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.
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):
- Federal income tax
- Payroll tax
California Department of Tax and Fee Administration (CDTFA)
- Sales and Use Tax
- Excise Tax
Franchise Tax Board (FTB)
- State income tax
- Franchise tax
California Employment Development Department (EDD)
- Payroll tax
- Workers' compensation
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.