New York could learn a thing or two from California. The lesson could make Albany richer by billions of dollars.
I’m talking about a sales-tax enforcement effort that started in the Golden State just two weeks ago. It aims to outlaw “zappers,” which are high-tech cash registers that allow stores, restaurants and other businesses to make transactions — and the tax owed on those sales — disappear.
Jerome Horton, a top tax official in California, said, “Unfortunately, sometimes the criminals are one step ahead of us in the use of technology.”
In New York, the tax cheats are a block-and-a-half in the lead. And law enforcement isn’t even trying to catch up.
“Not since the days of Al Capone,” added Horton, “has the underground economy been so pervasive. Zappers are an indication of just how sophisticated the underground economy is.”
He says California loses an estimated $8.5 billion a year to all sorts of tax dodges. “There aren’t enough police officers to effectively arrest this problem.”
So instead, California is going to seize the assets of tax cheats — and do it immediately.
The dishonest cash registers alone are said to cost California $214 million a year in lost revenue.
So what about New York?
It’s worse here, as I pointed out in a column I wrote on Jan. 25, 2011, that had the headline “Today’s special: Scam dodges $400M in sales tax.”
That was three years ago!
At $400 million per annum, Albany would have been cheated out of $1.2 billion in revenue just counting from that day to this.
But the scam had been going on for quite a while before I got wind of it. In fact, Albany’s revenue-enforcement people were actively on the case and had already cornered tax cheats through sting operations — before the effort was suddenly shut down.
Why did New York suddenly shut it down? That’s apparently one of those mysteries of bureaucracy that we aren’t meant to understand. But it seems to have had something to do with a turf battle between investigators in the field and tax auditors who thought they could catch the cheats the old-fashioned way — by looking at their books.
The lack of interest in this scam is particularly odd because Albany was in 2011 — as it is now — desperate for additional tax revenue.
In fact, I wrote that 2011 column as part of a series on how the state could easily find an extra $1 billion a year just by enforcing existing laws. But as far as I can tell, nobody in Albany listened to my suggestions — and the rogue cash registers continue to delete sales.
Tom Stanton, the former head of New York tax enforcement set up stings against the dishonest “point-of-sale terminals” — the fancy term for cash registers.
Stanton tells me the state was aggressively going after zappers by 2011. In fact, he and his agents had set up phony restaurants in Buffalo, Dutchess County, Albany and in The Bronx to trap the people who sold these terminals.
Their cover story was this: The restaurants were just being started by the East Indian Restaurant Association, and they needed registers. No mention was made of wanting to skim sales tax from the state.
But Stanton says that 22 of the 23 terminal vendors who pitched their products brought up the idea of cheating on their own.
“All but one,” says Stanton, “told us that sales could be erased.” In fact, the terminal vendors were selling the idea that they could make “30 to 40 percent of their business” disappear from the official receipts.
The zappers work by having the register’s software automatically not record, say, every third or fourth entree or dessert.
As a kicker, the software will also falsely adjust your inventory.
And if state auditors happened by, the terminal makers promised to crash the customer’s computers and put all the vital information on a flash drive.
When state auditors then tried to determine if a restaurant was reporting all its business to the state and paying all its taxes, the business owner would have the phony books to back up its claims.
In fact, state investigators had actually flipped a vendor for a major cash-register company. He was going to cooperate in exchange for a modest payment and the chance to stay out of jail.
So what happened? Nothing. The deal was botched, Stanton said, when it got to the state Attorney General level. Stanton says he doesn’t know what exactly went wrong, except that law-enforcement authorities who had to approve the deal never did.
Then, of course, I wrote about this tax scam in 2011. What happened after that? Nothing.
For all I know, Albany didn’t care.
The good news — if there is any when you are already in the hole for $1.2 billion in unrecoverable tax revenues — is that Stanton and his crew recorded the sting operation. And those recordings are stashed in the files of the state Tax Department.
Will Albany dig them up and go to the head of the anti-zapper class? Will it learn anything from California?
Don’t bet on that happening.
There’s an old saying that “it’s easier to ask for forgiveness than permission.” Well, in Albany it’s easier to ask for higher taxes than it is to collect the ones already owed.