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Catch of the Week – B&H Photo Video Sued by NY State for Tax Fraud

Posted  November 15, 2019

This week’s Catch of the Week brings us back to the Big Apple, where New York Attorney General Letitia James joined a whistleblower lawsuit yesterday accusing the nation’s largest non-chain photo and video equipment retailer, B&H Photo Video, of tax fraud.

The suit claims that long-time camera and electronics retailer B&H, which had more than $3 billion in revenue last year, knowingly failed to pay over $7 million in taxes on “instant rebates,” which are point-of-sale discounts offered to customers, for which manufacturers reimburse the company.  Between 2006 and 2017, B&H’s instant rebates allegedly amounted to at least $67 million.  The lawsuit also alleges B&H officials understood they had to pay sales tax on the full price of items sold.

The Attorney General’s office, which jumped into a lawsuit whistleblower RD Litigation Associates LLC first brought in 2016, seeks tens of millions of dollars in back taxes, penalties, damages and interest.

The lawsuit was brought under the New York State False Claims Act, which allows whistleblowers to sue on behalf of the government when they learn it has been defrauded.  New York’s law was amended in 2010 to allow whistleblowers to come forward with claims about substantial violations of the tax laws. Since then, New York’s Attorney General’s office has set itself apart with its aggressive prosecution of tax frauds under the state’s false claims act, raking in hundreds of millions of dollars for the state.

According to the Attorney General’s announcement, “B&H deliberately chose not to pay the sales tax it knew was due to New York State in order to gain a competitive edge over companies that chose to follow the rules.”  The lawsuit alleges that B&H repeatedly and explicitly acknowledged – internally, to outside vendors, and externally, to a competitor – that it owed New York State sales tax on these reimbursements.

Executives discussed with competitors how they handled the matter, but ultimately decided to pocket what the company owed.  Separately, B&H in 2012 and 2013 allegedly tried to convince manufacturers to sign an addendum to their contracts that would help the company disguise its rebate programs. Only one vendor agreed to sign, so B&H “abandoned its plan and simply continued not to pay the tax,” according to the complaint.  The lawsuit alleges that even today, B&H “continues knowingly to fail to pay tax on the instant rebate reimbursements it receives from manufacturers.”

For its part, B&H isn’t going down without a fight: “B&H has done nothing wrong and it is outrageous that the AG has decided to sue a New York company that employs thousands of New Yorkers while leaving the national online and retail behemoths unchallenged. The Attorney General wants to charge New Yorkers a tax on money they never spent. It’s wrong and we won’t be bullied.”

According to legal experts, the case may turn on whether B&H offered customers a “manufacturer’s coupon,” which would require B&H to pay the state sales taxes based on the full price of merchandise, or a “retailer’s coupon,” which would require a merchant like B&H to collect taxes based on the price paid by a customer.

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Tagged in: FCA State, Tax Fraud, Whistleblower Case,


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