Sprint Nextel Appeals New York Tax Case to U.S. Supreme Court
Sprint Nextel Corp. appealed a New York state tax decision to the U.S. Supreme Court, asking it to
decide whether the state’s sales tax on interstate mobile voice services is preempted by the federal Mobile Telecommunications Sourcing Act (Sprint Nextel Corp. v. New York, U.S., No. 15-1041, petition for cert., 2/18/16).
Sprint Nextel is asking the court to overturn an October 2015 decision by New York’s highest court that said the state may proceed with its False Claims Act case against the company for its failure to collect and pay sales taxes on flat-rate calling plans (People v. Sprint Nextel Corp., 2015 BL 344427, 42 N.E.3d 655 (2015)).
Sprint’s legal strategy, by appealing to the high court, is to focus on the federal preemption issue in the case, rather on than the broader issue of whether the state False Claims Act can be applied in the tax case. Sprint may be liable for about $400 million in back taxes and treble damages in the closely watched case (2016 Weekly State Tax Report 20, 1/29/16).
New York filed its complaint in April 2012, superseding a complaint filed by a whistle-blower one year earlier. The state alleged that Sprint failed to collect sales taxes on plans sold for a fixed monthly charge and falsely stated its taxable receipts.
Sprint argued that state tax law doesn’t impose sales tax on interstate mobile voice services sold as part of a fixed-rate plan, only intrastate calls. It said that the unbundling provision of the federal Mobile Telecommunications Sourcing Act (MTSA) preempted state law.
N.Y. High Court Ruling.
‘‘All of the three previous courts denied Sprint’s motion to dismiss, saying that the state adequately pled that Sprint acted arbitrarily in its efforts to separate out what it says were taxable and non-taxable calls, and Sprint isn’t challenging that conclusion in its new petition,’’ Randall M. Fox, a partner at Kirby McInerney LLP, told Bloomberg BNA in an e-mail.
‘‘The MTSA and New York law are in agreement in prohibiting such arbitrary actions, so there’s no conflict and there’s nothing to preempt,’’ said Fox, who was the bureau chief in the attorney general’s Taxpayer Protection Bureau when the Sprint case was taken on by Attorney General Eric T. Schneiderman (D).
‘‘In petitioning the Supreme Court to review its argument about preemption under the MTSA, Sprint should have noted that a decision by the Supreme Court won’t change the outcome below,’’ he said.
Dennis J. Ventry Jr., a law professor at the University of California Davis School of Law, described the petition for certiorari as ‘‘a last, desperate public relations grab before being forced to settle or litigate a case that New York courts have thrice refused to dismiss.’’
‘‘The petition itself has no legal basis,’’ he told Bloomberg BNA in an e-mail. ‘‘There is no conflict that
would justify the Supreme Court granting cert., not with New York law nor with the federal MTSA.’’
Peter L. Faber, a partner at McDermott, Will & Emery LLP, said he hadn’t seen Sprint’s petition, but ‘‘it
makes sense to frame the issue as one of federalism — the extent to which a federal statute preempts a state law — rather than as one of tax law.’’
‘‘The Supreme Court tends not to be very interested in tax cases,’’ Faber told Bloomberg BNA in an e-mail. ‘‘Issues of federalism and the relations between the states and the federal government are more likely to grab the interest of the justices.’’
‘‘Remember Justice David Souter’s comment that if he didn’t show up at Chief Justice Rehnquist’s home to sing Christmas carols, he ran the risk of being assigned the tax cases,’’ Faber quipped.
Jack Trachtenberg, counsel at Reed Smith LLP, said Sprint’s strategy was a good one. ‘‘The
MTSA issue presents an important federal question that I do not believe was properly addressed by the New York courts,’’ he told Bloomberg BNA in an e-mail.
‘‘There is a real question as to whether New York’s interpretation of the Tax Law is valid in light of the MTSA’s bundling provisions,’’ Trachtenberg said. ‘‘If Sprint convinces the court to take the case and rule in its favor, it would present a home run win for Sprint since the state’s FCA claims would be preempted.’’