911 surcharge fees are taxes, Minnesota Supreme Court rules in False Claims Act case

By Charmaine Little | Nov 16, 2018

ST. PAUL, Minn. (Legal Newsline) – The idea that fees associated with certain telecommunications calls, such as 911 services, are indeed taxes is what caused Minnesota’s Supreme Court to uphold the dismissal of a case over allegations companies were purposefully not paying fees and surcharges owed to the state.

Justice G. Barry Anderson authored the Oct. 31 opinion, which affirmed the Court of Appeals' decision to dismiss the case filed by Phone Recovery Services against Qwest Corp., Telephone and Data Systems and others. The case was dismissed by the lower court because the Minnesota False Claims Act does not allow qui tam actions relating to taxation.

Phone Recovery Services LLC took its case to the Supreme Court to challenge the district court and appeals court’s decisions to dismiss its claims against a number of telecommunications companies.

Phone Recovery Services alleged, under the Minnesota False Claims Act (MFCA) that the telecommunications companies “intentionally failed to pay fees and surcharges due to the state and imposed by statute for 911 services, the Telecommunications Access Minnesota (TAM) program and the Telephone Assistance Plan (TAP) program,” according to the opinion. 

G. Barry Anderson   Minnesota Courts

Phone Recovery Services alleged the companies knowingly, intentionally and even recklessly under-collected fees from 911, TAM and TAP surcharges from their customers and subsequently underpaid the amounts the state is entitled to.

The court stated that since the MFCA bars these type of qui tam cases (ones in which a whistleblower is rewarded in victorious cases where the government recuperates funds lost to fraud) because these surcharges are taxes, the district court granted the respondents’ motion to dismiss, the appeals court affirmed, and the Supreme Court backed the ruling.

It first determined that the MFCA, concerning taxation and how it relates to the surcharges in question, is not too ambiguous concerning the taxation bar.

Plus, the court said because each customer is charged the same amount, no matter how often they use any of the services (911, TAP and TAM), there’s not a direct link between the fee and how the service providers receive any goods or services from a government-related organization. Considering this, the surcharges are indeed taxes, the court ruled. The Supreme Court agreed with the lower courts and dismissed the case.

Justice Anne McKeig dissented and said the language in the MFCA is too ambiguous and disagreed with the Supreme Court opinion. 

“The case before us, today, revolves around individual and business fee-payers, and telephone service providers who are serving as fee-collectors,” McKeig stated. “Because the MFCA's tax bar was not intended to preclude qui tam actions against private entities who are obligated to collect government-mandated fees, I would hold that the district court erred” when it dismissed the case.

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