N.Y. False Claims Act lawsuit against Sprint will proceed

NEW YORK (Legal Newsline) - New York Attorney General Eric Schneiderman announced on Thursday that he won the right to proceed with a first-of-its-kind lawsuit against Sprint-Nextel Corp. for allegedly undercollecting and underpaying millions of dollars in taxes.

Schneiderman's lawsuit alleges Sprint deliberately undercollected and underpaid New York state and local sales taxes on flat-rate access charges for wireless calling plans. New York Tax Law requires mobile phone companies to collect and pay sales tax on the full amount of monthly access charges for their calling plans. Since 2005, Sprint allegedly failed to collect and pay New York sales tax on a set portion of its revenue from fixed monthly access plans.

Sprint allegedly submitted false records and statements to New York state tax authorities and concealed this practice from its customers, competitors and taxing authorities.

Brought under the New York False Claims Act, the lawsuit would require Sprint to pay three times its underpayment of approximately $130 million, plus penalties, if the company is found liable.

"Today's decision allows my office to proceed in holding Sprint accountable for deliberately evading sales taxes and costing state and local governments approximately $130 million," Schneiderman said. "As long as I am attorney general, I'm committed to ensuring that taxpayers' money is protected, and that honest businesses aren't put at a disadvantage for collecting and paying their fair share."

Sprint asked the court to dismiss Schneiderman's lawsuit, but the New York Supreme Court ruled against the company on July 1. Sprint appealed the decision to the Appellate Division, which unanimously affirmed the July 1 ruling on Thursday.

Schneiderman alleged that Sprint has yet to correct its sales tax practices, causing its New York sales tax underpayment to grow by approximately $210,000 every week.