The federal False Claims Act has proven to be so effective in combating healthcare, defense, and other types of fraud against the government that the majority of U.S. states have enacted similar statutes to address fraud within their own borders. In New York, the False Claims Act expressly includes acts of tax fraud (which is addressed under a separate statute in the federal realm). New York State is unique in that it is the only state to include tax fraud provisions in its False Claims Act. Acting under the tax fraud provisions of the New York FCA, Attorney General Eric Schneiderman recently obtained a $6.2 million settlement against a global medical imaging company and its parent company – one of the largest worldwide makers of medical devices and pharmaceuticals. Calling the acts “indefensible,” Schneiderman successfully returned this money to the New York taxpayers, thanks to whistleblowers willing to come forward and report the extensive instances of avoidance and evasion of tax obligations.
Details of Whistleblower Lawsuit
As a bit of background, Lantheus Medical Imaging is a global company in the business of developing, manufacturing, and distributing products used to facilitate radiology tests, x-rays, and other imaging procedures. Its parent company, Bristol-Myers Squibb, is a household name known for such products as Abilify and Plavix.
According to the whistleblower complaint, both Lantheus and BMS were engaging in the routine practice of evading New York state business franchise taxes and MTA surcharges from 2002 through 2006. New York law imposes these franchise taxes on any in-state or out-of-state business engaging in transactions within the State of New York. In addition, any entity doing business, employing capital, owning or leasing property, or maintaining an office in the counties of New York (Manhattan), Bronx, Kings (Brooklyn), Queens, Richmond (Staten Island), Rockland, Nassau, Suffolk, Putnam, Dutchess, and Westcheter is required to pay what’s known as the Metropolitan Transportation Business Tax. This tax was originally temporarily implemented in 1982 to help alleviate the dramatic costs of updating mass transit systems, including New York’s subway system. However, it has been renewed each year since, and adds an additional 17 percent surcharge to the 9 percent New York State franchise tax.
The specific allegations directed at Lantheus and BMS assert that both companies are alleged to have derived significant amounts of income from the sale of medical products to New York hospitals, clinics, and imaging centers. Accordingly, the payment of corporate tax was due to the citizens of New York, which AG Schneiderman summarily reiterated by stating:
“It’s simple – corporations doing business in New York are obligated to pay taxes on their earnings, and those companies that fail to do so will be held accountable. This resolution makes a huge difference for hardworking New Yorkers who pay their taxes and play by the rules.”
The lawsuit began in 2012 when a tax service provider began to notice problems with both businesses and the lack of payment of New York state taxes. The investigation, which was joined by the Attorney General’s tax protection bureau, revealed an underpayment totaling $2.2 million. This amount, accompanied by damages and other penalties, resulted in a payment to the whistleblower of $1,137,814.80. The City of New York is slated to receive $693,143.04 in taxes owed.
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