NY A.G. wins right to sue Sprint for sales tax fraud for $400 Million

Attorney General Eric T. Schneiderman won a major victory today in the first of its kind lawsuit against Sprint-Nextel Corp for deliberately under-collecting and underpaying millions of dollars in New York State and local sales taxes on flat-rate access charges for wireless calling plans.

The case was brought under the New York False Claims Act and it seeks to require Sprint to pay three times the underpayment of approximately $130 million plus penalties.

Sprint had asked the Court to dismiss the suit saying that the Attorney General had not alleged that it knowingly violated the tax law. The Court ruled against Sprint, which appealed to the Appellate Division which today unanimously affirmed the Court’s ruling against Sprint.

The case was brought to New York by a whistleblower. Since 2002, New York Tax Law has required mobile phone companies to collect and pay sales taxes on the full amount of the monthly access charges for their calling plans. For example, when a customer pays Sprint a fixed monthly charge of $39.99 for 450 minutes of mobile calling time, the law requires Sprint to collect and pay sales taxes on the entire amount. According the the Attorney General, Sprint failed to do so and submitted false records to the tax authorities.

This case is the first of its kind. All of Sprint’s wireless competitors including Verizon, AT&T, T-Mobile and MetroPCS have followed the law regardng these taxes in New York.

Jeffrey Newman represents whistleblowers.