STATE TO TAKE ACTION AGAINST BUSINESSES THAT SKIM OR HIDE SALES FROM POS SYSTEMS
Emerging technologies can help businesses conduct their day-to-day operations easier, faster and with more accuracy. However, technology can be a double-edged sword – it also can make it easier to hide or misrepresent business activities. Such is the case with point of sale (POS) systems that have become more versatile and affordable. The California State Board of Equalization (BOE) has seen a recent increase in the number of business owners choosing to invest in this technology to manage their operations, in addition to cases of misuse in order to evade the payment of sales taxes properly due to the state.
The BOE recognizes that POS technology is a useful tool for business owners to manage their business records and help facilitate the preparation of tax returns. However, the intentional misuse of POS systems provides users with an unfair advantage over taxpayers who comply with the law and pay their fair share of taxes and fees, and defrauds the state of revenue that provides its citizens with critical services such as transportation, housing, health care, education, and public safety. Accordingly, the BOE strives to ensure tax revenues are not lost due to unintentional reporting errors or deliberate tampering of POS data.
POS systems are susceptible to misuse by exploiting certain system features that allow the manipulation of its data. Some business owners or their employees use POS built-in features to adjust, replace or change original transaction entries. Although there may be a legitimate reason to use these features, alteration of POS data is highly discouraged. Doing so to deliberately falsify records for the purpose of evading taxes properly due is considered fraud and punishable by law.
Effective Jan. 1, 2014, Assembly Bill 781 makes it a crime for anyone to knowingly sell, purchase, install, transfer or possess software programs or other electronic devices that are used to hide or remove sales and to falsify records. Violators could be sentenced as much as three years in county jail, fined as much as $10,000, and required to pay all illegally withheld taxes, including interest and penalties.
The BOE has taken measures to reduce tax evasion from tampered POS data by means of sales suppression techniques, devices and software programs. These measures include:
- education outreach to the public and industries regarding the use of POS systems
- auditor training
- investment in auditing tools
- updated audit procedures
POS systems are technological breakthroughs that offer convenience in recordkeeping and versatility in business management. However, care should be taken to mitigate their misuse. The BOE will take enforcement measures against those who skim or hide their sales through the use of legitimate POS system features or other suppression devices and software programs. The BOE is working collaboratively with other tax, local, state and federal law enforcement agencies to identify, investigate, and prosecute all cases of tax evasion, including those based on falsified POS data.
“The BOE's 2014 New Year's Resolution is to keep cracking down on the criminals who don't pay their fair share,” BOE Chairman Jerome E. Horton said.