Court Opinion

ID: 5490130
Source: CourtListenerOpinion
Date Created: 2022-01-10 02:27:21.198699+00
Date Added: 2024-06-11T08:33:44.983382
License: Public Domain

Stein, J.
(dissenting in part). In my view, Tax Law § 1105 (b) (2) is an ambiguous statute. Given the procedural course the People have charted here, we are required to interpret any ambiguity in favor of Sprint, as the taxpayer, for the purpose of resolving Sprint’s motion to dismiss. Because the Attorney General cannot establish that Sprint’s tax filings were actually false in light of this ambiguity, the complaint’s principal allegation — that Sprint violated the Tax Law by failing to collect sales tax due on interstate mobile voice services based upon its purportedly erroneous interpretation of the applicable statute— must fail and cannot form the basis of a cause of action pursuant to the False Claims Act, Executive Law § 63 (12) or Tax Law article 28. Therefore, I respectfully disagree with the majority insofar as its affirmative answer to the certified question is premised upon its conclusion that the complaint adequately alleges fraud by claiming “that Sprint knew the AG’s interpretation of the statute was proper, and that Sprint did not actually rely on a reasonable interpretation of the statute in good faith” (majority op at 113). To the contrary, the complaint has not sufficiently alleged a violation of the Tax Law on this basis in the first instance, let alone a knowing, fraudulent or “bad faith” violation.
However, while the complaint does not set forth viable claims arising out of Sprint’s interpretation of the statute, it does adequately allege actual falsity and illegality based upon the method used by Sprint in calculating the portion of its fixed monthly charges that were attributable to interstate mobile voice services. Accepting as true the complaint’s assertions that Sprint’s calculation of those charges was essentially *116arbitrary — and, therefore, that Sprint’s tax filings bore no rational relation to the amount of interstate mobile calls that were actually made — the complaint sufficiently alleges that Sprint violated the Tax Law, engaged in persistent fraud and illegality under Executive Law § 63 (12) and knowingly made or used false records within the meaning of the False Claims Act. Thus, although I would answer the certified question in the negative — the orders below were not properly made — I would partially affirm the Appellate Division order insofar as it allowed the action to proceed on that narrow ground.
L
Tax Law § 1105 (b) (2) is ambiguous because it lends itself to more than one plausible or reasonable interpretation (see Matter of Golf v New York State Dept. of Social Servs., 91 NY2d 656, 662-663 [1998]). The language that the majority holds to be unambiguous reads as follows:
“[T]here is hereby imposed and there shall be paid a tax of four percent upon: . . .
“[t]he receipts from every sale of mobile telecommunications service provided by a home service provider . . . that are voice services, or any other services that are taxable under [subdivision (b) (1) (B)], sold for a fixed periodic charge (not separately stated), whether or not sold with other services” (Tax Law § 1105 [b] [2]).
The subparagraph referenced therein, Tax Law § 1105 (b) (1) (B), subjects to tax
“ [t]he receipts from every sale . . . of. . . telephony and telegraphy and telephone and telegraph service of whatever nature except interstate and international telephony and telegraphy and telephone and telegraph service and except any telecommunications service the receipts from the sale of which are subject to tax under [subdivision (b) (2)].”
Applying the canon of construction that a provision of a statute that applies to a specific situation will override a general provision, the majority concludes that subdivision (b) (1) (B) applies to telephony and telegraphy, generally, whereas subdivision (b) (2) applies specifically to the sale of “mobile telecommunications” (majority op at 110). The majority and the Attorney General read subdivision (b) (2) as providing for the *117taxation of “every sale of mobile telecommunications service . . . that are voice services . . . sold for a fixed periodic charge” (Tax Law § 1105 [b] [2]) (whether interstate or intrastate) and also allowing for the taxation of “other services that are taxable under [subdivision (b) (1) (B)]” (id.; see majority op at 110). The majority concludes that “it is unambiguous that Tax Law § 1105 (b) (2) imposes taxation on all voice services sold for a fixed periodic charge, including the interstate and international calls at issue here” because, to read the statute otherwise, “would make superfluous the words Voice services, or any other’ in subdivision (b) (2)” (majority op at 110-111.) The majority’s interpretation of the statute is unquestionably appealing in its simplicity. Under that reading, subdivision (b) (2) provides that mobile voice services are always taxable unless separately stated, regardless of whether they are interstate or intrastate, and the subdivision (b) (1) (B) limitation on taxation of interstate services does not govern mobile voice services at all.
While I cannot disagree that such interpretation is reasonable, I note that even the Attorney General concedes that subdivision (b) (1) (B), which differentiates between interstate and intrastate services, continues to exempt certain mobile voice services from taxation. Specifically, the Attorney General acknowledges that “[t]o be sure, (b)(2) itself provides that (b)(l)(B)’s tax rule persists for certain types of mobile service charges” and, therefore, “interstate mobile calls . . . that are not sold for a flat fee, but instead [are] ‘separately stated’ ” (emphasis added) remain taxable under subdivision (b) (1) (B). Similarly, the Attorney General’s complaint explains that, “[f]or overage minutes that are charged to customers on a per-minute usage basis, Sprint and other wireless carriers are required to collect and pay New York state and local sales taxes only when such calls are intrastate, and are not required to collect and pay them on such calls that are interstate” (emphasis added). Thus, although the majority notes that “[n]o part of subdivision (b) (2) differentiates between intrastate or interstate and international voice service” (majority op at 110), the Attorney General concedes that some interstate mobile voice services remain nontaxable under subdivision (b) (1) (B), and the statutory differentiation between intrastate and interstate service persists for such services.
Accepting the Attorney General’s concession that the limitation on interstate taxation in (b) (1) (B) continues to apply to at least some mobile voice services, I would hold that Sprint has *118plausibly read the language in dispute — “voice services, or any other services that are taxable under [subdivision (b) (1) (B)]” (Tax Law § 1105 [b] [2]) — as incorporating the (b) (1) (B) rule for both voice services and any other mobile services. Ultimately, the Attorney General reads subdivision (b) (2) as taxing all mobile voice services that are sold for a fixed periodic charge, while applying the (b) (1) (B) rule to other types of mobile telecommunications services, whereas Sprint reads the language at issue just slightly more broadly as applying the (b) (1) (B) rules to mobile “voice services, or any other [mobile] services” (Tax Law § 1105 [b] [2]). Under Sprint’s interpretation, the purpose of subdivision (b) (2) is to expressly provide that services that are taxable under subdivision (b) (1) (B)— text messaging, intrastate voice services, etc. — remain taxable even if bundled with nontaxable services. That reading of this less-than-clear statutory text — while perhaps not the most logical interpretation — is not unreasonable as a matter of law, particularly in light of the relatively small gap that exists between the parties’ interpretations.
Similarly, Tax Law § 1111 (Z) (2) can be read in more than one reasonable manner. That section provides that certain enumerated categories of untaxed nonvoice services, which are bundled with taxable services, are subject to sales tax unless the provider uses “an objective, reasonable and verifiable standard for identifying” and quantifying the amount of each component charge (Tax Law § 1111 [Z] [2]). The parties are in agreement that the statute applies only to nonvoice services. Applying the expressio unius est exclusio alterius canon of statutory construction (see Matter of Jewish Home & Infirmary of Rochester v Commissioner of N.Y. State Dept. of Health, 84 NY2d 252, 262 [1994]), the Attorney General argues that the legislature’s creation of an exception from the general rule for the category of nonvoice services would imply that the category of voice services was not to be excluded from the general rule. That interpretation certainly is reasonable, and reading section 1111 (Z) (2) together with section 1105 (b) (2) supports the Attorney General’s assertion that the legislature intended to make all bundled voice services taxable, without permitting carriers to exclude the interstate portion as nontaxable. However, Sprint’s alternative construction of section 1111 (Z) (2) is also reasonable. Sprint argues that the focus of section 1111 (Z) (2) is on nonvoice services and that the purpose of that section is to enumerate the services — such as Internet access— *119that are also nontaxable, in addition to interstate voice services. Under Sprint’s view, there is no need to include interstate voice services in the section 1111 (Z) (2) list because they are already exempt from taxation under section 1105 (b) (1) (B).
In short, both the Attorney General and Sprint have advanced reasonable interpretations of the statutory language and, because that language is susceptible of more than one reasonable interpretation, it is inherently ambiguous. Indeed, the only other court to consider Sprint’s tax strategy under section 1105 (b) deemed the “legal concepts at issue” here “murky” (Louisiana Mun. Police Employees’ Retirement Sys. v Hesse, 962 F Supp 2d 576, 589 [US Dist Ct, SD NY 2013]).11 recognize that the shareholders’ derivative action with which that decision was concerned is distinguishable and involves a completely different body of law from that before us and, further, that the District Court expressly declined to rule on whether Sprint’s interpretation of the statute was “reasonable” (id. at 590 n 7). Notwithstanding those distinctions, I agree with the District Court that the legal concepts at issue here — as well as the statutory language — are murky at best, and I cannot join the majority decision holding that Tax Law § 1105 (b) is unambiguous.
IL
A finding that the statute is ambiguous has implications in the Tax Law context that are not present in other procedural contexts. Inasmuch as Sprint is not seeking a tax exemption but, arguing instead, that the “transaction or event is [not] subject to taxation” in the first instance (Matter of Grace v New York State Tax Commn., 37 NY2d 193, 196 [1975]), the tax statute at issue “must be narrowly construed and . . . any doubts concerning its scope and application are to be resolved in favor of the taxpayer” (Debevoise & Plimpton v New York State Dept. of Taxation & Fin., 80 NY2d 657, 661 [1993]). In contrast, if this case had proceeded through the usual administrative process and the same arguments were before us in the *120context of a CPLR article 78 proceeding involving a challenge to a Tax Department audit and assessment, we could “defer to” the Tax Department as “the governmental agency charged with the responsibility for administration of [a] statute in [a] case[ ] where interpretation or application involves knowledge and understanding of underlying operational practices or entails an evaluation of factual data and inferences to be drawn therefrom, and the agency’s interpretation is not irrational or unreasonable” (Matter of New York State Superfund Coalition, Inc. v New York State Dept. of Envtl. Conservation, 18 NY3d 289, 296 [2011] [internal quotation marks and citations omitted]; see Lorillard Tobacco Co. v Roth, 99 NY2d 316, 323 [2003]).
Here, however, the Tax Department is not before us as a party. Therefore, we cannot defer to its interpretation. Instead, the Attorney General has chosen to pursue Sprint in an action in which its interpretation of the statute is not entitled to deference and we are bound to resolve all ambiguities in Sprint’s favor, at least for the limited purpose of determining whether the complaint states a claim and, consequently, whether the courts below were correct in partially denying Sprint’s motion to dismiss.2 In turn, resolving the ambiguity in Sprint’s favor and adopting its interpretation necessarily means that the complaint fails to adequately allege that Sprint’s tax returns were false simply because Sprint did not report receipts from the interstate component of its mobile voice services for sales tax purposes.
III.
As explained in United States ex rel. Oliver v Parsons Co. (195 F3d 457, 461 [1999], cert denied 530 US 1228 [2000]), *121upon which the majority relies, the complaint must adequately allege three elements in order to state a cause of action under the False Claims Act: (1) that Sprint filed the tax records at issue, (2) that those records were actually false — i.e., that Sprint made a false statement or filed a false record because it incorrectly stated the amount of sales tax owed under Tax Law § 1105 (b) — and (3) that Sprint acted knowingly in doing so. Due to the procedural posture of this action, a conclusion that the statute is ambiguous precludes a showing of actual falsity, the second element of the False Claims Act cause of action, as a matter of law. That is, if the statute is ambiguous, our precedent requires that we interpret it in Sprint’s favor in this plenary action, as explained above; and, if the statute is interpreted in Sprint’s favor, the complaint fails to adequately allege that Sprint’s tax filings were based upon an incorrect interpretation of the statute and, therefore, were actually false. For the same reason, the complaint has not sufficiently stated a claim under Executive Law § 63 (12) and Tax Law article 28 to the extent that those causes of action are based upon allegations that Sprint knowingly relied upon an unreasonable interpretation of Tax Law § 1105 (b).
Actual falsity is a threshold element of a False Claims Act cause of action (see Parsons, 195 F3d at 461). Actual falsity does not relate to Sprint’s mental state; rather, the statutes’ “meaning is ultimately the subject of judicial interpretation, and it is [Sprint’s] compliance with these [statutes], as interpreted by this [C]ourt, that determines whether its [tax strategy] resulted in the submission of a ‘false claim’ under the Act” (Parsons, 195 F3d at 463). In other words, “while the reasonableness of [Sprint’s] interpretation of the applicable [statutes] may be relevant to whether it knowingly submitted a false claim, the question of ‘falsity’ itself is determined by whether [Sprint’s] representations were accurate in light of the applicable law,” as construed by the Court for the purpose of determining whether the complaint states a cause of action (id. [emphasis added]).
The complaint alleges that Sprint’s sales tax filings were false because Sprint “asserted [therein] that it owed less in sales taxes [on interstate voice services] than it really did” based upon an alleged misinterpretation of Tax Law § 1105 (b). However, because the statute is ambiguous and its ambiguities must be resolved in Sprint’s favor, the complaint fails to adequately allege any misinterpretation, regardless of whether *122Sprint acted knowingly, recklessly or with deliberate ignorance. Stated differently, the complaint does not identify any tax filings that satisfy the element of “falsity,” in relation to Sprint’s interpretation of the statute. Because the complaint does not adequately plead this threshold element, we need not reach the question on which the majority focuses, i.e., whether the complaint sufficiently alleges that Sprint acted “knowingly” in making its purportedly false statements.
IV.
That said, the determinations of the courts below should be affirmed, in part, on a different ground. As the Attorney General argues, even if the statutes at issue must be interpreted in this proceeding as permitting Sprint to exclude from its taxable receipts the portion of its flat-rate plans attributable to interstate mobile voice services, the complaint contains other allegations — sufficient to survive a motion to dismiss— that Sprint’s tax forms were false in another respect. Specifically, the complaint alleges that the arbitrary deduction that Sprint applied to its receipts from interstate mobile voice services did not, in fact, reflect the interstate calls of Sprint’s customers. The complaint sets forth detailed assertions that Sprint calculated the portion of its calls that were interstate by arbitrarily applying a percentage used to calculate an unrelated federal surcharge at times, but that Sprint did not modify its allocations when the federal government changed the percentage used to calculate the surcharge, nor did Sprint consistently adhere to the percentage allocations. In that regard, the Attorney General contends that Sprint did not even attempt to identify the interstate component of its mobile voice services, much less adhere to the disaggregation requirements set out in federal and state law and, thus, it violated the Tax Law in the manner in which it allocated the percentage of its fixed monthly charges that was attributable to interstate mobile voice service. On this appeal, which involves a CPLR 3211 motion to dismiss,
“[w]e accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory . . . [because] the criterion is whether the proponent of the pleading has a cause of action, not whether [it] has stated one” (Leon v Martinez, 84 *123NY2d 83, 87-88 [1994] [internal quotation marks and citations omitted]).
While plaintiffs may not have expressly pleaded any claims based on Sprint’s failure to use an objective standard as required by state and federal laws addressing the proper unbundling of its fixed monthly charges, the allegations to support such a claim are set forth in the complaint and establish that plaintiffs have viable causes of action under the False Claims Act, Executive Law § 63 (12) and Tax Law article 28.
V.
In sum, Tax Law § 1105 (b) (2) is ambiguous because it can be reasonably interpreted in more than one manner and, inasmuch as it is a tax statute, section 1105 (b) (2) must be interpreted in Sprint’s favor for purposes of determining whether the complaint adequately states a cause of action. If Sprint’s interpretation is deemed correct, as it must be, the complaint necessarily fails to state a cause of action by asserting that Sprint filed false returns simply by virtue of the fact that the returns are consistent with that interpretation (whether Sprint believed the interpretation to be correct or not). Therefore, the causes of action under the False Claims Act, Executive Law § 63 (12) and Tax Law article 28 cannot be sustained on the basis of the Attorney General’s allegation that Sprint misinterpreted the Tax Law. Those causes of action could, however, proceed on the limited basis that Sprint’s tax forms were knowingly false, illegal and violative of the Tax Law because Sprint’s arbitrary method of calculating its deduction did not have any rational connection to the amount of interstate calls actually made by Sprint’s customers. Accordingly, I would answer the certified question in the negative and would modify the Appellate Division’s order by dismissing so much of the False Claims Act, Executive Law and Tax Law causes of action that were based upon Sprint’s purportedly erroneous interpretation of Tax Law § 1105 (b), and insofar as modified, would affirm the order allowing the claims to proceed on the narrow ground set forth in this opinion.
Judges Pigott, Abdus-Salaam and Fahey concur; Judge Stein dissents in part in an opinion; Judge Rivera taking no part.
Order affirmed, with costs, and certified question answered in the affirmative.

. That case involved a derivative action commenced by Sprint’s shareholders against its directors, alleging that they breached their fiduciary duties and wasted corporate assets by permitting Sprint to adopt the tax policy at issue here, which the shareholders alleged was clearly in violation of New York law. The District Court granted the directors’ motion to dismiss for failure to state a claim.

. Resolution of the statutory ambiguities in Sprint’s favor is necessary only because the Attorney General has chosen to file a superseding complaint in this whistleblower action, rather than await the conclusion of the more typical administrative process. An acknowledgment of the facial ambiguities in the statute by this Court need not prevent the Tax Department from applying its expertise to the detailed labor of fitting tax filings into the language of Tax Law § 1105 (b) (2) (see Lorillard, 99 NY2d at 323) in other matters proceeding through the administrative pipeline, such as Matter of Helio, LLC (2015 WL 4192425, 2015 NY City Tax LEXIS 8 [NY St Div of Tax Appeals DTA No. 825010, July 2, 2015]). Nor would such acknowledgment require the Tax Department to grant refunds to other wireless carriers who adopted the interpretation advanced by the Attorney General and, therefore, collected and remitted sales tax on the receipts from all interstate mobile voice services.