Remote work continues to persist as a popular option for a variety of jobs, even amidst company desires to implement return-to-office policies. This trend goes beyond just office work, extending to sectors such as New York’s restaurant scene, where remote-based cashiers from the Philippines are increasingly commonplace. Bloomberg and Gallup reports on this new phenomenon.
Sales tax calculation is not hindered by this change – New York’s tax policies still apply to any transactions initiated within the state. What does raise an eyebrow is how state revenue departments will be able to audit businesses conducting remote checkouts and offshore payment processing. With physical records not available at the places of business, tax authorities face potentially tricky circumstances in their auditing process.
If these authorities are unable to view transaction logs, sales tax suppression becomes a valid concern. In response, the proposal is to encourage customers to obtain and scan their receipts. This would generate a form of ‘shadow record’ of transactions to serve as a basis for audits.
A proposed solution involved an innovation where customers scanning their receipts would enter them into a lottery. This rewards system, as surprising as it may sound, has been implemented in various global contexts, leading to an increase in compliance. Studies from The Economist, CMI and others showcase the feasibility of this approach.
For example, consider a typical restaurant in New York City operating with a foreign-based cashier conducting the payment processing. In this scenario, there is potential for the transaction record to bypass the actual restaurant, thus enabling sales tax levies meant for the government to instead be retained by the business owner.
The customer is then turned into a potential beacon of truth in the transaction process, meriting the concept of having customers scan their receipts to create a database for the tax authority. This helps reduce opportunity for sales suppression by the businesses.
The essence of addressing sales suppression lies in ensuring unmanipulated access to data by tax authorities. Inspired by methods used in Europe and elsewhere, a lottery system could incentivize customers to provide their receipt information shortly after a purchase. The implementation of such systems has seen varying degrees of success across the globe, from minimal impact in some African nations to notable success in larger economies such as Brazil and China.
Deputizing customers to help create a near-complete record of transactions effectively brings businesses into compliance, as they could not predict which receipts will enter the lottery and thus could face penalties for any deleted transactions. The balance between lottery payouts and penalties is a key element for efficiency in such a system.
While customers might not be inherently inspired to prevent businesses from pocketing sales tax, a potential financial incentive through tax lotteries could be a robust deterrent against fraudulent practices.
Author Note: Andrew Leahey is a tax and technology attorney, principal at Hunter Creek Consulting, and adjunct professor at Drexel Kline School of Law.
Fore more insights, visit Andrew Leahey’s column in Technically Speaking.