Before the Tax Season Starts, A Reminder to Choose Your Return Preparer Carefully
Letter 5105 Being Sent to Select Return Preparers in January – How Can You Respond?
California’s Board of Equalization issued a Special Notice (available at www.boe.ca.gov/news/2014/l386.pdf) in the latter part of 2014 making it clear that they were interested in prosecuting sales suppression cases. Sales suppression is essentially a method of underreporting sales, and thus sales tax, at the point of sale. This notice focused on the use of “sales suppression software” and urged customers to take action. The incentive for customers? No, not a whistleblower award like the feds would give, but a moral imperative to fight business attempting to gain an unfair advantage over competing businesses that pay all their taxes. It isn’t a strong incentive, unless you happen to be a tax-paying business owner. However, it has been powerful logic in court, and I have seen it effectively used in injunction cases against employment tax pyramiding businesses. The relevant text of the BOE Special Notice is below:
What is sales suppression software?
Sales suppression software, often called “zappers,” allows the user to remove or change sales transactions in electronic point of sale (POS) recordkeeping systems. The user then under-reports their taxable sales by making it appear they sold less than they actually did.
How does the BOE fight illegal sales suppression?
BOE auditors may make undercover merchandise buys to determine if a suspected business is illegally suppressing sales. If the BOE detects the use of sales suppression software, the reported sales amounts will be disregarded and the BOE will establish taxable sales using recognized audit techniques, including, but not limited to calculating sales based on:
Cash to credit card payment ratios
Purchase information obtained from suppliers
A daily sales average
Anyone caught using illegal sales suppression software could be sentenced up to three years in jail, fined up to $10,000, and be required to pay all illegally withheld taxes owed, including penalties and interest.
Get a receipt!
You can help us fight illegal sales suppression by asking for a receipt when you purchase food, beverages, or other merchandise, especially when you pay with cash. This discourages dishonest businesses from removing or changing sales in their electronic records and helps the BOE identify those businesses who illegally suppress sales.