Closing the Sales Tax Gap: Vermont Enacts Anti-Zapper Legislation

An automated sales suppression device falsifies electronic records of sales in electronic cash registers or other point of sale (POS) systems.  Known as “zappers” or “tax zappers,” they enable users to evade the levy of sales tax by underreporting sales records.  Zappers are essentially software programs carried via memory stick, CD, or through phantom-ware (a hidden programming option embedded into the operating system of an electronic cash register).  The zapper programs manipulate transaction records so that businesses underreport the amount of sales and thus avoid sales or individual taxes based on sales.

Vermont Enacts Anti-Zapper Legislation With Safe Harbor Provision

States have been tackling the issue of zapper-ware by enacting anti-zapper legislation to make the use of these devices illegal.  Criminal penalties apply in Arkansas, Connecticut, Illinois, Louisiana, Maine, Michigan, North Carolina, Tennessee, and Washington.  Recently Vermont joined these states in enacting legislation against the use of tax zappers. The new law makes it a felony for anyone to buy, sell, install, transfer, or possess an automated sales suppression device.  Vermont’s new anti-zapper legislation took effect on April 25, 2013 (see HB 511), but a safe harbor was included to allow those who voluntarily disclose the use of zappers to avoid prosecution and limit penalties if disclosure is made by October 1, 2013.  To take advantage of the safe harbor, individuals must notify the Vermont Department of Taxes regarding their usage of the sales suppression devices and pay any amounts owed.  Penalties will be limited to 25 percent of taxes owed. 

Safe Harbor May Only Be Utilized Prior to October 1, 2013

Once the safe harbor has expired, a person found in violation of the anti-zapper law is liable for all taxes, penalties and interest.  They are also subject to imprisonment for one to five years and/or fined more than $100,000.  Vermont is getting serious about sales tax evasion because estimates show the state may have lost up to $43 million a year for the past 10 to 15 years because of unpaid sales tax, personal income tax and corporate income tax because of tax zappers.  With more and more states enacting criminal penalties for the use of tax zappers, tax practitioners should advise your business clients to find an automated sales tax provider and use their services to comply with their sales tax obligations without utilizing tax zappers. 

 RELATED LINKS: For information on sales tax in Vermont and other states, see:

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