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'Zapper' Tax Cheats Get Put on Notice

California joins a list of other states to pass laws criminalizing the use of zapper software.

Looks like more business owners who cheat on taxes will have one less tool in their toolbox. 

As of the beginning of this month, California has officially outlawed zapper software, a type of program that enables retailers to easily evade taxes. In addition to putting legal businesses at a disadvantage, it is estimated that zapper software costs the state $210 million annually, according to The Press Enterprise

California is following the example of several other states that have recently passed legislation aimed at cracking down on the cheat. 

Here's how it works: zapper software is installed on an electronic cash register or point-of-sale system. It then deletes select items from the electronic record, allowing businesses to falsify their number of taxable sales. This also lets them hold onto the cash difference. 

"Unfortunately, sometimes the criminals are one step ahead of us in the use of technology," Riverside County District Attorney Paul Zellerbach said last week at a news conference.

The software is appealing to businesses that sell products with high excise taxes like tobacco, alcohol and gasoline. Now that the act has been criminalized, perpetrators could be sentenced up to three years in jail and fined up to $10,000.

A handful of states started enacting anti-zapper laws in 2012, but even they were late in addressing the issue. One of the first reported zapper cases in the United States involved Stew Leonard’s, whose owner was convicted in 1993 of skimming $17 million over 10 years, according to The New York Times

The larger problem is that even though the practice is now illegal in many states, it can almost be impossible to detect.

"In addition to removing sales, zapper programs also reorganize the order of receipts so that nothing seems amiss to auditors: If a day's receipts are 1 through 10, and transaction No. 4 is removed, zapper will make the receipts appear as 1 through 9." The Press Enterprise reported. 

Last updated: Jan 17, 2014

LAURA MONTINI | Staff Writer

Laura Montini is a reporter at Inc. She previously covered health care technology for Health 2.0 News and has served as an associate editor at The Health Care Blog. She lives in San Francisco.

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