Sprint Nextel Accused of Dodging $100 Million Taxes

April 19, 2012 — -- New York officials today accused Sprint Nextel Corp. of under-collecting and under-paying over $100 million in state and local sales taxes on flat-rate access charges for wireless calling plans.

New York Attorney General Eric Schneiderman announced on Thursday a lawsuit against Sprint Nextel requiring the company to pay three times its underpayment plus penalties if found liable to New York state and local governments, including school districts.

"Everyone else had no trouble figuring out what the tax law was, except for Sprint," Schneiderman said during a conference call.

Schneiderman said Sprint's major wireless competitors, including Verizon, AT&T, T-Mobile, and MetroPCS, have followed the law regarding the taxes. Last week, Verizon was included in a list of largest corporate tax-dodgers by liberal-leaning group, Citizens for Tax Justice.

The Attorney General called Thursday's action a "first-of-its-kind lawsuit."

The lawsuit is the first tax enforcement action filed under the New York False Claims Act in which those found liable under the False Claims Act must pay triple damages, penalties and attorneys' fees. Under the law, whistleblowers may receive up to 25 percent of any money recovered by the government as a result of information they provide.

"This complaint is without merit and Sprint categorically denies the complaint's allegations," said John Taylor, Sprint Nextel spokesman. "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. 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."

Twenty-nine states and the federal government have passed False Claims Acts, but New York's Act "expressly covers tax fraud as a result of a landmark law," the Attorney General's office said.

"This case represents a new era in tax fraud prosecutions," Schneiderman said. "We're sending a message to corporations that failure to pay your fair share of taxes will not be tolerated."

In 2011, Schneiderman created the "Taxpayer Protection Bureau," as one of his first acts in office. The bureau is charged to work with whistleblowers and enforce the False Claims Act in tax and other government fraud cases.

Schneiderman's investigation of Sprint began with a whistleblower lawsuit, called a "qui tam" action, filed in New York State Supreme Court in Manhattan in March 2011, just after the Taxpayer Protection Bureau was created.

Working with the New York State Department of Taxation & Finance, the bureau conducted an investigation.

Schneiderman's office said that by filing Thursday's complaint, the Attorney General has taken over the action from the whistleblower on behalf of New York's taxpayers.