Another Reason why New Hampshire Should Avoid the Sales Tax

The Kennebec Journal in central Maine is reporting a new plaque for Maine tax officials–a computer program called the “Sales Tax Zapper” designed to avoid Maine’s sales tax:

But some lawmakers are concerned the state may be losing significant revenue from the latest computer technology, called “zappers” because they alter sales records in a more subtle way that still yields a lot of cash for the seller.

“It’s clearly subversive and against our process of treating people fairly, equitably and everyone paying their fair share of the tax burden,” said Rep. Garry Knight, R-Livermore Falls, co-chairman of the Legislature’s Taxation Committee. “I would suggest that zappers be outlawed in this state.”

He said his panel has not looked at the expanding use of technology to cheat on tax laws, but he said if it is happening in other states, Maine should assume some is happening here.

With a zapper program, a $6 burger-and-fries combo at a restaurant, for example, could be altered by the software to reflect a $4 burger sale. In Maine, that would mean 14 cents going to the restaurant owner that should be paid in taxes. In other states, that has added up to a lot of lost revenue.

A retailer can have the program change the sales price of an item. For example, a $20 shirt is reported as selling for $18. In Maine, that’s a loss of a dime; but all of those nickels, dimes and pennies add up.

A retailer can have the program change the sales price of an item. For example, a $20 shirt is reported as selling for $18. In Maine, that’s a loss of a dime; but all of those nickels, dimes and pennies add up.

“Tax evasion is something that we always should take seriously,” said Rep. Seth Berry, D-Bowdoinham, the lead Democrat on the Taxation Committee. “Zappers are something that Maine Revenue Services is not able to track. It is a very difficult enforcement problem.”

He said Maine should watch what other states are doing and consider adopting policies and laws that seem to work the best. He agreed Maine may want to outlaw the computer programs, although he is not sure how effective that may be.

Of course this cat-and-mouse game between businesses and the Maine Revenue Service also increases tax compliance costs for everyone. Now aren’t you glad New Hampshire doesn’t have a sale tax 🙂

Cigarette Taxes and Smuggling in New Hampshire

Michael Lafaive and Todd Nesbit of the Mackinac Center have updated their study on cigarette taxes and smuggling (pdf).  I don’t need to summarize this study because the good folks at Mackinac have already put together a excellent video summary.  This is required viewing for you out there that believe a few cents don’t influence people’s behavior . . . turns out it will drive a man through a brick wall, literally.

Additionally, since New Hampshire has more than tripled the cigarette tax to $1.78 per pack from $0.52 only five years ago, the study does not yet fully reflect the impact of these tax hikes.  For instance, it was recently reported that cigarette sales in Maine are up 5 percent in the first half of 2010:

With New Hampshire no longer the land of cheap cigarettes, more Mainers may be buying their smokes at home rather than venturing across the border, said Mike Allen, research director with Maine Revenue Services.

“We talked to some of the wholesalers and they indicated they were seeing a shift in their sales from New Hampshire stores along the border to Maine stores along the border,” Allen said. “That reinforced for us a little bit that that may be what’s going on.”

As such, with higher cigarette taxes, New Hampshire can expect commercial smuggling into the state to increase while casual and international smuggling to decrease.  Not only will this reduce cigarette tax revenue, it will mean lower business taxes across-the-board as stores and their supplies see reduced sales.  In the long-run, the overall impact may cost New Hampshire more in lost business taxes than was raised in the higher cigarette tax . . . wonder if we’ll ever see a study like that?