State Tax Snapshot: The Rise of Whistleblower Lawsuits

The uncertainty over nexus and many other areas of state tax law has become a focus of class action attorneys and state attorneys general who have filed private lawsuits under their jurisdictions' False Claims Act provisions, Sutherland’s Jack Trachtenberg told those attending the Federation of Tax Administrators annual conference this summer.

“You don't see these cases arising where people are collecting but not remitting sales tax,” said Trachtenberg. “Instead, you're seeing these lawsuits exploit the gray areas of the law.”

Trachtenberg said one of the most egregious examples of abuse of a state's False Claims Act is the New York attorney general's suit against Sprint Nextel Corp. over the sales tax treatment of its customers' interstate calls (New York v. Sprint Nextel Corp., N.Y. Sup. Ct., No. 103917-2011, indictment 4/19/12).

 For additional insights from Trachtenberg about the application of the False Claims Act in state taxation and the growing number of state-tax related whistleblower lawsuits, check out his recent interview on Bloomberg Law.