As is the case in many areas of the law, it can take some time for the rules and regulations to catch up with the technological advancements of our time. Tax law is no different, as a program over the last 20 years — dubbed “zapper” software — has allowed some businesses to virtually eliminate certain taxes and then veil the deletion so that auditors have almost no chance of detecting it.
Zapper software is installed on any point-of-sale system and immediately goes to work. Any electronic records that show taxable sales are then audited (for lack of a better phrase) by the program. The zapper software deletes certain taxes, and then reorganizes the record numerically so that auditors can’t detect the change. In other words, if there were 10 items, zapper doesn’t just delete item 6 and then move on — it deletes item 6 and then makes the list nine items long.
Sneaky? Yes. And the state of California, like many other states around the country, has had enough. They are outlawing zapper software, making the use of these programs punishable with up to three years in jail and a $10,000 fine.
What does this mean for small business owners? Well, obviously you should avoid this software, and if you are using it and have avoided detection, don’t press your luck. Fall in line with tax rules and regulations for the sake of your business and yourself. No matter how bad your tax situation may get, there are always negotiations and appeals you can engage in to try to rectify the situation with the state or the IRS.
Source: Inc., “‘Zapper’ Tax Cheats Get Put on Notice,” Laura Montini, Jan. 17, 2014