Source: https://www.whistleblowerlawyerblog.com/court_allows_ny_tax_whistleblo_1/
Timestamp: 2019-04-23 18:05:13+00:00

Document:
The Court also dismissed the Complaint’s unnecessary conspiracy count, by holding that a corporation cannot conspire with its own subsidiaries.
Most state False Claims Acts mirror the federal law, which excludes tax cases from the types of cases that whistleblowers (known as “relators”) may bring as “qui tam” cases. Attorney General Eric T. Schneiderman as a legislator had a lead role in enacting New York’s current False Claims Act.
AG Scheiderman and his Senior Advisor and Counselor Gregory Krakower have warmly welcomed tax whistleblowers and their attorneys to file tax qui tam cases in New York. The Attorney General has established a Taxpayer Protection Bureau within his office led by Randall Fox, whom I have found very approachable and receptive to these cases.
For whistleblower lawyers who already have pending IRS Whistleblower claims that also have New York state tax elements, the New York Taxpayer Protection Bureau holds great promise. The IRS and New York need to amend their information sharing agreement so that the IRS may share information and resources with the new Taxpayer Protection Bureau, which receives the whistleblower filings. Ideally, the IRS and the N.Y. Taxpayer Protection Bureau should be able to assist each other in joint audits when appropriate–especially in cases of complexity.
We congratulate the NY AG and the Taxpayer Protection Bureau on this recent decision that recognizes the validity of this significant case.
BY ERIC T. SCHNEIDERMAN, ATTORNEY GENERAL FOR THE STATE OF NEW YORK, AND STATE OF NEW YORK, EX REL.
Defendants Sprint Nextel Corp. and its wholly-owned subsidiaries, Sprint Spectrum L.P., Nextel of New York, Inc., and Nextel Partners of Upstate New York, Inc. (collectively, “Sprint”), move, pursuant to CPLR 3211(a)(5) and (7), to dismiss the Complaint in this tax enforcement action.
This case arises out of a qui tam action pursuant to the New York False Claims Act, State Finance Law § 189. Empire State Ventures, LLC initially commenced the action, pursuant to State Finance Law § 189, essentially alleging that Sprint, mobile telecommunications service providers, failed to collect or pay New York sales taxes on receipts from the sale of certain wireless telephone services. After an investigation, plaintiff, People of the State of New York, by Eric T. Schneiderman, Attorney General for the State of New York, intervened and filed a superceding Complaint, also alleging claims under the State Finance Law, as well as claims under the Tax Law and Executive Law. The Attorney General claims, in essence, that Sprint knowingly filed false tax returns and underpaid New York sales taxes on its mobile telecommunications offerings in order to gain an advantage over its competitors.
The superceding Complaint includes the following factual allegations, which, on this motion to dismiss, are accepted as true. From 2002 to the present, Sprint has sold wireless telephone calling plans to New York customers for a set number of minutes per month at fixed monthly recurring access rates. Customers incur the fixed monthly recurring access charges regardless of whether they actually use all of the available minutes in a given month, or whether they make interstate or intrastate charges. Customers also incur overage charges, on a per-minute basis, for any minutes used in excess of the monthly allotment. Sprint issues monthly invoices, which do not distinguish between interstate and intrastate usage, but rather, include the fixed monthly recurring access charges, any overages charges, and charges for sales taxes.
Beginning in July 2005, Sprint implemented a nationwide program of unbundling its wireless offerings. As such, Sprint began treating part of its fixed monthly access charges for wireless voice services as if they were charges for interstate calls charged on a per-minute basis. The monthly invoices from defendants continued to identify the charges as fixed monthly recurring access charges. However, Sprint did not collect or pay New York sales taxes on the interstate calls. Sprint also submitted monthly and quarterly State sales tax filings reflecting only the amount of sales taxes it collected for intrastate calls. The submissions offer very little insight into the standards Sprint used to identify each component of the unbundled charges.
The superceding Complaint alleges that Sprint intentionally avoided more than $100 million in New York sales tax obligations by arbitrarily unbundling its wireless offerings. The Complaint also alleges that for the years at issue, the percentage of fixed-rate wireless calling plans on which Sprint did not collect sales taxes ranged from 13.7% to 28.5% of the overall fixed rate. Plaintiff maintains that the allocation between taxable and non-taxable categories not only ignored the applicable sections of the Tax Law, but also was arbitrary because it was not related to any customer’s actual usage.
The first cause of action alleges that Sprint violated State Finance Law § 189(1)(g) by knowingly making or using false records or statements material to an obligation to pay or transmit money or property to the state and local governments. The second cause of action alleges that Sprint violated State Finance Law § 189(1)(c) by conspiring to violate State Finance Law § 189(1)(g). The third cause of action alleges that Sprint violated Executive Law § 63(12) by repeatedly engaging in fraudulent or illegal activity, including failing to collect and pay sales taxes and submitting false sales taxes filings in violation of New York State Tax Law § 1105. The fourth cause of action alleges that Sprint violated article 28 of the New York State Tax Law, specifically Tax Law § 1105(b)(2), by failing to collect or pay New York sales taxes.
Sprint now seeks to dismiss the Complaint for failure to state a cause of action. Sprint also seeks to dismiss as time-barred so much of the third and fourth causes of action as assert claims concerning statements made prior to March 31, 2008.
The New York False Claims Act, State Finance Law § 189(1)(g), prohibits any person from knowingly making or using a false record or statement to avoid an obligation to pay or transmit money or property to the state or a local government. Effective August 10, 2010, the False Claims Act was amended to expressly apply to knowing violations of the New York Tax Law (2010 McKinney’s Session Laws of NY, ch 379, at A 11568).
Here, the superceding Complaint alleges in great detail how Sprint implemented a nationwide program of unbundling its mobile telecommunications offerings, treating part of its fixed monthly access charges for wireless voice services as if they were charges for interstate calls charged on a per-minute basis, failing to collect or pay New York sales taxes on the interstate calls, and submitting monthly tax statements only for the taxes collected for intrastate calls. Construed in the light most favorable to plaintiff, the first cause of action sufficiently alleges that Sprint violated State Finance Law § 189(1)(g), by knowingly making or using a false record or statement material to avoid an obligation to pay New York sales taxes required under Tax Law § 1105(b)(2), so as to survive a motion to dismiss.
However, Sprint disagrees that the factual allegations in the superceding Complaint adequately state a valid claim for relief under State Finance Law § 189(1)(g). Instead, Sprint contends that its tax collection decisions are justified based on a reasonable interpretation of the various statutes.
Sprint asserts that the plain language of the Tax Law permits it to exclude from sales taxes the portion of its fixed monthly recurring access charges that is attributable to interstate voice services, even when said services are bundled with intrastate services. Sprint maintains that Tax Law § 1105(b) must be construed in its entirety, including subdivisions (1), (2), and (3), and that when so construed, the plain language of § 1105(b) excludes interstate voice services from New York sales taxes. Thus, Sprint asserts that the superceding Complaint does not sufficiently allege that it knowingly submitted false statements in order to avoid an obligation to pay state taxes on the sale of mobile telecommunication services. Sprint also argues that in any event, its interpretation of the Tax Law is reasonable and, thus, not punishable.
“The receipts from every sale, other than sales for resale, of the following: . . .
Thus, § 1105(b)(1) expressly excludes receipts from telecommunications service that are taxable under § 1105(b)(2).
Section 1105(b)(2) imposes the four percent tax on receipts from every sale of mobile telecommunications services, other than sales for resales, that are voice services sold for a fixed periodic charge. The superceding Complaint specifically seeks to redress Sprint’s alleged tax avoidance for mobile telecommunications services sold for a fixed periodic charge. Thus, § 1105(b)(2) must be applied to address plaintiff’s claims.
Section § 1105(b)(3) states that “[t]he tax imposed pursuant to this subdivision is imposed on receipts from charges for intrastate mobile telecommunications service of whatever nature in any state if the mobile telecommunications customer’s place of primary use is in this state.” Thus, § 1105(b)(3) taxes receipts from intrastate mobile telecommunications charges incurred by New York customers while they are in any state. A review of the superceding Complaint reveals no factual allegations that require the application of § 1105(b)(3).
Simply stated, nothing in the plain language of Tax Law §§ 1105(b)(1) or (b)(3) addresses plaintiff’s allegations that Sprint knowingly avoided New York sales taxes on the sale of mobile telecommunications services for a fixed monthly recurring access charge.
(A) commercial mobile radio service . . . and (B) any service and property provided therewith.
Thus, Tax Law § 1111(1) expressly requires mobile telecommunications providers to collect and pay state sales taxes on mobile telecommunications services included in a fixed periodic charge, unless the provider uses an objective, reasonable and verifiable standard for identifying each of the components of the charge, in which case, the provider may separately account for and quantify the amount of each such component charge.

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