New York Attorney General Eric Schneiderman sued Sprint-Nextel Corp. on Thursday, claiming it deliberately under-collected and underpaid $100 million in sales taxes to keep its competitive prices down.
The lawsuit in state Supreme Court was the first filed under a state law allowing the government to sue over tax losses from fraud. It could require the company to pay triple the amount it is accused of underpaying.
"We're seeking to ensure that Sprint, not its customers, is liable for all back taxes," Schneiderman said. His attorneys will also try to ensure in court that any affected customers can switch to other phone companies without paying early contract termination fees, which usually exceed $200.
Sprint said it collected taxes and paid "every penny" it believes its customers owe. "This complaint is without merit and Sprint categorically denies the complaint's allegations," spokesman John Taylor said.
Since 2002, New York tax law has required mobile phone companies to collect and pay sales taxes on the full amount of their monthly access fees for calling plans. Schneiderman said competitors Verizon, AT&T, T-Mobile, and MetroPCS pay the tax.
According to the complaint, Sprint since 2005 underpaid about 25 percent of sales taxes owed and submitted false records, all based on an in-house theory of paying no state taxes on an arbitrarily chosen interstate portion of phone service.
"New York tax law is clear. Companies must pay sales tax on the entire monthly charge," Schneiderman said. The state sales tax is 4 percent, while most counties add another 4 percent.
The lawsuit said the amount keeps growing since Sprint has not changed its practices. It requested more than $300 million and supersedes a lawsuit filed last year by whistleblower Empire State Ventures LLC, a company Schneiderman said does investigations.
Sprint intends to stand up for consumer rights and fight the lawsuit, Taylor said. "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," he said.
New York redrafted its law allowing the government to sue contractors and others over losses from fraud to include tax fraud in 2010, said Schneiderman, a former state senator who pushed for that measure, hoping to make the state welcoming for false claims lawyers. "We're hoping to have more folks scrutinizing any rip-off of state and local governments," he said.
The court will decide what portion of any settlement or award would go to the whistleblower, though that generally ranges from 15 to 20 percent, he said.
According to court papers, Sprint has about 55 million customers, including about 1.8 million wireless customers in New York. It sells wireless plans in New York through subsidiaries Sprint Spectrum, Nextel of New York and Nextel Partners of Upstate New York.