Fanatics Inc. will pay the state of New York more than $1.5 million after years of undercharging customers on sales tax, the state's attorney general announced Tuesday.
Attorney General Letitia James said the company, headquartered in Jacksonville, "knowingly" miscalculated the sales tax it charged online customers and failed to correct the problems for at least three years.
“When a company doesn’t properly calculate and charge sales tax, they cheat every taxpayer across the state,” James said in a news release.
Fanatics sells licensed sports merchandise and memorabilia online, through websites it operates. In 2013, Fanatics launched a third-party tax computation system for its websites and also developed a back-up system in case the new service failed, James said. But the backup system incorporated incorrect state and local sales tax tables, she said.
Fanatics learned in September 2014 that its system periodicallly failed and that the backup system calculated incorrect sales taxes, James said. The company but did not fully correct the problems until December 2017, she said.
Fanatics released a statement saying it fully cooperated with the attorney general's office for more than four years and corrected the problems.
“Rather than litigate the matter, Fanatics agreed to settle with the AG’s office for a nominal amount, which covers a three-year period,” a spokesman said.
The settlement amounts to $1,508,466, according to the attorney general. The Wall Street Journal recently estimated Fanatics' value at $18 billion, with anticipated revenue of $3.4 billion this year, up from $2.6 billion in 2020.
The Attorney General's Office began its investigation after a whistleblower filed a complaint under the New York False Claims Act. The act allows private individuals to file civil actions on behalf of the government and to share in any recovery.
The attorney general released no information about the whistleblower or how the settlement would be divided.