Another New York False Claims Case in the News

Late last week, New York’s Attorney General Letitia James filed a Superseding Complaint against a photo and video equipment retailer, B&H Foto & Electronics Corp., in New York County Supreme Court. The Superseding Complaint alleges various violations by the retailer under New York State’s Tax Law, False Claims Act, and the Executive Law, spanning the past two decades. A whistleblower actually filed the qui tam civil suit under seal in early 2016, after which New York State was given time to investigate the matter. But it wasn’t until just recently that the Attorney General’s office notified the court of its decision to supersede the whistleblower’s complaint and, in doing so, converted the whistleblower’s complaint into a civil enforcement action by the Attorney General.

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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