News and Insights

New York State High Court Upholds Denial of Motion to Dismiss False Claims Act

Tax Development Oct 26, 2015

The New York Court of Appeals affirmed a lower court’s order that denied a mobile telecommunications service provider’s motion to dismiss a False Claims Act (FCA) complaint filed by the state attorney general. The complaint contended that the service provider failed to collect the proper amount of sales tax on its wireless telephone services to its customers.

The attorney general claimed that Tax Law § 1105(b)(2) requires the full amount of sales tax to be collected on fixed periodic charges for wireless voice services sold to New York customers. The service provider violated the law by failing to collect sales tax on fixed periodic charges for interstate and international voice services.

The service provider argued the statute provided an exclusion from sales tax for its bundled charges for interstate and international calls. Because the tax was excluded based on a reasonable interpretation of the tax law, there could be no valid FCA claim.

The Court of Appeals concluded that Tax Law § 1105(b)(2) is unambiguous and explicitly imposes taxation on all voice services sold for a fixed periodic charge, including interstate and international calls. The attorney general’s complaint sufficiently pleads a cause of action under the FCA. In further proceedings, the attorney general will have to prove the allegations of fraud given the factual issues presented in the case. Likewise, the service provider will be given the opportunity to prove that it took a reasonable interpretation of the tax law. 


Jim Kranjc

Dustin Davis