In Sprint Nextel Corp. v. New York, U.S., No. 15-1041, cert. denied May 31, 2016, the U.S. Supreme Court denied Sprint’s petition for review of a closely watched tax case from New York. Sprint petitioned the SCOTUS for certiorari in February, asking it to overturn the New York decision that allowed the state to proceed with a False Claims Act case against the company for its failure to collect and pay sales taxes on flat-rate calling plans.
Sprint’s main argument on appeal was that New York’s sales tax on interstate mobile voice services was preempted by the federal Mobile Telecommunications Sourcing Act, but the New York State Court of Appeals said the state could proceed with its case and remanded the case to a trial court. Sprint may be potentially liable for as much as $400 million in back taxes and treble damages in the case.
Because the Court of Appeals held that the reasonableness of a taxpayer’s position is not a defense, it may be necessary for any person or entity that takes any position contradicting those of New York’s Department of Taxation and Finance to document the underlying legal basis for their position before filing their tax returns. One implication of this decision that should concern every New York business taxpayer is that Sprint may, and probably would, have to disclose private details of its business operations and tax compliance decisions at a public trial. For this and other reasons, settlement will ultimately be less costly for the company.
Taxpayers must act proactively and review all past and current tax compliance decisions based upon New York’s False Claims Act and the New York Attorney General’s willingness to aggressively enforce New York law. If you have any questions about these and similar issues, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
