California False Claims Bill Fails in State Senate

A California bill expanding the state’s “qui tam” false claims act to tax matters, which had overwhelmingly passed the State Assembly on 23 May 2019, died in the Senate Appropriations Committee on 30 August 2019, and will not be enacted this year.  See AB 1270.

California’s false claims act includes a “qui tam” provision that allows private citizens to bring actions on behalf of the state seeking a recovery, and allowing successful such citizens to receive from 25% to 50% of any recovery plus legal fees and costs.  That provision would be extended to tax matters under the bill.  The new law would have applied to alleged fraud that occurred on or after 1 January 2020, but only to cases in which the damages exceed $200,000 and the accused party has taxable personal income, gross receipts, or sales over $500,000.

The California bill was sponsored by the California Attorney General and supported by the state’s tort lawyers’ association. It was opposed by the Council on State Taxation (COST).  COST is a trade association with some 550 major corporate members that seeks to insure the equitable and nondiscriminatory state and local taxation of multijurisdictional businesses.  It has long opposed application of application of false claims acts to tax suits by private parties, arguing that it robs state tax administrators of the ability to control the application of state tax statutes. 

Worldwide ERC® has also opposed extension of qui tam actions to tax matters, based on its experience in Florida some years ago in which multiple relocation management companies were accused of avoiding millions of dollars in Florida transfer taxes through use of the blank deed process in relocation home sale transactions.  Although that matter was ultimately resolved on terms favorable to the mobility industry, the litigation costs were considerable as was the uncertainty created. Since then, Worldwide ERC® has included the existence of a qui tam tax provision as a factor in deciding whether to use two deeds in the several states that currently permit such actions.  Worldwide ERC® maintains a chart of information relating to the use of single vs. two deeds. 

 

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How This Will Impact Mobility

While this legislation did not pass in 2019, it is likely that it will be reintroduced.  Worldwide ERC® members will need to assess whether the risk of false claims by private citizens in the state is sufficient to move from use of a blank deed to a two-deed process in California.  Such a move would, of course, add costs to the typical relocation home purchase program.

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