In the time since the 2018 Wayfair decision, dozens of states across the U.S. have passed economic nexus legislation. These laws compel out-of-state retailers with no physical presence to remit sales tax once they meet the state’s minimum economic nexus requirements.
A year and a half later, the complexity of the new legislation is creating headaches for businesses all over the country.
Even worse is the undeniable fact that the added complexity is opening up companies to the additional risk of Qui Tam lawsuits from whistleblowers.
What is a Qui Tam Lawsuit?
A Qui Tam lawsuit is brought forward under the False Claims Act (FCA), which alleges a business committed fraudulent behavior that impacted governmental programs. These suits are filed on behalf of the government by an individual (the whistleblower) in exchange for a portion of the recovery (generally 15 to 25 percent).
There has been an increasing popularity in FCA cases since 2009, when the average instance of Qui Tam cases rose by nearly double. In 2019 alone, the government recovered over $2.1 billion from Qui Tam suits brought forward by whistleblowers.
Qui Tam actions sometimes include charges of improper sales and use tax collection; the Wayfair decision increased opportunities for such cases.
How To Protect Your Business From Qui Tam Lawsuits
The first step to keep your business safe from Qui Tam lawsuits is to ensure you are taking the proper precautions. To start, do your research and speak with a state tax specialist like Miles Consulting Group to make sure you’re following all applicable tax laws.
A Qui Tam suit generally requires a “scienter” violation, which means that an honest mistake usually isn’t enough for a whistleblower to move forward with a suit. However, acting in deliberate ignorance or in ‘reckless disregard of the truth’ would qualify as a scienter violation. That’s why making sure you do your homework and understand how economic nexus legislation may apply to your company is so important to protecting your business.
Once you have a handle on what applies to you, we recommend creating a response plan, just in case you ever find yourself facing a Qui Tam lawsuit. This is especially important as the time you have to respond to the suit can be as little as 20 days, depending on your state.
This plan should include immediately contacting a trusted adviser, such as a tax lawyer. Also, consider what your response would be ahead of time (whether you would fight the claim or settle) so you don’t need to make big decisions in the heat of the moment without taking all the facts into consideration.
Overall, as the ramifications of the Wayfair decision continue to play out, protecting your business by continuing to identify potential online sales tax issues is increasingly important.
Do You Still Have Questions?
Do you want to know more about how you can protect your business from Qui Tam lawsuits? We’d love to answer your questions! Contact us today and we can clarify any multi-state tax issues you’re trying to navigate.
