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REFERENCE TITLE: high-tech tax fraud |
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State of Arizona Senate Fifty-third Legislature Second Regular Session 2018
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SB 1386 |
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Introduced by Senator Farnsworth D
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AN ACT
Amending title 42, chapter 1, article 3, Arizona Revised Statutes, by adding section 42-1116.02; amending sections 42-1127, 42-3401 and 42-3453, Arizona Revised Statutes; relating to tax fraud.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Title 42, chapter 1, article 3, Arizona Revised Statutes, is amended by adding section 42-1116.02, to read:
42-1116.02. Department of revenue tax fraud interdiction fund; uses
A. The department of revenue tax fraud interdiction fund is established consisting of fines collected pursuant to section 42-1127.
B. the director shall administer the fund. Subject to legislative appropriation, the director shall:
1. Use fifty percent of the monies in the fund for the purposes of detecting tax fraud and enhancing tax fraud analytics.
2. Transfer fifty percent of the monies in the fund to the attorney general for prosecuting cases of tax fraud.
Sec. 2. Section 42-1127, Arizona Revised Statutes, is amended to read:
42-1127. Criminal violation; classification; place of trial; definitions
A. It is a class 4 felony to:
1. Corruptly or by force or threats of force or injury:
(a) Attempt to intimidate, impede or injure an employee of the department acting in an official capacity.
(b) Obstruct, impede or attempt to obstruct or impede the administration of this title or title 43.
2. Attempt by means of bribery, misrepresentation, intimidation or force or threats of force to obstruct, delay or prevent the communication of information or testimony relating to a violation of this title or title 43 to an employee or officer of the department, or knowingly injure another personally or injure the person's property on account of the person giving, personally or by any other person, any such information or testimony to an employee of the department.
3. Make, forge, alter or counterfeit with the intent to defraud a stamp or meter impression prepared or prescribed by the department under chapter 3 of this title, or to knowingly utter, publish, pass or tender as true a false, altered, forged or counterfeited stamp or meter impression, or to use a stamp provided for and required by chapter 3 of this title which has already once been used, with the intent to evade the tax imposed by chapter 3 of this title.
4. Tamper with, or cause to be tampered with, any metering machine authorized to be used under chapter 3 of this title.
B. It is a class 5 felony to:
1. Purchase, install or use any automated sales suppression device or service or zapper or phantom-ware with the intent to defeat or evade any tax administered pursuant to this article that is due or believed to be due by the taxpayer. In addition, a person that is convicted of a violation of this paragraph:
(a) Is subject to a fine of not more than one hundred thousand dollars or, if a corporation, not more than five hundred thousand dollars. Monies paid as fines shall be deposited in the department of revenue tax evasion interdiction fund established by section 42-1116.02.
(b) Is liable for all taxes, fees, penalties and interest due as a result of the person's use of the automated sales suppression device or service or zapper or phantom-ware.
(c) Shall forfeit all profits associated with the person's purchase or use of the automated sales suppression device or service or zapper or phantom‑ware.
2. Sell, license, purchase, install, transfer or possess any automated sales suppression device or service or zapper or phantom-ware knowing that the purpose of the device is to defeat or evade any tax administered pursuant to this article. In addition, a person that is convicted of a violation of this paragraph:
(a) Is subject to a fine of not more than one hundred thousand dollars or, if a corporation, not more than five hundred thousand dollars. Monies paid as fines shall be deposited in the department of revenue tax evasion interdiction fund established by section 42-1116.02.
(b) Is liable for all taxes, fees, penalties and interest due as a result of the person's use of the automated sales suppression device or service or zapper or phantom-ware.
(c) Shall forfeit all profits associated with the person's sale or use of the automated sales suppression device or service or zapper or phantom‑ware.
B. C. A first‑time violation of this subsection may be designated as a class 1 misdemeanor, but otherwise it is a class 5 felony to:
1. Knowingly fail to pay any tax administered pursuant to this article due or believed due by the taxpayer with intent to evade the tax.
2. Knowingly prepare, present or aid, procure or advise in preparing or presenting any return, affidavit, claim or other document which is fraudulent or is false as to any material matter, whether or not the falsity or fraud is with the knowledge or consent of the taxpayer authorized or required to present the return, affidavit, claim or document.
3. Simulate or falsely or fraudulently execute or sign any license or other required document, or cause the license or document to be falsely or fraudulently executed or advise or aid in such execution, with the intent to conceal or cover up a material fact relating to a tax administered pursuant to this article.
4. Knowingly fail to file a return or supply required information, or falsify or conceal a material fact, document or record, make a false, fictitious or fraudulent statement or representation or make or use a false writing or document knowing it to contain a false, fictitious or fraudulent statement or entry, with intent that the department rely on the false, fictitious or fraudulent statement or entry in determining tax liability under this article.
C. D. A distributor as defined in section 42‑3001 who violates section 42‑3452, subsection A, paragraph 2 is guilty of a class 1 misdemeanor. If the distributor is convicted of a second violation of section 42‑3452, subsection A, paragraph 2, the department may revoke the distributor's license issued pursuant to section 42‑3401.
D. E. A distributor as defined in section 42‑3001 who violates any provision of section 42‑3401, section 42‑3452, subsection A, paragraph 1 or section 42‑3456 is guilty of a class 1 misdemeanor. If the distributor is a licensee under section 42‑3401 and is convicted of a second violation of section 42‑3456, the department may revoke the distributor's license.
E. F. It is a class 3 felony for any person to:
1. Except as provided in section 42‑3457, transport, in an unstamped or unlawfully stamped condition, for the purpose of sale ten thousand or more cigarettes that were subject to the tax imposed by chapter 3, article 2, 6, 7 or 9 of this title.
2. Wilfully sell or offer for sale, in an unstamped or unlawfully stamped condition, ten thousand or more cigarettes that were subject to the tax imposed by chapter 3, article 2, 6 or 7 of this title.
3. Wilfully sell or offer for sale off an Indian reservation ten thousand or more cigarettes that are stamped for on‑reservation sales.
F. G. For the purposes of subsection E F of this section, the possession or transportation in this state at any time by any person, other than a licensed distributor, as defined in section 42‑3001, of ten thousand or more cigarettes in an unstamped or unlawfully stamped condition, other than in interstate shipment consistent with federal contraband cigarette trafficking laws (18 United States Code chapter 114), is presumptive evidence that the cigarettes:
1. Are possessed or transported for the purpose of sale.
2. Are subject to the taxes imposed by chapter 3, article 2, 6, 7 or 9 of this title.
G. H. A person who knowingly sells a luxury on which the tax has not been paid or accounted for as required by chapter 3 of this title is guilty of a class 1 misdemeanor.
H. I. A retailer who possesses any package, bottle or other container containing a luxury which that does not bear the stamps required to be affixed by chapter 3 of this title is guilty of a class 1 misdemeanor.
I. J. A person is guilty of a class 3 misdemeanor who:
1. Is engaged in the business of selling a luxury, either at wholesale or retail, and who knowingly refuses or fails to produce on demand by the department invoices of all luxuries the person purchased or received within two years immediately before the demand, unless the person shows by satisfactory proof that the person is unable to do so for reasons beyond the person's control.
2. Makes a false entry on an invoice, package or container of luxuries, or who with intent to avoid the taxes imposed by chapter 3 of this title presents a false entry for inspection of the department.
3. Knowingly prevents or hinders the department from making a full inspection of any place where a luxury is sold or stored, or knowingly prevents or hinders the inspection of invoices, books, records or papers required to be kept.
4. Violates any provision of this article or an administrative rule adopted by the department for which no other penalty is prescribed.
J. K. The place of trial for the offenses enumerated in this section is in the county of residence or principal place of business of the defendant or defendants. If the defendant has no residence or principal place of business in this state, the trial shall be held in Maricopa county.
K. L. A person who defrauds this state by violating any requirement under chapter 3 of this title, with criminal intent to evade any such requirement, is guilty of a class 4 felony and shall pay a penalty of three times the retail value of the cigarettes involved.
L. M. A person who knowingly violates any requirement under chapter 3 of this title, with the criminal intent to evade any such requirement, is guilty of a class 6 felony.
M. N. A person who knowingly sells or offers to sell off an Indian reservation more than two thousand but less than ten thousand cigarettes that are stamped for on‑reservation sales, with the criminal intent to evade the tax imposed by chapter 3 of this title, is guilty of a class 5 felony.
N. O. Any distributor, as defined in section 42‑3001, who sells or possesses more than two thousand cigarettes with false manufacturing labels or cigarettes with counterfeit tax stamps, with the criminal intent to evade any requirement under chapter 3 of this title, is guilty of a class 5 felony and shall pay a penalty of:
1. For a first violation involving two thousand or more cigarettes, two thousand dollars or three times the retail value of the cigarettes, whichever is greater.
2. For a subsequent violation involving two thousand or more cigarettes, fifty thousand dollars or three times the retail value of the cigarettes, whichever is greater.
O. P. For the purposes of this section: ,
1. "Automated sales suppression device" means a computer software program that falsifies the electronic records of electronic cash registers and other point-of-sale systems, including transaction data and transaction reports.
2. "Electronic cash register" means an electronic or computer system that records a register or supporting data for the purpose of computing, storing or processing retail sales and other transaction data.
3. "Luxury" means any article, object or device on which a tax is imposed under chapter 3 of this title.
4. "Phantom-ware" means hidden or concealed computer software or hardware of an electronic cash register or other point-of-sale system that can create a second set of records or eliminate or manipulate transaction records that may or may not be preserved in digital formats in order to misrepresent the existence or the true record of a transaction in the electronic cash register.
5. "Point-of-sale system" means an electronic device that is used to process card payments at retail locations.
6. "Transaction data" means data relating to a commercial transaction that includes data identifying each purchased item, the price for each item, a taxability determination for each item, a segregated tax amount for each taxed item, the amount of cash or credit tendered, the net amount of change returned to the customer, the date and time of the purchase, the name, address and identification number of the vendor and the receipt or invoice number of the transaction.
7. "Transaction report" means any means or method of reporting, displaying or generating transaction data.
Sec. 3. Section 42-3401, Arizona Revised Statutes, is amended to read:
42-3401. Tobacco distributor licenses; application; conditions; revocations, suspensions and cancellations
A. Every person acquiring or possessing for the purpose of making the initial sale or distribution in this state of any tobacco products on which a tax is imposed by this chapter shall obtain from the department a license to sell tobacco products. The application for the license shall be in the form provided by the department and shall be accompanied by a fee of twenty‑five dollars for each place of business listed in the application. The form shall state that the identity of the applicant will be posted to the department's website for public inspection. The application for a license shall include the applicant's name and address, the applicant's principal place of business, all other places of business where the applicant's business is conducted for the purpose of making the initial sale or distribution of tobacco products in this state, including any location that maintains an inventory of tobacco products, and any other information required by the department. If the applicant is a firm, partnership, limited liability company, limited liability partnership or association, the applicant shall list the name and address of each of the applicant's members. If the applicant is a corporation, the application shall list the name and address of the applicant's officers and any person who directly or indirectly owns an aggregate amount of ten percent or more of the ownership interest in the corporation. If a licensee is a corporation, firm, partnership, limited liability company, limited liability partnership or association, the licensee under this subsection shall notify the department in writing within thirty days after any change in membership, legal entity status or ownership of more than fifty percent of the total ownership interest in a single transaction. If a licensee changes its business location, the licensee under this subsection shall notify the department within thirty days after a change in location. If the licensee is making a change in its business location by adding or replacing one or more additional places of business that are not currently listed on its application, the licensee must remit a fee of twenty‑five dollars for each additional place of business.
B. For the purposes of subsection A of this section, an applicant with a controlling interest in more than one business engaged in activities as a distributor shall apply for a single license encompassing all such businesses and list each place of business in its application. For the purposes of this subsection, "controlling interest" means direct or indirect ownership of at least eighty percent of the voting shares of a corporation or of the interests in a company, business or person other than a corporation.
C. The department shall issue a license authorizing the applicant to acquire or possess tobacco products in this state on the condition that the applicant complies with this chapter and the rules of the department. The license:
1. Shall be nontransferable. A licensee may not transfer its license to a new owner when selling its business, and any court‑appointed trustee, receiver or other person shall obtain a license in its own name in cases of liquidation, insolvency or bankruptcy or pursuant to a court order if the business remains in operation as a distributor of tobacco products. A licensee shall apply for a new license if it changes its legal entity status or otherwise changes the legal structure of its business.
2. Shall be valid for one year unless earlier revoked by the department.
3. Shall be displayed in a conspicuous place at the licensee's place of business. If the licensee operates from more than one place of business, the licensee must display a copy of its license in a conspicuous place at each location.
D. As a condition of licensure under this section, an applicant agrees to the following conditions:
1. A person may not hold or store any tobacco products, whether within or outside of this state, for sale or distribution in this state by or on behalf of a distributor at any place other than a location that has been disclosed to the department pursuant to subsection A of this section. This paragraph does not include a person holding or storing tobacco products by or on behalf of the distributor when the tobacco products are in transit to a distributor or retailer as part of a lawful sale.
2. All tobacco products held or stored, whether within or outside of this state, for sale or distribution in this state by or on behalf of a distributor:
(a) Shall be accessible to the department during normal business hours without a judicial warrant or prior written consent of the distributor.
(b) May not be held or stored at a residential location or in a vehicle.
E. A person who is convicted of an offense described in section 42‑1127, subsection E F is permanently ineligible to hold a license issued under this section.
F. The department may not issue or renew a license to an applicant and may revoke a license issued under subsection C of this section if any of the following applies:
1. The applicant or licensee owes one thousand dollars or more in delinquent taxes imposed on tobacco products under this chapter that are not under protest or subject to a payment agreement.
2. The department has revoked any license held by the applicant or licensee within the previous two years.
3. The applicant or licensee has been convicted of a crime that relates to stolen or counterfeit cigarettes.
4. The applicant or licensee has imported cigarettes into the United States for sale or distribution in violation of 19 United States Code section 1681a.
5. The applicant or licensee has imported cigarettes into the United States for sale or distribution without fully complying with the federal cigarette labeling and advertising act (P.L. 89-92; 79 Stat. 282; 15 United States Code section 1331).
6. The applicant or licensee is in violation of section 13‑3711 or section 36‑798.06, subsection A.
7. Pursuant to section 44‑7111, section 6(a), the applicant or licensee is in violation of section 44‑7111, section 3(c).
8. The civil rights of the applicant or licensee have been suspended under section 13‑904. An applicant or licensee whose civil rights have been suspended will be ineligible to hold a license for a period of five years following the restoration of the applicant's or licensee's civil rights.
G. In addition to any other civil or criminal penalty and except as otherwise provided in this section, the department may suspend or revoke a license issued under subsection C of this section if the person violates any requirement under this title more than two times within a three-year period or fails to otherwise maintain the conditions of licensure in this section.
H. The department shall publish on its website the names of each person who is issued a license under subsection C of this section, including any trade names or business names used by the licensee. The department shall update the published names at least once each month.
I. A person may not apply for or hold a distributor's license if that person does not engage in the activities described in subsection A of this section. In addition to any other applicable penalty, the department may:
1. Revoke the license of any licensee that fails to file a return or report required under this chapter for twelve consecutive months.
2. Cancel the license of any licensee that fails to incur any tax liability under this chapter for twelve consecutive months.
J. Any suspension, revocation, cancellation or denial of a license issued under this section by the department must comply with section 41‑1092.11, subsection B.
K. Notwithstanding any other law, for the purposes of subsection F, paragraphs 1 and 2 of this section, section 42‑1127, subsection C D and section 42‑3461, subsection B, if a distributor has listed in its application more than one place of business, any suspension, revocation, cancellation or nonrenewal of the distributor's license shall apply only with effect to remove the place of business or business location at which the activity occurred from the distributor's license. If such a removal occurs, the distributor shall be subject to restrictions that the department prescribes by rule.
Sec. 4. Section 42-3453, Arizona Revised Statutes, is amended to read:
42-3453. Presumption of tax on unstamped cigarettes
Except as otherwise provided in section 42‑1127, subsection F G and section 42‑3452, subsection B, for the purpose of proper administration and to prevent evasion of the taxes imposed by this chapter, until the contrary is established, it is presumed that cigarettes that are sold, distributed, used or consumed by a person in this state, but not placed in packages or containers on which official tax stamps are affixed, are intended for first sale by the person and are subject to the taxes imposed by this chapter.