Earlier this week Michigan Attorney General Bill Schuette announced that a sushi restaurant outside Detroit has been ordered to pay nearly $1 million in restitution and to serve a five-year sentence of probation for embezzling sales tax paid by customers and underreporting its income. The restaurant, Sushi Samurai Inc., entered a guilty plea in October, and its owners, Dong and Christina Chang, pleaded guilty earlier this month to filing false monthly sales tax returns and filing false joint income tax returns. They will be sentenced on December 15, 2017.
The Changs were charged after a joint investigation by the Department of Attorney General and the Department of Treasury into whether the restaurant was using point of sale sales suppression software, which is illegal under Michigan law. During the investigation, it was determined that sales in Sushi Samurai’s records were significantly higher than those reported to the state. The investigation further determined that the restaurant used “zapper” software to delete thousands of sales from its point of sale records. The investigation revealed that the Changs were found to have embezzled over $170,000 in sales receipts, and they failed to report over $2.5 million in sales on income tax returns between 2012 and 2016. The Changs used this money for payment of business and personal expenses.
We previously wrote about the Justice Department’s efforts to crack down on the use of tax suppression software by charging a software salesman in Seattle who worked for a Canadian company that sold “point of sale” program that enabled restaurants to underreport their sales. Historically, state law enforcement agencies, not the Justice Department or Internal Revenue Service, have taken the lead in cracking down on the use of revenue suppression software. In early 2016, the Attorney General of Washington filed what he called the “first-of-its-kind” criminal case against a restauranteur, Yu-Ling Wong, for allegedly using sales suppression software to avoid paying nearly $400,000 in state sales tax. That case began as a routine audit by the Washington State Department of Revenue, which trains its auditors to detect the use of revenue suppression software. Auditors noted an unusual change in cash receipts, as compared to the restaurant’s historical cash receipts, determined that the restaurant’s point-of-sale system could not be trusted, and eventually uncovered the use of Zapper software.
Many states have passed laws outlawing the use of revenue suppression software, including Washington, Michigan, Florida, Georgia, Utah, and West Virginia, and others are considering proposals to enact such laws. And the problem is not just confined to the United States. In a 2013 report entitled “Electronic Sales Suppression: A Threat to Tax Revenues,” the Organisation for Economic Co-operation and Development concluded that revenue suppression software “facilitate[s] tax evasion and result[s] in massive tax loss globally.”
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