Enacts the automated sales suppression act to study and report on the use of automated sales suppression devices that falsify the electronic records of point-of-sale systems for the purpose of tax evasion.

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S2611-2011 Actions

• Jan 4, 2012: REFERRED TO FINANCE
• Jan 26, 2011: REFERRED TO FINANCE

S2611-2011 Memo

BILL NUMBER:S2611

TITLE OF BILL:
An act
to amend the executive law,
in relation to enacting
the automated sales
suppression act

PURPOSE:
1. Requires the Department Of Taxation and Finance to prepare an
automated sales tax suppression study.

SUMMARY OF PROVISIONS:

� 170-c. Automated Sales Suppression Study.
1. Definitions.
2. Directs the Department of Taxation and Finance to prepare a
comprehensive study on the prevalence of automated sales suppression
technology (e.g.
zappers and phantom-ware) within the state's retail industry, focusing
on, but not limited to, restaurants, movie theaters, hairdressers,
amusement parks, grocery stores and convenience stores.
3. Automated Sales Suppression report deadline.
4. Report information exemptions.

EXISTING LAW:
None.

JUSTIFICATION:
For years, foreign countries with national sales taxes have struggled
to combat technology that enables retailers to skim sales taxes and
under report other tax liabilities (e.g. personal income tax,
corporate income tax) by concealing from auditors their actual sales
data. This technology, which includes so-called "zappers" and
"phantom-ware.," automatically suppresses digital sales figures
recorded at electronic cash registers.

It is difficult for auditors to detect the use of zappers and
phantom-ware through the traditional process of cross checking
transaction documents because the technology conceals almost all
traces of the digital manipulation. Countries such as Germany and
Greece have required retailers to install technological
countermeasures that make it easier for auditors to detect the use of
zappers and phantom-ware. In September 2010, the Canadian province of
Quebec began requiring all restaurants to install in their electronic
cash registers anti-sales suppression devices. Zappers cost Quebec an
estimated $425 million ($410 million U.S.) in 2007-2008.

Because the United States lacks a national sales tax, there is no
federal initiative to combat this tax fraud and most states are
ill-prepared to deal with this issue. Nationwide, only a handful of
people have been caught using this technology, including two in
Michigan and one in Connecticut. Richard T.
Ainsworth, a Boston University school of Law tax professor and a
leading expert on zappers, has published several papers documenting


the spread of zappers and phantom-ware in Quebec, Greece, Germany,
the Netherlands and other European nations. Given that that the first
zappers were made in the
United States and that this technology is widely used in the Canadian
province just above of the New York's northern border, it is
imperative for the State to address this issue.

Prior to requiring restaurants in the province to install
anti-automated sales suppression technology in electronic cash
registers, Quebec conducted two empirical studies on the problem.
This legislation, likewise, would direct and authorize the Department
of Taxation and Finance to prepare a study on the prevalence of
zappers and phantom-ware in cash-oriented businesses statewide, such
as restaurants, movie theaters and convenience stores.

FISCAL IMPACTS:
Approximately $250,000 to cover auditor expenses throughout the
18-month study and to produce a report, according to an estimate by
the Senate Select Committee on Budget and Tax Reform.

EFFECTIVE DATE:
This act shall take effect ninety days after enactment.

S2611-2011 Text

                      S T A T E   O F   N E W   Y O R K
  ________________________________________________________________________

                                    2611

                         2011-2012 Regular Sessions

                              I N  SENATE

                              January 26, 2011
                                 ___________

  Introduced  by  Sen. KRUEGER -- read twice and ordered printed, and when
    printed to be committed to the Committee on Finance

  AN ACT to amend the executive law, in relation to enacting the automated
    sales suppression act

    THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
  BLY, DO ENACT AS FOLLOWS:


    Section  1.  Short  title. This act shall be known and may be cited as
  the "automated sales suppression act".
    S 2. The executive law is amended by adding a  new  section  170-c  to
  read as follows:

    S 170-C. AUTOMATED SALES SUPPRESSION STUDY AND REPORT. 1. DEFINITIONS.
  (A)  "AUTOMATED SALES SUPPRESSION DEVICE" OR "ZAPPER" SHALL MEAN A SOFT-
  WARE PROGRAM,  CARRIED  ON  A  MEMORY  STICK,  REMOVABLE  COMPACT  DISC,
  ACCESSED  THROUGH  AN INTERNET LINK OR ACCESSED THROUGH ANY OTHER MEANS,
  THAT FALSIFIES THE ELECTRONIC RECORDS OF POINT-OF-SALE SYSTEMS  FOR  THE
  PURPOSE OF TAX EVASION.
    (B)  "DEPARTMENT"  SHALL  MEAN  THE  STATE  DEPARTMENT OF TAXATION AND
  FINANCE.
    (C) "ELECTRONIC CASH REGISTER" SHALL MEAN A DEVICE THAT KEEPS A REGIS-
  TER OR SUPPORTING DOCUMENTS THROUGH THE MEANS OF AN ELECTRONIC DEVICE OR
  COMPUTER SYSTEM DESIGNED TO RECORD TRANSACTION DATA FOR THE  PURPOSE  OF
  COMPUTING,  COMPILING  OR  PROCESSING  RETAIL  SALES TRANSACTION DATA IN
  WHATEVER MANNER.
    (D) "PHANTOM-WARE" SHALL MEAN A HIDDEN, PRE-INSTALLED OR INSTALLED  AT
  A  LATER  TIME PROGRAMMING OPTION EMBEDDED IN THE OPERATING SYSTEM OF AN
  ELECTRONIC CASH REGISTER OR HARDWIRED INTO THE ELECTRONIC CASH  REGISTER
  THAT  CAN  BE  USED  TO CREATE A VIRTUAL SECOND TILL OR MAY ELIMINATE OR
  MANIPULATE RECORDS THAT MAY OR MAY NOT BE PRESERVED IN  DIGITAL  FORMATS
  TO REPRESENT THE TRUE OR MANIPULATED RECORD OF TRANSACTIONS IN THE ELEC-
  TRONIC CASH REGISTER.

   EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                        [ ] is old law to be omitted.
                                                             LBD07846-01-1

 S. 2611                             2

    (E)  "SUPPORTING  DOCUMENTS" SHALL MEAN ANY RECEIPT, INVOICE OR REPORT
  THAT PROVIDES A RECORD OF TRANSACTION DATA OR TRANSACTION REPORTS.
    (F)  "TRANSACTION  DATA"  SHALL INCLUDE ITEMS PURCHASED BY A CUSTOMER,
  THE PRICE FOR EACH ITEM, A TAXABILITY DETERMINATION  FOR  EACH  ITEM,  A
  SEGREGATED TAX AMOUNT FOR EACH OF THE TAXED ITEMS, THE AMOUNT OF CASH OR
  CREDIT  TENDERED, THE NET AMOUNT RETURNED TO THE CUSTOMER IN CHANGE, THE
  DATE AND TIME OF THE PURCHASE,  THE  NAME,  ADDRESS  AND  IDENTIFICATION
  NUMBER  OF  THE  VENDOR, AND THE RECEIPT OR INVOICE NUMBER OF THE TRANS-
  ACTION.
    (G) "TRANSACTION REPORTS" SHALL MEAN A  REPORT  DOCUMENTING,  BUT  NOT
  LIMITED  TO, THE SALES, TAXES COLLECTED, MEDIA TOTALS AND DISCOUNT VOIDS
  AT AN ELECTRONIC CASH REGISTER THAT IS PRINTED ON CASH REGISTER TAPE  AT
  THE  END  OF  A DAY OR SHIFT, OR A REPORT DOCUMENTING EVERY ACTION AT AN
  ELECTRONIC CASH REGISTER THAT IS STORED ELECTRONICALLY.
    (H) "TECHNOLOGICAL COUNTERMEASURES" SHALL MEAN ANY ELECTRONIC  DEVICE,
  COMPUTER  SYSTEM  OR  SOFTWARE  PROGRAM  DESIGNED  TO ASSIST AUDITORS IN
  DETECTING THE PRESENCE AND/OR USE OF ZAPPERS OR  PHANTOM-WARE  IN  ELEC-
  TRONIC CASH REGISTERS, BY VERIFYING THE AUTHENTICITY OF TRANSACTION DATA
  RECORDED IN SUPPORTING DOCUMENTS AND/OR TRANSACTION REPORTS.
    2.  THE  DEPARTMENT  IS  HEREBY  AUTHORIZED  AND DIRECTED TO PREPARE A
  COMPREHENSIVE  STUDY  DOCUMENTING  THE   PREVALENCE   OF   ZAPPERS   AND
  PHANTOM-WARE WITHIN THE STATE'S RETAIL INDUSTRY, FOCUSING ON CASH TRANS-
  ACTIONS,  BUT  NOT  LIMITED  TO,  THE USE OF ZAPPERS AND PHANTOM-WARE AT
  RESTAURANTS, MOVIE  THEATERS,  HAIRDRESSERS,  AMUSEMENT  PARKS,  GROCERY
  STORES, CONVENIENCE STORES OR ANY OTHER RETAIL ESTABLISHMENT WHERE THERE
  IS A HIGH VOLUME OF CASH TRANSACTIONS.
    (A)  SUCH  STUDY  SHALL  ALSO  PROVIDE AN ESTIMATE ON THE TOTAL FISCAL
  IMPACT THAT ZAPPERS AND PHANTOM-WARE HAVE ON THE STATE, FOCUSING ON, BUT
  NOT LIMITED TO, THE ESTIMATED TOTAL REDUCTION IN GROSS RETAIL SALES,  AS
  WELL  AS  THE  ESTIMATED TOTAL AMOUNT OF TAX REVENUES THE STATE DOES NOT
  COLLECT BECAUSE OF THE FALSIFIED TRANSACTION DATA  PRODUCED  BY  ZAPPERS
  AND PHANTOM-WARE.
    (B)  SUCH STUDY SHALL CONSIDER TECHNOLOGICAL COUNTERMEASURES THE STATE
  COULD EMPLOY OR REQUIRE BUSINESSES TO USE TO ENHANCE  THE  DETECTION  OF
  ZAPPERS  OR  PHANTOM-WARE USED IN OR INSTALLED IN ELECTRONIC CASH REGIS-
  TERS. THE DEPARTMENT IS AUTHORIZED AND DIRECTED TO INCLUDE IN THIS STUDY
  ITS RECOMMENDATION OF WHICH TECHNOLOGICAL COUNTERMEASURE  WOULD  BE  THE
  MOST EFFECTIVE AND COST-EFFICIENT.
    3.  THE DEPARTMENT SHALL SUBMIT THE FINDINGS OF SUCH STUDY IN A REPORT
  TO THE DIRECTOR OF THE DIVISION OF THE BUDGET, THE  TEMPORARY  PRESIDENT
  OF  THE  SENATE, THE SENATE MINORITY LEADER, THE SPEAKER OF THE ASSEMBLY
  AND THE ASSEMBLY MINORITY LEADER NO MORE THAN FIVE  HUNDRED  FORTY  DAYS
  AFTER THE ENACTMENT OF THIS SECTION.
    4.  NOTHING  IN THIS SECTION SHALL PERMIT OR REQUIRE THE DEPARTMENT TO
  INCLUDE IN THE REPORT DESCRIBED IN SUBDIVISION TWO OF THIS  SECTION  ANY
  LISTING  OF  ANY INDIVIDUAL BUSINESSES' TAX LIABILITY, PROFITS, SALES OR
  LOSSES OR ANY INFORMATION PERTAINING TO ANY ON-GOING  ADMINISTRATIVE  OR
  CRIMINAL  INVESTIGATION BY THE DEPARTMENT, U.S. INTERNAL REVENUE SERVICE
  OR ANY LAW ENFORCEMENT ENTITY INTO THE USE, INSTALLATION, MANUFACTURING,
  OR LEASING OF ZAPPERS OR PHANTOM-WARE.
    S 2. This act shall take effect on the ninetieth day  after  it  shall
  have become a law.