States are currently facing significant fiscal challenges, with tax revenues weakening through late 2024 and into fiscal year 2025. This downturn is marked by notable declines in corporate income taxes and sluggish sales-tax growth. These trends, coupled with federal policy shifts and significant changes to federal tax policy under the “One Big Beautiful Bill,” are adding considerable pressure to state budgets. For instance, as a result of the projected impact of recently passed changes to the federal tax code, Colorado was forced to cut $1 billion from its budget and add additional sources of tax revenue.

Amid this fiscal squeeze, state False Claims Acts (FCAs) that permit tax-related qui tam actions offer a targeted, high-return-on-investment enforcement tool. New York’s statute, amended in 2010, opened FCA liability to tax fraud for large taxpayers. The statute brought significant returns for the state’s revenue. As of April 2024, “New York ha[d] recovered about $588 million in tax cases, including whistleblower awards of about $112 million.”

The District of Columbia followed suit, amending its FCA in 2021 to cover tax claims meeting similar thresholds—$1 million in District income/sales/revenue for any year at issue and at least $350,000 in alleged damages—while retaining treble damages and per-claim penalties. In 2024, D.C. announced a $40 million tax settlement with MicroStrategy founder Michael Saylor. This settlement, which resolved tax fraud charges, marked the largest income-tax recovery in D.C. history and was the first major result under the updated law.. This demonstrates the immediate impact of these updated provisions on revenue recovery.

Other jurisdictions also permit some form of tax-related FCA actions. Illinois, for example, allows qui tam suits on certain non-income-tax claims administered by the Department of Revenue, provided specific conditions are met. Several additional states—Indiana, Rhode Island, Delaware, Hawaii, Nevada, and New Hampshire—do not categorically bar tax-related FCA claims under their statutes, though formal programs vary.

In California, the state legislature is currently considering a bill that would expand the state’s false claims act to include violations of the state tax laws, with certain restrictions. If this bill passes, then over a quarter of the entire U.S. economy would be protected by tax based false claims act claims. California is by all accounts the largest sub-national economy in the world, with over $4 trillion of GDP. Protecting the tax revenues that are required to run such a successful and influential economy is of paramount importance, and SB 799 could provide a potent tool to do so.  

In today’s challenging fiscal context, states have less margin for error and a greater imperative to recover dollars already owed to maintain fiscal stability. With budgets tightening, states can increase their revenue without raising tax rates, simply by more effectively enforcing the laws already on the books. Properly structured state FCA tax provisions, paired with strong relators and smart screening, can deliver significant, repeatable returns while leveling the playing field for taxpayers who follow the rules.


This piece was written by Clayton Wire, a Partner at Ogborn Mihm.