Fanatics Failed to Collect and Remit Sales Tax on Certain Internet Sales in NYS

NEW YORK – New York Attorney General Letitia James today announced she has secured $1,508,466 from sports merchandise and memorabilia retailer Fanatics, Inc. and its affiliates for knowingly under-collecting on sales tax on online sales. An investigation by the Office of the Attorney General (OAG) found that Fanatics’ sales tax collection system periodically failed to calculate the correct amount of sales tax due to New York state and to various local governments on sales made through websites managed by Fanatics, and that the company was aware of this failure for at least three years but still did nothing to rectify the issue. As a result, Fanatics’ periodic sales tax returns understated the amount of sales tax due to the state.

“When a company doesn’t properly calculate and charge sales tax, they cheat every taxpayer across the state,” said Attorney General James. “Over the course of years, Fanatics failed to deliver more than $1 million in sales tax they were required to collect and pay over to the state. No company is above the law, which is why New Yorkers can trust that I will hold accountable those who skirt their responsibilities and try to illegally tilt the playing field.”

Fanatics sells licensed sports merchandise and memorabilia online, through websites it operates. In 2013, Fanatics launched a new third-party tax computation system for its websites and also developed a back-up solution (the “back-up table”) in the event that the new tax service failed. If utilized, the back-up table would apply a single default statewide sales tax rate to all sales that did not account for local sales tax rates or exemptions from tax for particular items. Fanatics’ back-up table’s default sales tax rate for New York state changed over time: Initially set at four percent, then set to zero percent from July 2013 to November 2015, after which it was changed back to four percent.

However, the default tax rate did not always reflect applicable local sales tax at the time and, for certain purchases where no exemptions were applicable, sometimes did not reflect applicable state sales tax. As a result, when the third-party computation system periodically failed, some of the transactions that defaulted to a back-up table rate was too low, and Fanatics, consequently, under-collected both applicable New York state and local sales taxes.

In September 2014, Fanatics became aware that its new tax collection system did periodically fail, and that the back-up table took over during those times. It was also made aware that the back-up table did not always calculate the correct amount of tax due, but, nonetheless, did not fully correct these issues for several years, until December 2017.

The OAG’s investigation began after a whistleblower filed a qui tam complaint under the New York False Claims Act. The New York False Claims Act allows private persons to file civil actions on behalf of the government and to share in any recovery.  

The investigation was led by Assistant Attorney General Laura Jereski, assisted by Legal Support Analyst Iuliia Belyshkina — both of the Taxpayer Protection Bureau. The Taxpayer Protection Bureau is led by Bureau Chief Thomas Teige Carroll and Deputy Bureau Chief Scott J. Spiegelman, and is a part of the Division for Economic Justice, which is led by Chief Deputy Attorney General Chris D’Angelo and First Deputy Attorney General Jennifer Levy.