To help combat them, BloombergBusienssweek reports that five states have enacted legislation outlawing them ("State governments target tax-cheating software" by Adams, 4/3/12). The states: Florida, Georgia, Maine, Utah and West Virginia. This article also notes:
Of course, it is not only the states losing money - so is the federal government. I wonder if any of this is factored into the recent tax gap estimates from the IRS of a $450 billion annual tax gap.
Legislation outlawing the sale or use of these devices sounds like a good first step, but the problem is that people already willing to break the law are unlikely to be deterred by another law they might also find is easy to skirt. The devices can also likely be purchased from outside of the U.S. And there are alternatives such as the old-fashioned approach of just not reporting cash sales.
Additional solutions? There have been proposals in the past to require small businesses to use a single bank account for their revenues and deductible expenses so that reporting from the bank can help the IRS and state tax agencies know what happened. See for example, page 261 of this 2011 GAO report. This isn't perfect, but should help.
What do you think?