File No. 570

House of Representatives, April 23, 2012

The Committee on Finance, Revenue and Bonding reported through REP. WIDLITZ of the 98th Dist., Chairperson of the Committee on the part of the House, that the substitute bill ought to pass.

AN ACT CONCERNING "ZAPPERS".

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) (Effective July 1, 2012) (a) As used in this section:

(1) "Automated sales suppression device" or "zapper" means 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.

(2) "Electronic cash register" means a device that keeps a register or supporting documents through the means of an electronic device or computer system designed to record transaction data for the purpose of computing, compiling or processing retail sales transaction data in whatever manner.

(3) "Phantom-ware" means a hidden, preinstalled 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 may 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.

(4) "Transaction data" means information that includes 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 retailer, and the receipt or invoice number of the transaction.

(5) "Transaction report" means a report that includes, but need not be limited to, sales, taxes collected, media totals and discount voids at an electronic cash register that is printed on cash register tape at the end of a day or shift, or a report that documents every action at an electronic cash register that is stored electronically.

(b) Any person who wilfully and knowingly sells, purchases, installs, transfers or possesses any automated sales suppression device or phantom-ware shall (1) be fined not more than one hundred thousand dollars or imprisoned for not less than one or more than five years, or both, (2) be liable for all taxes, penalties and interest due to the state as a result of such sale, purchase, installation, transfer or possession, and (3) forfeit all profits resulting from the sale or use of such automated sales suppression device or phantom-ware.

(c) An automated sales suppression device or phantom-ware and any device containing such device or software shall be contraband, and shall be subject to confiscation by the Commissioner of Revenue Services.

The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.

OFA Fiscal Note

State Impact:

Note: GF=General Fund

Municipal Impact:

Explanation

The bill makes it illegal for anyone to willfully and knowingly possess or use a “zapper” or “phantom-ware” both of which allows the user to falsify sales records. This results in a potential revenue gain, to the extent that retailers in the state utilize “zappers” or “phantom-ware.” The actual revenue impact is indeterminate at this time.

For illustrative purposes, if 1.0% of all retail sales were falsified by either “zappers” or “phantom-ware,” the associated state revenue loss is estimated to be approximately $16.2 million annually. The estimated revenue from the municipal share of the state sales tax is estimated to be $260,000. Under the bill, if the Department of Revenue Services (DRS) identified the entire $16.2 million in audits, the state would see a revenue gain of the $16.2 million plus any resulting penalties or interest. Municipalities would see a revenue gain of $260,000 from their proportion of the sales tax.

Ensuring compliance by DRS would be included as part of the normal course of sales tax audits. Consequently, there is no cost to the agency.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.

OLR Bill Analysis

sHB 5421

AN ACT CONCERNING "ZAPPERS".

SUMMARY:

This bill (1) makes it a crime to willfully and knowingly sell, purchase, install, transfer, or possess an automated sales suppression device (i.e., “zapper”) or “phantom-ware” and (2) subjects violators to a fine of up to $100,000, one to five years in prison, or both.

Violators also (1) are liable for all taxes, penalties, and interest due as result of the crime and (2) forfeit all profits associated with the sale or use of the zapper or phantom-ware. The bill makes zappers and phantom-ware, and any device on which they are installed, contraband and allows the Department of Revenue Services commissioner to confiscate them.

EFFECTIVE DATE: July 1, 2012

ZAPPERS AND PHANTOM-WARE

Under the bill, an “automated sales suppression device” or “zapper” is a software program that falsifies electronic cash register and other point-of-sale system electronic records, including transaction data (e.g., items purchased, price and taxability of each item, and amount tendered and returned) and transaction reports. It can be carried on a memory stick or removable compact disc and accessed through an internet link or other means. “Transaction reports” are those (1) printed on cash register tape at the end of a day or shift that include sales, taxes collected, media totals, and discount voids at an electronic cash register or (2) stored electronically that document every action at an electronic cash register.

“Phantom-ware” is a hidden programming option embedded in or hardwired into an electronic cash register, whether preinstalled or installed later, which may be used to (1) create a virtual second till or (2) eliminate or manipulate sales records, that may or may not be digitally preserved, to represent the true or manipulated record of electronic cash register transactions.

COMMITTEE ACTION

Finance, Revenue and Bonding Committee

Joint Favorable Substitute