An Act To Prohibit Computer Software Programs Used To Evade Sales Tax

Emergency preamble. Whereas,  acts and resolves of the Legislature do not become effective until 90 days after adjournment unless enacted as emergencies; and

Whereas,  automated sales suppression devices, commonly referred to as "zappers" and "phantom-ware," are used to underreport sales and have enabled fraud and theft from government, from shareholders and business partners and from other state and federal taxpayers; and

Whereas,  the Province of Quebec, on Maine's northern border, has found that in one recent year it lost approximately $425,000,000 to fraud from zappers and phantom-ware in restaurants alone; and

Whereas,  if adjusted for Maine's smaller gross domestic product and lower tax rates, the same degree of undetected tax evasion from Maine's restaurant sector alone would mean the loss of $50,000,000 annually in sales tax, corporate income tax, personal income tax and related employment taxes; and

Whereas,  many foreign governments and several states have already acted to reduce and prevent the use of zappers and phantom-ware and their actions have yielded positive results; and

Whereas,  the Department of Administrative and Financial Services, Bureau of Revenue Services presently lacks sufficient technological and auditing resources to detect, document and control zapper and phantom-ware fraud and theft; and

Whereas,  the reputations and the fiscal competitiveness of all law-abiding businesses are harmed by the continued existence of this threat; and

Whereas,  in the judgment of the Legislature, these facts create an emergency within the meaning of the Constitution of Maine and require the following legislation as immediately necessary for the preservation of the public peace, health and safety; now, therefore,

Sec. 1. 17-A MRSA §909  is enacted to read:

§ 909.  Possession of automated sales suppression device

Sec. 2. Interim compliance period. Notwithstanding the Maine Revised Statutes, Title 17-A, section 909 or any other law, a person who corrects and fully reports any previously underreported sales records between the effective date of this Act and September 1, 2012 is not subject to criminal and civil penalties for violating Title 17-A, section 909 in the absence of any audit, investigation or request by the Department of Administrative and Financial Services, Bureau of Revenue Services to correct and fully report previously underreported sales records. Nothing in this section may be construed to restrict a person's liability for taxes and interest due to the State or Federal Government, for restitution to a person's shareholders or business partners or for any other liabilities arising from the underreporting of sales. To qualify for a waiver of penalties under this section, a person must notify the bureau of the person's possession of an automated sales suppression device on or before September 1, 2012 and provide any information requested by the bureau, including but not limited to transaction records, software specifications, encryption keys, passwords and other data. The bureau shall work with the business community to notify potentially affected taxpayers and may adopt rules to implement this section. Rules adopted pursuant to this section are routine technical rules pursuant to Title 5, chapter 375, subchapter 2-A.

Sec. 3. Review and report. The Department of Administrative and Financial Services, Bureau of Revenue Services shall immediately review its audit practices and results with respect to cash-intensive businesses and identify steps to improve the bureau's ability to audit those businesses and identify and prevent crimes involving automated sales suppression devices. The bureau shall update the joint standing committee of the Legislature having jurisdiction over taxation matters on these efforts orally in January 2013 and submit to the committee a final, written report by December 2014. The final report must include an estimate of the extent of crimes involving automated sales suppression devices in the State and an update on the efforts of the bureau and of other domestic and international authorities in better identifying and preventing crimes involving automated sales suppression devices.

Emergency clause. In view of the emergency cited in the preamble, this legislation takes effect when approved.

SUMMARY

This bill prohibits the possession of automated sales suppression devices, which alter the amounts of sales made by a business for the express purpose of illegally withholding or skimming sales taxes paid by customers. For those persons who correct and fully report any previously underreported sales records before September 1, 2012, certain penalties are reduced but other existing financial liabilities are not reduced. The bill also authorizes the Department of Administrative and Financial Services, Bureau of Revenue Services to adopt routine technical rules to implement this interim compliance period. The bill also requires the bureau to report to the joint standing committee in January 2013 and December 2014 on efforts to detect and prevent crimes involving automated sales suppression devices.