Zapper Software And Its Effect On Sales Tax
In the summer of 2017, Yu-Ling Wong, the owner of Facing East restaurant in Bellevue, plead guilty for not paying state sales tax by using a technology called "zapper software." Far East failed to report $3.5 million in income and avoided $394,835 in state sales tax as well as $515,488 in federal taxes. Since this was his first offense, Wong will only have to pay $300,000 in restitution and will not receive any jail time. What makes this case interesting is that this is the first case of its kind to be prosecution and result in a conviction in the United States.
Many people have probably not heard of "zapper software," even though it is not a new technology. The software allows restaurants to "hide" some of their cash sales by deleting them from the records. It is also very hard to catch because the software is installed on a thumb drive instead of the actual cash register, which allows it to be removed easily during an inspection. The only reason why Wong was caught was because of suspicions raised during a routine audit.
This court case brings up many questions about how many other restaurants around the country could be using this software and how many millions, if not billions, in taxes are lost every year. Canada and Europe have been prosecuting cases of this kind for years, but this is the first one in the United States. Therefore, there is no reason why restaurants should be afraid of prosecution even with this conviction.
Now the key question is how can states and the federal government deal with this situation? 22 states already have laws against this sort of taxes avoidance, but there is no effective way to enforce them. The software is installed on a thumb drive, making it almost impossible to detect during inspections. Moreover, Wong was caught during a routine audit. Relying on someone's ability to recognize suspicious activity during an audit is not a reliable strategy. Legislators will need to write laws to combat the use of zapper software more effectively.
This case may be the first of many and could serve as a catalyst for new legislation against zapper software.
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