N.Y. Sues Sprint for $300 Million in Tax Fraud Case

New York authorities said Sprint officials deliberately failed to collect and pay sales taxes on their wireless in hopes of gaining a competitive advantage over rivals.

New York is suing Sprint Nextel for $300 million, claiming the wireless network giant has underpaid and under-collected sales and local sales taxes on its calling plans for more than seven years as part of a larger effort to gain an edge over such competitors as AT&T, Verizon and T-Mobile.

By not collecting sales taxes from its customers or paying those taxes to New York, Sprint executives were able to claim that their wireless calling plans were less expensive their those of their competitors by as much as $4.6 million a month, according to a statement released April 19 by New York Attorney General Eric Schneiderman.

€œBy deliberately evading sales taxes, Sprint cost state and local governments more than $100 million that could have been used for critical services and much-needed resources that our state and its citizens need, given the challenging economic times we are in,€ Schneiderman said in a statement. €œThe message of our office is clear€”tax dodging is not acceptable, and we will use every tool in our arsenal to make sure that taxpayers€™ money is protected, and that honest businesses and consumers are not placed at a disadvantage for collecting and paying their fair share of taxes.€

Schneiderman€™s office is looking for Sprint to pay three times the alleged underpayment of taxes.

In a statement April 19, Sprint officials denied the allegations, saying Schneiderman's complaint is "without merit" and is an attack not on Sprint, but on its New York customers.

"We have collected and paid over to New York every penny of sales taxes on mobile wireless services that we believe our customers owe under New York state law," the Sprint statement reads. "With this lawsuit, the Attorney General's office is claiming New York consumers, who already pay some of the highest wireless taxes in the country, should pay even more. We intend to stand up for New York consumers' rights and fight this suit."

According to Schneiderman€™s office, the state investigation began when a whistleblower filed a lawsuit in New York State Supreme Court in March 2011. The Attorney General€™s Taxpayer Protection Bureau and the New York Department of Taxation & Finance then conducted a joint investigation. With the complaint filed April 19, Schneiderman€™s office is now taking over the lawsuit originally filed by the whistleblower.

Sprint executives knew what they were doing when they started the alleged tax fraud scheme in 2005, according to Schneiderman. Since 2002, New York has required mobile phone companies to collect and pay sales taxes on their monthly access for their calling plans. For the past seven years, Sprint officials didn€™t collect or pay these taxes on €œan arbitrarily set portion of its revenue from these fixed monthly charges,€ Schneiderman€™s office said in a statement. To do this, Sprint officials knowingly submitted false records and made false statements to state tax authorities, the Attorney General's office said.

€œSprint concealed this practice from taxing authorities, its competitors and its customers,€ Schneiderman€™s office said in its statement. €œSprint's scheme is ongoing. Sprint did not correct its sales tax practices when it was informed of its illegality, and it has not corrected them even today. As a result of Sprint's unlawful actions, its underpayment of New York sales taxes is growing by about a $210,000 every week, over $30,000 a day.€

The New York authorities said that they would hold Sprint responsible for the sales taxes not being paid, and not the wireless carrier€™s customers. They also said they want to make sure that Sprint€™s New York customers could end their Sprint contracts if they wished without having to pay termination fees.