Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York tax law.

Another New York False Claims Case in the News

The complaint states that the retailer “cheated on New York State sales taxes” over the past 13 years by failing to pay sales tax on certain vendor-sponsored rebates totaling at least $67 million from 2006 to 2017. The retailer allegedly offered instant rebates to customers—for which it was reimbursed by the product’s manufacturer—but failed to disclose the reimbursement arrangement with the manufacturers and further failed to collect and remit sales tax on the portion of the transactions attributed to the rebates. In the State’s view, this is problematic because sales tax was to be charged and remitted based on the pre-rebate amount and, according to the complaint, the retailer deliberately ignored or recklessly disregarded this requirement, which resulted in the retailer underpaying its sales tax by over $7 million during this period.

But the retailer flatly denies the allegations. It released a statement saying it’s a New York institution that has operated for half a century “with a stellar reputation” and that the attorney general was wrong and “trying to create a tax on discounts in order to make New Yorkers pay more.”

As we’ve discussed in this space previously, New York’s False Claims Act statute is widely regarded as among the toughest, if not the toughest, statute of its kind, with awards typically ranging from 15-30% that typically translate to six- and seven-figure paydays for whistleblowers. As I indicated in this Crain's article, this case will ultimately turn on how New York’s somewhat arcane sales tax rules for coupon’s and discounts work. Under these rules, if a retailer reduces the price of an item, it usually only has to collect sales tax on the reduced price. But special rules apply in situations where that discount is funded or reimbursed by another company, usually a manufacturer. So was B&H using retailer’s coupons or manufacturer’s coupons? The outcome of this case will likely turn on that distinction.

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