Preventing sales tax evasion
Skimming of cash transactions and underreporting of sales by merchants have been significant, ongoing problems since the inception of sales taxes. The challenge deepened in the mid-1990’s as sales suppression software, also referred to as zapper software, became available to easily erase or modify transactions from electronic cash registers (ECR) or point of sale (POS) systems.
CGI estimates that in the U.S. restaurant industry alone,States are losing $2.1 billion per year from skimming, zappers and other forms of sales tax evasion.
A proven solution
The Province of Québec passed legislation requiring the use of an electronic transaction lockbox that could not be altered by zapper software. This device captures all information entered into an ECR or POS, and places a barcode on each receipt to demonstrate that the device is in use, thereby guarding against both traditional skimming and zapper software. Revenu Québec partnered with CGI as its principal provider to implement the Sales Reporting Management solution. The public was also enlisted to report to tax authorities about merchants that did not provide a receipt with a barcode. To avoid having this effort being deemed an unfunded mandate, the Province gave each merchant a 100% rebate for the cost of the device and also subsidized the ECR or POS, if required.
Collaborating with industry
During its implementation, Revenu Québec worked to obtain the cooperation of several business partners, including trade associations, cash register manufacturers, POS systems designers, and installers of the transaction lockbox device itself. Once presented with the issues and an approach to refund the cost of devices, the industry associations provided their support to assure fairness across the industry.
Preserving data security and integrity
Ensuring the security and integrity of data gathered was an essential part of this effort, and mechanisms were implemented to record the sale information without loss of data or disruption in the printing of bills. The solution also had to detect any attempt at physical intrusion of device data or software manipulation.
For States interested in pursuing a Sales Recording Management (SRM) approach, but are not ready for a full-scale implementation, a pilot approach is an excellent first step. This allows the State to use existing statutes to determine the true magnitude of the problem, verify potential results, and show the industry how minimal operational impacts can be. During a pilot, States would typically select 500-1,000 taxpayers to utilize the SRM. This would allow the State to proceed without any new legislation as tax agencies already have the authority to conduct audits as they deem appropriate.
Based on an extrapolation of the actual benefits realized by the Province of Québec, CGI expects a state to achieve benefits that far exceed the cost of performing a pilot. In addition, the pilot helps the State estimate the rate of non-compliance and the estimated benefits from a full rollout. A pilot also provides as a strong business case to expand the implementation. The pilot also helps guide the new legislation for a full rollout.
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