either you're way too optimistic, or i'm way too pessimistic, but lemme tell you, we do not see eye-to-eye on that point.
Concretely, $1.20 with 7% tax is $1.284, do you believe merchants would charge you $1.29?
That said, do I think that someone, somewhere, has/does/will out of malice abuse this specific oft-ignored dark corner of the marketplace, for personal gain? Yeah, I absolutely think that:
3-4 cents isn't a lot. Unless it's added up by all of the people shopping in those places over the course of a year. The incentive to cheat the system is there, therefore the system will 100% be cheated. That's The American Way, in my experience.
This kind of fraud would be so easy to detect I just can't see it occurring on any large scale. The problem would be with small "mom and pop" businesses that could do it for some time without being noticed.