In December, the New York Attorney General's Office and the state tax commissioner reached a record-breaking settlement with Sprint and several subsidiaries. A whistleblower filed a lawsuit under the state's false claims act, which allows private citizens to file lawsuits on behalf of the government when they notice fraud, waste or abuse in state contracting.
That whistleblower will receive a reward of $62.7 million out of a total settlement of $330 million. This is the largest-ever recovery by a single state in a lawsuit filed under a state false claims act.
The federal government, Washington, D.C., and 29 states have passed false claims acts that reward whistleblowers with some 15 to 30 percent of any money recovered on behalf of the government. New York's law is unusual in that it applies to tax fraud.
Sprint knew of the tax law but ignored it, AG says
According to the Attorney General's Office, the settlement resolves allegations that, for nearly a decade, Sprint and its subsidiaries knowingly failed to apply New York's sales tax to their plans correctly.
New York Tax Law § 1105(b)(2) imposes a sales tax on wireless voice services sold on a fixed periodic charge, regardless of whether those calls are intrastate, interstate or international. Sprint sold plans that fit this description, which the New York Court of Appeals has specifically held to be unambiguous.
Furthermore, Sprint could not have been unaware of the tax, as it and other large carriers lobbied for it in 2002. Moreover, the Tax Department issued guidance that year which accurately explained the tax.
Nevertheless, in 2005 Sprint began violating the law by failing to collect and remit the required taxes. It continued to do so even after this lawsuit and its corresponding investigation were initiated. It continued to violate the law until May 2014.
"Sprint knew exactly how New York sales tax law applied to its plans - yet for years the company flagrantly broke the law, cheating the state and its localities out of tax dollars that should have been invested in our communities," said then-Attorney General Barbara D. Underwood.
"We applaud the whistleblower who brought this injustice to light, and our colleagues at the Attorney General's Office who worked closely with us on the investigation that led to this record-setting settlement of $330 million," said the acting commissioner of taxation and finance.
If you work in a field that handles state or federal contracts, you may be in a position to blow the whistle on wrongdoing. A successful case could result in a substantial reward. Before you take any steps, however, you should discuss the allegations with an attorney familiar with the applicable false claims act.