Zappers Widely Used in California Restaurants to Evade Taxes

By
Services for Real Estate Pros with Richardson Accounting and Tax

According to a recent article by Bloomberg Tax, Zappers, also known as an automated sales suppression device or phantom ware are widely used in California restaurants. Results from a limited pilot program in the state determined approximately 20% of the businesses the California Department of Tax and Fee Administration (CDTFA) audited were caught using Zappers.

 

https://news.bloombergtax.com/daily-tax-report-state/tax-zappers-found-in-one-fifth-of-california-restaurants

 

They are used to remove sales from the electronic records of a business. By reducing gross receipts, their purpose is to reduce taxable income and ultimately, taxes payable. 

 

Some examples of the taxes Zappers evade at the federal, state and local level include:

 

Internal Revenue Service (IRS):

 

California Department of Tax and Fee Administration (CDTFA)

 

Franchise Tax Board (FTB) 

  • State income tax
  • Franchise tax

 

California Employment Development Department (EDD)

 

City of Los Angeles Office of Finance 

  • Business Tax

 

While the focus of the article was on the restaurant industry, other businesses can use Zappers to suppress sales. It is a topic that will continue to develop in states throughout the nation because this is happening everywhere. 

 

Although California state tax agency criminal prosecutions are rare for businesses caught using Zappers, the various tax agencies mentioned above have information sharing programs. If one tax agency finds a business using a Zapper,  they can inform other tax agencies who in turn may perform their own civil audits and criminal investigations. The article did indicate criminal convictions led to prison sentences in a few cases and there is evidence available from the California Department of Tax and Fee Administration (CDTFA) civil audits previously conducted to pursue criminal charges against more business owners. 

 

Photo by Marcus Herzberg from Pexels

Posted by

Howard Richardson

Enrolled Agent

IRS and State Tax Representation

(213) 545-1799

howard@hrichtax.com

http://www.hrichtax.com

Comments (3)

Mark Don McInnes, Sandpoint-Idaho
Sandpoint Realty LLC - Sandpoint, ID
North Idaho Real Estate - 208-255.6227

That just seems to be begging for trouble... someone always willing to risk it though.  m

Oct 10, 2021 02:56 PM
Howard Richardson

I agree Mark, using Zappers is just asking for problems.

Oct 10, 2021 03:27 PM
Brian L. Sirota, Esq.
Bristar Realty (Realtor/Attorney) - Orange, CA
For Solutions: (714) 501-7660

Howard Richardson, I may not always comment, but I always find your posts really interesting!   I didn't know about the Zapper problem, 'till you wrote about it.

Oct 10, 2021 03:17 PM
Howard Richardson

Thanks for the feedback Counselor. Really appreciate it.

Oct 10, 2021 03:32 PM
Ron and Alexandra Seigel
Napa Consultants - Carpinteria, CA
Luxury Real Estate Branding, Marketing & Strategy

Howard,

Pay the gosh darn taxes, and stop worrying about getting caught.  It causes so much heartache in the long run.  A

Oct 10, 2021 06:21 PM
Howard Richardson

You're right. Maybe that's the problem, some people don't worry. 😀

Oct 10, 2021 07:15 PM