Governor Hochul rang in the new year by vetoing a bill that expanded the New York State False Claims Act (“FCA”) to permit claims against non-filers. Specifically, on December 31, 2021, Governor Hochul vetoed Senate Bill S4730 (Assembly Bill A2543), explaining in Veto Message No. 83 that “the language in the bill is broader than impacting only non-filers, and would implicate more tax filing controversies to the False Claims Act than just non-filers. This would be incongruent with the way other states and the federal government pursue False Claims Act violations, and could have the effect of incentivizing private parties to bring unjustified claims under the law.” Governor Hochul further noted that “[t]here are administrative and criminal remedies in the law currently that address this conduct.”
S4730 expanded the application of the FCA from applying to “claims, records, or statements” to “claims, records, or statements, AND OBLIGATIONS….” Governor Hochul’s veto addresses the overly broad “obligations” language as implicating “more than just non-filers.” Moreover, attempting to expand the FCA to non-filers is not only incongruent with the laws of other jurisdiction’s false claims act statutes, as Governor Hochul noted, but also incongruent with the definition of a “false claim.” As its name suggests, the FCA requires a “false claim,” defined as “any claim, which is…false or fraudulent.” NYS Finance Law § 188(2). “Claim” means “any request or demand…for money or property” that is presented to the state or local government. NYS Finance Law § 188(1).
Baker McKenzie previously addressed other issues with allowing the FCA to apply to non-filers in our blog post summarizing a prior version of this vetoed bill, including the fact that New York’s nexus rules are notoriously complex. Something Fishy in the False Claims Act World – SALT Savvy. We highlighted New York’s $300,000 sales tax economic nexus regulation that was published in 1989, but never enforced until after the U.S. Supreme Court decided Wayfair in 2018. Had this bill been enacted pre-Wayfair, an opportunistic whistleblower could have attempted to apply New York’s economic nexus regulation when the NYS Department of Taxation and Finance was not enforcing it due to the constitutional infirmities with the regulation.
Governor Hochul’s explanation for vetoing this legislation identified two significant issues with not only this bill, but the currently enacted FCA: (1) incentivizing private parties to bring unjustified claims for a monetary benefit; and (2) alternative remedies in the law already exist. While the FCA’s application to tax matters does not seem to be disappearing any time soon, Governor Hochul’s veto is a promising step in the right direction in limiting its application.
Contact the author: David Pope