BILL ANALYSIS �
AB 781
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CONCURRENCE IN SENATE AMENDMENTS
AB 781 (Bocanegra)
As Amended August 12, 2013
Majority vote
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|ASSEMBLY: |78-1 |(May 28, 2013) |SENATE: |38-0 |(September 6, |
| | | | | |2013) |
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Original Committee Reference: PUB. S.
SUMMARY : Provides new penalties for a person who knowingly
sells, purchases, installs, transfers, possesses, or uses any
automated sales suppression device, as specified.
The Senate amendments :
1)Specify that any person who purchases, installs, or uses in
California any automated sales suppression device or zapper or
phantom-ware with the intent to defect or evade taxes due is
guilty of a misdemeanor.
2)Clarify that any person who, for commercial gain, sells,
purchases, installs, transfers, or possesses in California any
sales suppression device, zapper, or phantom-ware with
knowledge that the sole purpose is to defeat or evade taxes
due is guilty of either a misdemeanor or felony.
3)State that the maximum fine is $5,000 or $10,000 depending on
the number of devices the person sold, installed, transferred
or possessed.
4)Exempts a person that is a corporation that possesses any
automated sales suppression device or zapper of phantom ware
for the sole purpose of developing hardware or software to
combat the evasion of taxes by use of these devices.
EXISTING LAW :
1)Provides that all property is taxable unless otherwise
provided by the California Constitution or the laws of the
United States.
2)Establishes the State Board of Equalization (BOE) which
AB 781
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administers sales and use taxes, excise taxes, special taxes,
and the state's fee programs.
3)States that it is a misdemeanor for any person required to
make, render, sign, or verify any report, who makes any false
or fraudulent return, with intent to defeat or evade the
determination of an amount due required by law to be made.
4)Provides that a violation of the requirements set forth in the
Revenue and Taxation Code related to sales and use taxes is a
misdemeanor, and each offense punishable by a fine of not less
than $1,000 and not more than $5,000, or imprisonment not
exceeding one year in the county jail, or both the fine and
imprisonment in the discretion of the court.
5)Specifies that any person who violates the requirements set
forth in the Revenue and Taxation Code with the intent to
defeat or evade the reporting, assessment, or payment of a tax
or an amount due is guilty of a felony when the amount of
unreported tax liability aggregates $25,000 or more in any
12-consecutive-month period. Each offense shall be punished
by a fine of not less than $5,000 and not more than $20,000,
or imprisonment for 16 months, two years, or three years, or
both the fine and imprisonment in the discretion of the court.
6)Provides that any person who knowingly or willfully files a
false return or report with BOE, and any person who refuses to
permit the BOE or any of its authorized representatives to
make any inspection or examination for which provision is made
in this part, or who fails to keep any records prescribed by
the BOE, or who fails to preserve the records for the
inspection of the BOE for the time that the BOE deems
necessary, or who alters, cancels, or obliterates entries in
the records for the purpose of falsifying the records, is
guilty of a misdemeanor and shall be punished by a fine of not
less than $100 or more than $1,000, by imprisonment in the
county jail for not less than one month or more than six
months, or by both.
7)Specifies that any person who willfully evades or attempts in
any manner to evade or defeat the payment of the fee imposed
by the BOE is guilty of a felony punishable by imprisonment in
the county jail for 16 months, two, or three years and a fine
of not more than $5,000.
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AS PASSED BY THE ASSEMBLY , this bill:
1)Specified that a person who knowingly sells, purchases,
installs, transfers, possesses, or uses any automated sales
suppression device, zapper or phantom-ware is guilty of an
offense punishable by a fine of not more than $10,000, by
imprisonment in county jail for not more than one year, or in
the county jail for 16 months, two years or three years, or by
both a fine and imprisonment.
2)Stated that any person who uses an automated sales suppression
device, zapper or phantom-ware shall be liable for all taxes,
interest, and penalties due as a result of the use of that
device.
3)Defined an "automated sales device" or a "zapper" as a
software program carried on a memory stick or removable
compact disc, accessed through an internet link, or accessed
through any other means, that falsifies the electronic records
of electronic cash registers and other point-of-sale systems,
including but not limited to, transaction data and transaction
reports.
4)Defined "phantom-ware" as a hidden, pre-installed, or
installed at a later time programming option embedded in the
operating system of an electronic cash register or hardwired
into the electronic cash register that can be used to create a
virtual second till or may eliminate or manipulate transaction
records that may or may not be preserved in digital formats to
represent the true or manipulated record of transactions in
the electronic cash register.
5)Defined "transaction data" as including information regarding
items purchased by a customer, the price for each item, a
taxability determination for each item, a segregated tax
amount for each of the taxed items, the amount of cash or
credit tendered, the net amount returned to the customer in
change, the date and time of the purchase, the name, address,
and identification number of the vendor, and the receipt or
invoice number of the transaction.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
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COMMENTS : According to the author, "California's tax system is
based on the principal of voluntary compliance. Most taxpayers
report tax liability to appropriate agencies and generally
comply with California tax law. However, there are those who
will try to evade paying their taxes. Such evasion takes the
form of failing to report sales, keeping two sets of books, or
even filing false tax returns. Newer and more sophisticated
products like automated sales suppression devices, zappers, and
phantom software have made this process much easier and faster
to accomplish. In general, these devices electronically and
systematically conceal and remove sale transactions from
recordkeeping systems. The use of these modern devices also
makes it much more difficult for auditors to detect fraud.
"The Board of Equalization has estimated that California loses
$214 million in annual sales tax revenue due to these kinds of
devices. Not only do these kinds of devices place a burden on
state and local governments, they also place a burden on honest
and hardworking business owners who pay and collect taxes. A
business owner that suppresses sales is able to reduce the
amount of income tax paid, and the amount of sales tax
collected. This provides a huge competitive disadvantage for
honest taxpayers.
"Making things worse is the fact that these kinds of devices and
software are incredibly difficult to detect. Even when an audit
is conducted, there are no guarantees of finding criminal
activity. AB 781 addresses this problem by criminalizing not
only the use, but the sale and possession of these devices and
software. Instead of simply going after the user, this bill
also goes after the seller and developer."
Please see the policy committee analysis for a full discussion
of this bill.
Analysis Prepared by : Stella Choe / PUB. S. / (916) 319-3744
FN: 0002627