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SALT LAKE CITY — As long as there have been taxes, unscrupulous business owners have been concocting ways to cheat tax collectors.
In the digital age, the use of software that deliberately hides sales in electronic cash registers, thereby ripping off the taxman, has become more prevalent, say Rep. Patrice Arent, D-Salt Lake.
In an attempt to stay ahead of that trend, Arent has introduced legislation to prohibit the use, purchase, installation or sale of so-called "phantomware." On Wednesday, the House Public Utilities and Technology Committee endorsed HB96, sending it to the Utah House for its consideration.
Arent said she was not aware of specific instances of Utah businesses using automated sales suppression devices, but their use has proliferated elsewhere.
Widespread fraud was detected in Canada, where a large-scale government audit of restaurants found one-third were using phantomware to hide sales to avoid remitting taxes.
Arent said phantomware's use is so widely available that "it is probably being used in Utah."
In New York state, government officials conducted a sting operation by "opening" a restaurant to determine whether businesses that market phantomware would attempt to sell them the software.
"Seventeen (of 20 cash register vendors) tried to sell them the 'zapping software,'" Arent said. "It is really very prevalent."
Arent said she learned about the issue while attending a National Conference of State Legislators convention. A number of states are considering new laws to prohibit the use and sale of this software, she said.
Dave Davis, president of the Utah Retail Merchants Association, said retailers support HB96.
Many businesses operate on thin profit margins, which means law-abiding merchants are at a competitive disadvantage to those that hide sales using phantomware.
"They're absconding with consumers' money that's supposed to be going to the tax commission," he said.
HB96 gives state regulators the tools they need to prohibit its use and sanction those who violate the law, Arent said.
Violators could be charged with a third-degree felony for a first offense and fined up to twice the amount of taxes due the state. Subsequent offenses can be charged as second-degree felonies.
Email:mcortez@ksl.com
