By Zachary Atkins and Andrew Appleby
The New York Supreme Court, Appellate Division, affirmed a 2013 trial court ruling denying Sprint Nextel Corporation’s motion to dismiss the attorney general’s False Claims Act complaint. In a slip opinion, the Appellate Division concluded that N.Y. Tax Law § 1105(b)(2), which the state attorney general contends imposes tax on sales of intrastate and interstate wireless voice services sold for a fixed periodic charge, is not preempted by the federal Mobile Telecommunications Sourcing Act. The attorney general alleges that Sprint violated the New York False Claims Act by failing to collect tax on interstate wireless voice service bundled with taxable wireless services and sold for a single, monthly charge. Sprint has taken the position that interstate wireless voice service, whether separately stated or bundled, is nontaxable. Regardless, Sprint contends that the fact it did not collect tax on sales of bundled interstate wireless voice service was based on a reasonable interpretation of the applicable tax law, which would defeat the state’s False Claims Act cause of action. The Appellate Division also affirmed the trial court’s ruling that civil penalties, including treble damages, authorized by the False Claims Act are not barred by the Ex Post Facto Clause of the U.S. Constitution The case will proceed to trial before the New York Supreme Court unless Sprint appeals the decision to the New York Court of Appeals. People v. Sprint Nextel Corp., No. 103917/2011 (N.Y. App. Div. Feb. 27, 2014).