Sales and Use Tax Fraud: Hidden Receipts, Excluded Charges and False Exemptions

A sales tax fraud whistleblower can expose hidden taxable sales, charges left out of a tax calculation, or purchases falsely treated as exempt. The evidence may sit in a cash register, a billing rule or a resale certificate that contradicts what the business actually did. If you work in retail, billing, accounting or tax software, you may know why the sales records and the tax returns tell different stories.

This page follows those sales and use tax schemes through the transactions, calculations and decisions inside the business. Our page on state tax whistleblower cases covers the different state authorities behind a claim. The examples here come from New York, Illinois and the District of Columbia, where the particular tax and the applicable whistleblower law shape the case we build with you.

Hidden Sales Can Disappear Before the Return Is Prepared

Concealing taxable receipts can start at the register, before an accountant sees a sales total. Food World’s settlement agreement with New York describes allegations that supermarket employees rang up ordinary merchandise on standalone cash registers associated with lottery machines. Those registers were disconnected from the stores’ computerized sales system. According to the state’s allegations, employees separated the lottery sales from the other cash sales at day’s end and left the latter out of income and sales tax reporting.

The agreement also describes an alleged second method: managers generated receipts for goods customers had never returned. Employees then handed the withdrawn cash and the fake return receipts to the owner. The state alleged that Food World kept the sales tax already collected on those purchases. We see a remarkably convenient return policy in that account. The goods stayed sold.

Food World agreed to a $4.7 million settlement covering the state’s concealed-sales, income-tax and payroll-tax allegations. For an employee who knew which register handled the sale or why a manager created a return, the important information existed before the total reached the tax preparer. A return receipt could reverse the sale in the books while the customer still had the goods.

Rental Receipts and Diner Sales Tell the Same Kind of Story

New York’s case against Able Rentals and Abarn Equipment concerned allegedly suppressed taxable truck-rental receipts. The rental-company agreement set a $3,972,419 settlement for the companies and their owners. Rental records give someone inside the business a way to connect what customers paid with the taxable receipts reported.

The state’s settlement concerning Georgia and Bridgeview diners likewise addressed allegedly suppressed receipts and unremitted sales tax. The same missing sales can matter to unreported cash income as well as sales tax. We follow the underlying receipts to each affected tax obligation, because the money taken at the counter and the tax omitted from a return answer different questions.

Sprint Settled Allegations of Leaving Voice Charges Untaxed

Sales tax can go missing even when the customer payment remains in the company’s books. In Sprint’s case, the New York Attorney General alleged that the carrier excluded part of its flat-rate wireless voice charges from sales tax by treating that portion as interstate calls. The state’s settlement announcement described a $330 million resolution of allegations that more than $100 million in state and local sales tax went uncollected or unremitted.

Sprint sold plans that provided a set allowance of calling minutes for a flat monthly charge. The Attorney General said New York taxed the voice-service portion of that fixed charge regardless of whether customers made calls within the state, between states or internationally. The alleged shortfall came from dividing a taxable charge into pieces and leaving one piece out.

The Attorney General said the alleged shortfall also harmed local governments and school districts that impose sales tax. The billing decision reached beyond the customer’s invoice: the agency described revenue lost to the communities that depended on it. The state investigated the calculation, and local budgets shared the consequence.

The Attorney General’s account also put knowledge inside Sprint’s own tax and government-affairs teams. It said a company lobbyist had agreed in writing that the law would preserve sales tax on these plans without distinguishing between interstate and intrastate calls. The agency said Sprint’s tax team knew the law and the state’s guidance, yet the company later excluded a portion it assigned to interstate calling.

For someone responsible for billing, the relevant records are the plan, the customer’s charge and the rule deciding how much of that charge gets taxed. The Sprint allegations connect that rule to what people inside the company already understood. The investigation began with a whistleblower’s case, and the Attorney General worked with the New York State Department of Taxation and Finance. Its announcement said the whistleblower would receive $62.7 million from the recovery.

Fanatics Settled Allegations About Its Backup Tax Calculation

A sales tax system can contain the right calculation and still send transactions through a different one. New York’s settlement agreement with Fanatics, an online seller of licensed sports merchandise, alleged that its backup tax table applied a single statewide rate when its main service stalled or failed. The main service was designed to apply specific state and local tax rates and rules.

The Attorney General alleged that Fanatics’ earlier tax system used a single rate that did not account for local sales taxes or exemptions. The new service was designed to apply those specific rules, but the backup preserved the single-rate approach. In the state’s account, a purchase could reach a different tax calculation when the main service failed. Someone testing the new service and someone handling failed transactions could therefore be looking at different parts of the tax problem.

According to the Attorney General’s allegations in the agreement, the backup did not account for local rates or item-specific exemptions. Its New York default rate was set to zero in July 2013 and stayed there until November 2015. Some transactions fell back to that table when the main service failed, allegedly causing Fanatics to undercollect customer tax, underpay the state and file returns understating taxable sales.

The Attorney General alleged that Fanatics knew by September 2014 that the main system periodically failed, that the backup took over and that its calculation was limited. The state alleged that the company began addressing the problems but did not fully correct them until December 2017. For someone who maintained the calculation or handled the failures, the useful question is which rule actually ran on the sale. The existence of a better calculation elsewhere in the system does not answer it.

Fanatics agreed to a $1,508,466 settlement. We connect the fallback settings, affected transactions and internal knowledge to the tax the state should have received.

Remote Sales and Services Still Have a State Tax Story

Telephone and Internet sales can produce a collection failure visible in orders and billing records. New York’s settlement with My Pillow resolved allegations that it failed to collect and remit sales tax on those sales. For someone handling customer orders, the connection runs from the sale and its destination to the tax collected and reported.

A separate Illinois My Pillow case shows why identifying the exact tax matters. The Illinois Supreme Court’s opinion records a successful use-tax claim and an unsuccessful retailers’ occupation-tax claim. It records $889,637 in proceeds from the case. The same company’s sales produced different results under different tax obligations.

GetThru’s Text-Messaging Services Reached the District

The sales tax question can concern a service delivered remotely as well as merchandise shipped to a customer. The District of Columbia Attorney General’s GetThru settlement announcement concerned allegedly uncollected sales tax on data-processing services. Toskr, doing business as GetThru, supplied political text-messaging services. A whistleblower brought the case, and the District joined it.

The vendor agreed to a $1 million settlement and future sales tax collection. The allegations concerned noncollection from 2016 through May 2026. For a service-business insider, contracts and billing records connect what the customer bought to how the company treated the sale. We examine that connection with you, including which jurisdiction’s tax the service generated.

False Resale Certificates Can Hide Personal Purchases

A resale certificate can tell one story while the purchaser’s use of the goods tells another. New York’s allegations against Sotheby’s concerned art bought for personal use under false resale certificates. The Attorney General alleged that staff knew artwork was displayed in a customer’s home, contradicting the claimed resale purpose. The state’s announcement described a $6.25 million settlement resolving those allegations.

The certificate was part of the sale, but the staff’s knowledge concerned what happened to the art. That distinction matters to someone handling sales, delivery or customer accounts. We examine what the exemption paperwork said alongside what employees knew about the purchase and its use. In the state’s account, the certificate said resale. The living room said otherwise.

Porsal Equities, an offshore art purchaser, separately settled for $10.75 million and admitted violating New York’s False Claims Act. The matter concerned resale certificates allegedly used for purchases that did not qualify.

What Evidence Is Needed to Report Fraud?

Useful sales and use tax fraud evidence connects the transaction, its treatment in the books and the tax reported, along with who knew they differed. The cases show why a single total can conceal the decision that produced it. A register can leave sales out, a billing rule can exclude a charge, and a backup table can apply the wrong calculation to otherwise recorded transactions.

The value of the records behind the tax return is in explaining how they fit together. A retail employee may know why a sale went through the lottery register. A software employee may know when the backup table replaced the main tax service. A finance employee may understand which version of the sales total reached the tax return. Internal messages, warnings and dated changes can show who understood and controlled the tax treatment. We work through those connections with you, including how you learned the facts and where the relevant records are held.

Why an Insider Can Explain What an Audit Misses

An audit can examine a return without uncovering the transaction the taxpayer kept out of view. The 2014 Villanova Law Review article Not Just Whistling Dixie: The Case for Tax Whistleblowers in the States argues that insiders can help tax officials understand transactions beyond what the taxpayer chose to show them. In its discussion of concealed tax shelters, the paper explains why the government needed an insider:

That insight fits the sales tax records here. Knowing why a return receipt was created or which tax table took over can explain a shortfall that the reported total conceals. Your knowledge supplies the connection between the transaction and the number the state received.

State Sales Tax Cases and Federal Tax Claims Take Different Routes

A state sales tax whistleblower case depends on the state’s tax and whistleblower laws. New York permits qualifying tax cases under its False Claims Act, and the District of Columbia has its own tax false-claims provisions. Illinois excludes claims under its Income Tax Act, while the My Pillow case shows a successful use-tax claim. We assess the tax involved, the business activity and the applicable state authority together.

Hidden receipts may also affect federal income taxes, which bring the IRS whistleblower program into the assessment. We examine each opportunity against the transactions you know, rather than treating all unpaid taxes as one claim.

How Much Do You Get for Reporting Someone for Tax Fraud?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. For the sales and use tax cases discussed here, that opportunity comes through a qualifying state law.

Sprint’s announced whistleblower payment shows why insider information can have substantial value. We assess the potential whistleblower case around the specific sales, tax treatment and knowledge you can explain.

You Know Where the Sales Tax Went Missing

If you know why sales disappeared, a tax calculation changed or an exemption contradicted the purchase, speak with our Whistleblower Experts about what happened inside the business. We connect your knowledge to the transactions and unpaid tax, and bring in sales and use tax fraud whistleblower lawyers who know the relevant state law. We stay with you as partners in building and pursuing the case.