25 N.Y.3d 105 (2015)
The New York Tax Law unambiguously imposes sales tax on the full amount of fixed periodic charges for wireless voice services, even those including interstate and international calls, and that the New York False Claims Act (FCA) can apply to false tax claims.
Summary
The New York Attorney General (AG) sued Sprint, alleging it violated the Tax Law and the False Claims Act (FCA) by improperly calculating sales tax on bundled mobile telecommunications services. Sprint unbundled its flat-rate monthly plans, attributing a portion of the charge to interstate and international calls, and not collecting sales tax on that portion. The AG argued that the Tax Law required sales tax on the entire fixed charge. The court agreed, holding that the Tax Law was unambiguous and the FCA could be applied where a party knowingly submits false statements. The court found that Sprint’s actions could be viewed as knowing and that the retroactive application of FCA was not barred by the Ex Post Facto Clause of the United States Constitution. The court affirmed the lower court’s denial of Sprint’s motion to dismiss.
Facts
Sprint offered flat-rate mobile telecommunications plans in New York. After 2002, Sprint initially paid sales tax on the full amount. In 2005, Sprint unbundled its plans, allocating portions of the monthly charge to interstate and international calls, and no longer collected tax on those portions. The AG filed a complaint alleging Sprint violated the Tax Law and the FCA by submitting false tax statements. The AG’s complaint cited a Tax Department guidance memorandum and the fact that major wireless carriers collected and paid sales tax on the full fixed periodic charge. The AG also pointed to Sprint’s disregard of statements of a Tax Department field auditor and enforcement official that Sprint’s sales tax practice was illegal.
Procedural History
Empire State Ventures, LLC, filed a qui tam suit against Sprint under the New York FCA, which the AG later converted into a civil enforcement action. The Supreme Court denied Sprint’s motion to dismiss, holding that the Tax Law unambiguously imposed tax on the full amount of fixed charges. The Appellate Division affirmed. The Court of Appeals received a certified question: “Was the order of the Supreme Court, as affirmed by . . . this Court, properly made?”
Issue(s)
1. Whether New York Tax Law imposes sales tax on the full amount of fixed charges for bundled mobile telecommunications services, including interstate and international calls.
2. Whether the New York Tax Law is preempted by the federal Mobile Telecommunications Sourcing Act (MTSA).
3. Whether the AG’s complaint adequately pleads a cause of action under the New York FCA.
4. Whether retroactive application of the New York FCA is barred by the Ex Post Facto Clause of the United States Constitution.
Holding
1. Yes, because the plain language of the statute subjects to tax all “voice services” that are “sold for a fixed periodic charge.”
2. No, because the MTSA anticipates disaggregation only of charges “not otherwise subject … to [state] taxation,” and the Tax Law imposes a tax on the entire amount of the fixed monthly charge for voice services.
3. Yes, because the complaint’s allegations, if true, could establish that Sprint knowingly made false statements material to an obligation to pay sales tax.
4. No, because the FCA’s penalties are civil and not criminal in nature, and, thus, the Ex Post Facto Clause does not apply.
Court’s Reasoning
The court first addressed the interpretation of the Tax Law, finding it unambiguous. The court emphasized that the language taxing “voice services” sold for a fixed periodic charge, including