On July 21, 2015, Reed Smith LLP, on behalf of the Institute for Professionals in Taxation (“IPT”), filed an amicus brief with the New York State Court of Appeals in People of the State of New York, ex rel. Empire State Ventures, LLC v. Sprint Nextel Corp., Sprint Spectrum L.P., Nextel of New York, Inc. and Nextel Partners of Upstate New York, Inc. View the amicus brief here. The brief was filed in support of Sprint Nextel Corp. and its affiliates (“Sprint”), which moved to dismiss the Attorney General’s allegations that the company violated the New York State False Claims Act (the “FCA”), Tax Law and Executive Law.

Background During the period at issue, Sprint sold wireless calling plans to New York customers that included voice services in exchange for fixed periodic charges. These flat-rate plans allowed customers to use Sprint’s wireless network to make calls to people within New York, as well as to people in other states. Based on its reading of the Tax Law, Sprint determined that it was not required to collect sales tax from its New York customers on the portion of its fixed periodic charges that were attributable to interstate voice services.

In March 2011, Empire State Ventures LLC commenced a qui tam action under the FCA alleging that Sprint knowingly violated the FCA by not collecting and remitting New York State sales tax on the full amount of its receipts from flat-rate calling plans sold to New York customers. Thereafter, the New York State Attorney General intervened and filed a superseding complaint making similar allegations. According to the Attorney General, Sprint owes more than $100 million in sales tax, which, under the FCA, could result in an award of damages exceeding $300 million.

IPT’s Amicus Brief The amicus brief filed by IPT seeks to focus the court’s attention on the failure of the lower courts to use the proper standard for determining liability under the FCA. Since, under the FCA, liability attaches only if the Attorney General can prove that Sprint knowingly made a false claim, record or statement, Sprint cannot be held liable if its interpretation of its sales tax obligations was reasonable. This is true even if the State disagrees with Sprint’s statutory interpretation or Sprint is ultimately found to have incorrectly interpreted the Tax Law.

In Sprint’s case, both the Supreme Court and the Appellate Division, First Department refused to consider the reasonableness of Sprint’s position. Indeed, the Supreme Court held that the reasonableness of Sprint’s statutory interpretation was irrelevant for the purposes of determining whether the Attorney General has stated a cause of action under the FCA. IPT argues that this is clear error, especially in light of the fact that the operative Tax Law provision in question—Tax Law § 1105 (b)—is a tax imposition statute that must be construed in favor of the taxpayer.

IPT’s amicus brief also urges the court to leave matters such as those involved in the Sprint case to the administrative audit and appeals process, which is designed to provide a uniform, quasi-judicial, efficient and less expensive forum for reviewing routine tax disputes. IPT argues that cases which do not involve true fraud or criminal conduct should not be permitted under the FCA because it raises the specter that the Attorney General will be permitted to deprive taxpayers of the rights and protections provided in the traditional administrative process simply because they have an honest difference of opinion with the government.