Testimony of Assistant District Attorney Jill

Mariani,
New York County District Attorneys Office
Before the New York State Senate Public Forum
Regarding
Modernizing Sales Tax Collection in New York
State
April 6, 2016
Good afternoon. My name is Assistant District Attorney
Jill Mariani. On behalf of New York County District Attorney
Cyrus R. Vance, Jr., I thank Senator Krueger for inviting my
Office to testify at todays public forum.
Any effort to revamp New Yorks sales tax collection
requires an examination of automated sales suppression
software applied by merchants to underpay state and
municipal taxes.

Merchants who use such software are

stealing sales tax collected from their customers, stealing

revenue from New York State and New York City, and
creating an uneven playing field for business owners. The
victims of their misconduct are New York taxpayers and
honest New York business men and women in short, your
constituents.
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Tax evasion through the application of automated sales

suppression software occurs throughout the nation. At least
25 other states have passed statutes outlawing automated
sales suppression software.

My Office urges New York

State legislators to follow suit, and pass reform measures

that

give

prosecutors

stronger

tools

to

deter

and

appropriately punish those who evade taxes through these

methods, and to guarantee an equitable playing field for
honest merchants.
As you know, in May 2015 my Office released a Grand
Jury Report that revealed tax evasion by merchants in New
York County perpetrated through various forms of automated
sales suppression software. In that Report, the Grand Jury
made two recommendations warranting legislative action.
Since this Report has been provided to you, I will not go into
the details here. Instead, I will describe actions taken by my
Office in response to the Grand Jurys recommendations and
supplement facts gathered since the Report was issued,
almost one year ago.

In the first recommendation, the Grand Jury urged the

legislature to impose felony charges and monetary penalties
on individuals who evade taxes by falsifying electronic data
through the application of automated sales suppression
software. I will briefly address each of the four legislative
proposals that advance the goal of this recommendation.
The first legislative proposal calls for a statute making
it a felony offense to manufacture, create, sell, buy, possess,
install, maintain, enhance, or use any software for the
purpose of evading the accurate determination and payment
of taxes, or the to attempt to do so.

The Grand Jury

required that such offense apply to all taxes, including sales

tax, personal income tax, corporation tax, city business tax,
and withholding tax, and to all software, whether it is
embedded in the hardware, maintained on an external
device, or accessed remotely through the internet or any
other means.

My Office has drafted language creating a

crime entitled Defrauding the Government in the First

Degree, as a new section of the Penal Law. Our submission
also includes, as an alternative approach, adding the new
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offense to both the Tax Law and the New York City
Administrative Code.

Without this amendment, persons

who facilitate this conduct elude prosecution.

Senator Krueger, you were among the first legislators
in New York State, and perhaps in the nation, to recognize
the need for legislation outlawing such conduct. However,
at least a half decade has passed since that time, and New
York does not have a criminal statute that squarely
addresses this method of evasion.

In stark contrast, as I

noted earlier in my testimony, at least half of the states have

passed laws banning such software, the most recent statute
enacted by South Dakota in March of this year, and at least
two other states are considering similar legislation.

It is

time for New York to do the same.

The Grand Jurys second legislative proposal requested
the creation of a felony-level conspiracy crime for those who
collude with merchants to defraud the government of taxes
through the application of automated sales suppression
software. My Office has proposed language amending the
offense of Conspiracy in the Fourth Degree in the Penal Law
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to subject software providers and others who scheme with

cheating merchants to such augmented treatment.
The Grand Jurys third legislative proposal invited the
New York lawmakers to amend the offense of Criminal Tax
Fraud in the Tax Law, as well as the offense of City Criminal
Tax Fraud in the New York City Administrative Code, to
include a new tax fraud act targeting those who evade
taxes by means of automated sales suppression programs.
Accordingly, my Office has proposed as a ninth tax fraud
act any conduct involving the use of an automated sales
suppression device.
The Grand Jurys final legislative proposal sought
enhanced pecuniary measures for those who evade taxes
through automated sales suppression software. The Grand
Jury Report specified one way to implement such a sanction:
Those who perpetrate tax evasion through the use of
automated sales suppression software must be required to
reimburse the public for the cost of experts, such as
computer specialists and forensic financial investigators,
and

the

cost

of

sophisticated
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equipment

needed

to

investigate and prosecute these crimes. Such sanctions are

fitting because it is extremely costly to detect automated
sales suppression software, and to reconstruct the true
financial data necessary to compute the amount of the
evaded tax.
Other examples of monetary sanctions can be found
among the statutes enacted by other states. Some statutes
impose a criminal fine or a civil penalty equal to, or some
multiple of, the amount of the tax evaded as a result of the
automated sales suppression software.

Other statutes

require the perpetrator to forfeit all profits or proceeds

derived

from

the

application

of

the

automated

sales

suppression software.
Regardless of the economic measures selected by the
New York legislature, the dollar amount must be big enough
to dissuade software providers from assisting merchants in
their tax evasion schemes.
In its second recommendation, the Grand Jury sought a
mandate that all merchants use a standard device to
electronically record their sales.
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Such a device will assist

law enforcement to calculate the true amount of unreported

sales and the amount of tax owed.

It will also enable

auditors to complete a greater number audits in a shorter

time frame, without increasing the size of the workforce.
Although this second recommendation arose from an
investigation about automated sales suppression software,
this recommendation has application to all sales tax audits.
In

late

February

2016,

attended

workshop

sponsored by the Federation of Tax Administrators that

focused on the history and the prominence of automated
sales suppression software in our sister states. In a two-day
period, it became quite clear that the uniform capture of
sales data is beneficial to the sales tax audit process
regardless of whether the merchant is using an automated
sales suppression device or some other technique for tax
evasion. The discussion at the workshop underscored that
sales tax audit reform is a national issue.
A standard device need not disrupt the merchants
point of sale system.

Since existing law mandates that a

wide array of sales records be made available to auditors,

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the honest taxpayer is not burdened with additional

recordkeeping.
We leave to other participants at this forum the task of
describing the existing technologies that can combat sales
suppression

and

the

cost

of

its

implementation.

Nevertheless, we are confident that a pilot project, even one

limited to the five boroughs of the City of New York, will
provide data detailing a significant decline in tax fraud and
a substantial increase in collected revenues to justify such
modernization.
Stemming the tide of sales tax evasion to return
substantial revenues to our cash-strapped state will fund a
range of state and municipal services. More importantly, it
will encourage the law-abiding merchants to continue to pay
their fair share, and it will deter dishonest merchants from
risking the grave consequences of their evasion. My Office
urges the New York legislature to consider and implement
the reform measures recommended by the Grand Jurors, the
voice of our citizenry.
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