State cracks down on high-tech tax cheats

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Capital News Service
LANSING — Michigan is cracking down on tax cheats in cash-based businesses that use high-tech software to evade taxes as part of its effort to fight fraud and increase state revenue.
Zapper, an automated sales suppression device, and software known as “phantom-ware” enable businesses, especially those that mostly deal in cash, to underreport taxable sales by plugging a flash drive into their cash registers.
Zappers have been found in Germany, Sweden, Brazil, Australia and France. Detroit has the earliest records of high technical tax cheating prosecution in the U.S, according to a Senate Fiscal Agency analysis.
A new law signed by Gov. Rick Snyder prohibits phantom-ware and zappers and provides an opportunity for Michigan to collect more tax revenue, according to the Treasury Department.
“Personal tax, sales tax and business tax, all of those can be stolen by zappers.” Sen. John Pappageorge, R-Troy sponsor.
The law makes transfer, installation, and possession of zappers and “phantom-ware” a felony with a prison sentence of one to five years and a fine of up to 100,000.
Pappageorge said tax evasion always happens. Before cash registers and records were computerized, businesses used to keep a double set of hard copy books and use the second set –a modified set – to conceal the unreported income.
“Now there are all kinds of ways to steal tax going on through the Internet.” Said Pappageorge, “Governments are losing money to build a school or a hospital because of tax evasion.”
Treasury public information officer Terry Stanton said in the past five years about 10 cases related to tax cheating have been prosecuted by the Attorney General’s office.
“People do tax cheating based on their foundational motivation,” said Christopher Harper, a tax expert from Grand Valley State University. “They are trying to take advantage of the system.”
He said tax cheating could be explained, based on the tough economic environment nowadays when people are less willing to pay for anything.
Stanton said it is hard for the State to estimate revenue lost due to tax cheating. And with rapidly developing technology, “we cannot predict what will be the next tool people use to escape from paying their tax.”
“People are in need of tax instruction,” said Manny Katz, owner of, a website that provides free online tax information. “The government will do a better job in avoiding further tax cheating if they can figure out how to make sure people make the right decision and get the problem solved in the best possible solution.”

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