HOUSE OF REPRESENTATIVES	H.B. NO.	958
TWENTY-SEVENTH LEGISLATURE, 2013		H.D. 1
STATE OF HAWAII

A BILL FOR AN ACT

RELATING TO TAX FRAUD.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that technology has made it possible to skim large amounts of sales receipts while at the same time making it virtually undetectable in point of sale terminals through the use of automated sales suppression devices, zappers, and phantom-ware. These devices bring new technologies to an old tax fraud. For example, one of the largest tax fraud cases in Connecticut involved the use of a zapper to hide $17,000,000 in receipts. Likewise, a taxpayer in Michigan skimmed $20,000,000 in cash sales through the use of a zapper. Zapper frauds originated in Europe but have spread to the United States, Canada, Brazil, Australia, and many other countries.

The purpose of this Act is to prevent tax fraud by prohibiting the use, purchase, sale, installation, update, maintenance, upgrade, transfer, possession, or creation of automated sales suppression devices, zappers, and phantom-ware.

SECTION 2. Chapter 231, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§231- Automated sales suppression devices, zappers, or phantom-ware; prohibited. (a) As used in this section:

"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 any other means, that falsifies the electronic records of electronic cash registers and other point-of-sale systems, including transaction data and transaction reports.

"Electronic cash register" means a device that keeps a register of 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.

"Person" includes one or more individuals, a company, corporation, a partnership, an association, or any other type of legal entity, and also includes an officer or employee of a corporation, a partner or employee of a partnership, a trustee of a trust, a fiduciary of an estate, or a member, employee, or principal of any other entity, who is under a duty to perform for the benefit of another and is principally responsible for the entity.

"Phantom-ware" means a hidden programming option embedded in the operating system of an electronic cash register or hardwired into the electronic cash register, which 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.

"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 transaction, the name, address and identification number of the retailer, and the receipt or invoice number of the transaction.

"Transaction report" means a report that includes sales, taxes collected, media totals, and discount voids at an electronic cash register and 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 knowingly uses, purchases, sells, installs, updates, maintains, upgrades, transfers, possesses, or creates any automated sales suppression device, zapper, or phantom-ware shall:

(1) Be guilty of a class C felony and be fined not more than $100,000 or imprisoned for not more than five years, or both;

(2) Be liable for all taxes, penalties, and interest due to the State as a result of such use, purchase, sale, installation, update, maintenance, upgrade, transfer, possession, or creation; and

(3) Forfeit all profits resulting from the use, purchase, sale, installation, update, maintenance, upgrade, transfer, possession, or creation of the automated sales suppression device, zapper, or phantom-ware.

(c) An automated sales suppression device, zapper, or phantom-ware and any device containing an automated sales suppression device, zapper, or phantom-ware device or software shall be contraband, and shall be subject to confiscation by the department."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on January 1, 2014.