Sales Suppression Software
Okay, we admit the bad pun right at the get-go, but there’s something definitely fishy about this tax case. We’ve looked at illegal point of sale (POS) sales suppression software, aka tax zapper, cases in the past, but this one is a real stinker. It involves the fall of another restaurant caught using this software. This particular case involved sales in the Sushi Samurai Restaurant in the State of Michigan. It’s significance lies in the fact that Michigan is one of the few states that have actually outlawed automated sales suppression software altogether. In other words, possessing the software itself is a crime in Michigan. Its use for illegal purposes isn’t even a consideration. In this way, it’s similar to possession of illegal drugs.
Why Focus on Sales Suppression Software
We continue to document tax zapper software cases because doing so provides significant value for our readers, many of whom are business owners. We believe that it’s important for our readers and clients to understand the risks and penalties associated with this software. So, while sales suppression software may be alluring to, still it should be avoided at all costs. As we’ve seen, many a restaurant owner has gotten into big trouble with state and federal tax authorities for the use of illegal tax zapper software. And in many instances, these business owners aren’t drawing undue attention to themselves, or giving any apparent reason to trigger an audit. Instead, routine audits are increasingly resulting in the exposure of sales suppression software. And these audits show that State auditors have the resources to uncover sales suppression software through very in-depth, sophisticated examinations.
The Basic Facts of the Sushi Case
Dong and Christina Chang owned a restaurant, Sushi Samurai, outside Detroit, Michigan. The Changs came under investigation by both the State Attorney General and the Department of the Treasury. Both of these authorities looked into whether the Changs were using sales suppression software to understate sales reported to the state and pocket sales tax due to the State of Michigan. After a thorough investigation, the authorities concluded that the Changs had, in fact, used tax zapper software and were guilty of filing false monthly sales tax returns and embezzling sales tax revenue. Eventually, the Changs pleaded guilty to charges made by the state in late 2017.
Outcome of the Case
Through their investigation, state authorities determined that the Changs had used sales suppression software to delete thousands of transactions. The investigation showed that the couple had, in fact, under reported approximately $2.5 million of sales and embezzled more than $170,000 in sales tax. The Changs were ordered to pay $1 million to cover the sales tax deficiencies, income tax deficiencies and associated penalties and interest. Dong Chang was also required to serve five years of probation filing false income tax returns and filing false state tax returns. Christina Chang was sentenced to two years’ probation for tax code violations. It’s also likely that the Changs will suffer economically as a result of the loss of their reputations. And it’s increasingly likely that they will never regain their full sales potential following their guilty pleas.
Cash Businesses at Higher Risk
It shouldn’t come as a big surprise that the sales suppression software cases that we write about in this blog involve restaurants. As we all know, restaurants, especially small restaurants, often receive payment in cash. And cash transactions are extremely easy to delete using tax zapper software. With the software, restaurants are filing false sales tax returns that appear to be correct.
States Are Fighting Back
Cracking down on the use of sales suppression software isn’t easy. Nonetheless, state auditors use ever-more sophisticated strategies and tactics to do so. These strategies include the use of undercover agents posing as customers making cash purchases. They then use their receipts to expose false books kept by businesses. Cash-based businesses, such as restaurants, need to understand these strategies and tactics. They also need to understand that they are at a higher risk of audit. State authorities know how easy it is for cash businesses to under report sales. And state governments, including New York, are not going to simply walk away from money they know is due.
Contact MC&C for Additional Counsel
The crackdown on sales suppression software is no laughing matter. We know this first hand here at Mackay, Caswell & Callahan, P.C. In our practice, we’ve handled multiple cases involving complex sales tax fraud. These cases are never pretty. But this is precisely why MC&C can be extremely useful to your business. If you need counsel on sales tax fraud, or other related issues, don’t hesitate to reach out to us. We regularly deal with clients who have federal tax debt needs, sales tax debt needs and related counsel. Contact one of our top New York City tax attorneys today to learn more.
Image credit: Judy Gallagher