What kind of sensor is this?
Looks like a reflective optical sensor to me, but I have no way of knowing.  The arrangement looks like an LED/photoreceptor pair.  The LED may well be IR.  I suspect this would be for sensing empty tape, even though it's not functioning.  It may not be supported by the current firmware version, or it may be enabled in a cadillac version of the dispenser.  

You might hang out in the dark for a bit with the unit on.  IR LED's often bleed into the visible, especially when your eyes are dark adapted.  You may see the orange glow after a bit.