Sales Suppression: The International Dimension

32 Pages Posted: 10 Oct 2016

See all articles by Richard Thompson Ainsworth

Richard Thompson Ainsworth

NYU - Graduate Tax Program; Boston University - School of Law

Date Written: October 6, 2016

Abstract

Sales transaction taxes are highly susceptible to technology fraud, which is an inevitable result of today’s widespread reliance on technology to document taxed transactions. Technology can be (and is) manipulated to defeat the collection of these taxes. Both the U.S. retail sales tax (RST) and the European value added tax (VAT) are vulnerable to technology-based fraud. This Article concerns sales suppression — intentionally not recording sales — in the RST, and at the final stage of the VAT, the retail stage, when tax is collected from final consumers.

The modern electronic cash register (ECR)/point of sale (POS) system is vulnerable to fraud. These devices are essentially computers with programming that is molded to meet the commercial needs of any particular business.

This Article will focus on a particular POS system called Profitek, manufactured in Vancouver by InfoSpec, which uses an MS SQL server, and can be purchased with a dedicated sales suppression device — the Profitek Zapper.

The cash register/POS market divides along database lines and the market further subdivides when attributes such as operator language preferences are considered. The market for POS systems is both niche and international, and so are sales suppression software applications. It is common, therefore, to find that the same person who sells an ECR/POS system is also able to provide the business with the zapper that can suppress sales recorded in that specific system.

An application that effectively manipulates the digital records of a specific POS system will quickly travel to other countries and states with the associated POS system for which it was designed.

This Article follows the InfoSpec/Profitek system and its associated zapper as it migrated from the Canadian restaurant market into the U.S. market.

Keywords: Sales suppression, Zapper, Phantomware, Retail Sales Tax, Value Added Tax, VAT, RST, Washington State, InfoSpec, Profitek

JEL Classification: K10, K19, K34, K39

Suggested Citation

Ainsworth, Richard Thompson, Sales Suppression: The International Dimension (October 6, 2016). American University Law Review, Vol. 65, No. 5, 2016, Boston Univ. School of Law, Law and Economics Research Paper No. 16-39, Available at SSRN: https://ssrn.com/abstract=2848973

Richard Thompson Ainsworth (Contact Author)

NYU - Graduate Tax Program ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

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