When A POS System Turns Into Tax Evasion

Sales suppression software has been around for a while, but the government is getting more serious about sniffing it out. The software, commonly called tax zapper software, is used to modify sales reports generated by point of sale (POS) software systems for the purpose of reducing taxable income by underreporting sales.

Restaurants and other cash-based businesses that rely on POS systems are the biggest culprits. These businesses often access tax zapper software by using untraceable USB drives or downloading it from the dark web (an online source that is also difficult to trace).

So if acquiring and using the software isn’t what tips off the authorities, what does?

For more than a decade, the IRS has been using its own software to analyze cash-based businesses and compare them to similar ones. Businesses that report outside what’s considered a “normal” ratio of cash to credit cards are flagged and often audited. It’s a roundabout way of detecting zappers, but it’s effective for catching the boldest users who alter their books aggressively.

States have their own interest in detecting this type of tax evasion since it can reduce the sales, mixed drink, franchise and other state taxes they collect. One expert concludes that state taxing agencies in the U.S. lose about $21 billion annually from tax zapper activity. Texas alone may be losing $1.6 billion annually. It’s no wonder, then, that they’re taking action.

Most states—including Texas—have anti-zapper laws in place, which can make even the possession of the software or a link to it online a punishable offense. You can bet those states work closely with the IRS to crack down on zappers and gain back those billions of dollars in lost tax revenue. Recent high-profile cases have made the news in Illinois, Washington, and Minnesota.

Questions about how your own POS system should record sales for tax purposes? Feel free to contact us.

Image by Charles Thompson from Pixabay

Client Spotlights

A terrifying home invasion involving men with masks and guns set Pam Wood on an unexpected path to business ownership in 1981.
What happens when you combine a passion for creating, a knack for business, and deep family values? For Scott Klingler, owner of MergeWorks, it resulted in a thriving family business known for its…
Bessie M. Irizarry loves embracing a good challenge. It’s one of the many reasons she’s earned respect as a female engineer and business owner in predominantly male-dominated fields.
San Antonio native Mark Lopez can’t recall a time he didn’t envision himself following the footsteps of his father, a project manager, into the construction business.
Siew Pang knows that the key to unlocking the American dream can be discovered by embracing unexpected opportunities.
If you’re a San Antonian, you may not want to imagine your weekend without brunch at the city’s beloved Magnolia Pancake Haus.
Greg Thompson has long respected money and how it can catalyze greater things.
You may not be aware of it, but Don Lasseter has helped you throw a party. How do we know that? He’s the franchise owner of six San Antonio-area Party City stores.
Land surveyors aren’t known for exceptional customer service. But why shouldn’t they be? David Breaux set out in 1998 to prove that treating customers right can pay off in any industry.
When Lance Rose sees a business need, he fills it. That’s how he and Terri, his wife of 30 years, have evolved into the proud owners of OverWatch Enterprises, LLC, a cutting-edge security services company.
Matt and Lara Bruhn met while in graduate school at Harvard. He served as an officer and F-15C pilot with the U.S. Air Force.
Growing up in Piedras Negras, Coahuila, Mexico—just south of Texas along the Rio Grande—Oscar E. Flores dreamed of becoming a designer.

Blogs and Articles

Love & Marriage & Your Business Assets

How Small Business Owners Reduce Taxable Income

Spot These Tax Scam Signs Before It’s Too Late

‘Bitcoin Jesus’ Faces Tax Fraud Reckoning

Tax Considerations of Qualified Settlement Funds

Weighing Taxes When Selling Your Business

Small Business Merger Tax Considerations

Charitable Giving & Your Taxes

Bankler’s Year In Review

What Tax Cuts & the Economy Might Look Like in 2025

Texas Franchise Tax Reminders

Corporate Transparency Act & Your Beneficial Ownership Obligations

Falling Interest Rates and Your Small Business