to cut services. In

an effort to combat the ongo-

ing decline in sales tax receipts,

many states have implemented

aggressive enforcement mea-

sures coupled with on-site

audits to search for evidence of

unreported income. In short,

these auditors are looking for

that proverbial “second set of

books.”

Historically, the creation

of the “second set of books”

would involve the well-known

fraudulent practice known as