New York Accuses Sprint of Tax Fraud, Seeks $300 Million in Penalties

By Beecher Tuttle April 19, 2012

Shares of Sprint Nextel tumbled on Thursday after the state of New York sued the carrier for underpaying and under-collecting millions of dollars in taxes over a seven-year period.

New York Attorney General Eric Schneiderman has accused Sprint of tax fraud for intentionally failing to pay more than $100 million in sales tax on monthly access fees for calling plans, and has sued the carrier for around $300 million plus penalties.

According to Schneiderman, Sprint failed to collect and pay the full monthly charge for fixed contract plans – something carriers are required to do even if the customer doesn't reach or exceed their allotted number of minutes. Instead, the Kansas-based company withheld approximately 25 percent of the taxes that it was supposed to collect while treating another portion as nontaxable, according to Bloomberg.

“This case represents a new era in tax fraud prosecutions,” said Schneiderman, who believes the case is the first of its kind to be filed under filed under the state's False Claims Act, a new law that enables prosecutors to take action against individuals or companies that defraud the government. “The deliberate failure to collect or pay your fair share of taxes will not be tolerated in New York state.”

Schneiderman added that every other carrier had little difficulty following the tax law, and stressed that Sprint didn't amend its tax practices after being informed of the issue. In fact, “it has not corrected them even today,” Schneiderman noted in a statement.

Although Sprint customers could conceivably be liable for repaying the taxes owed, CNN reports that New York is more likely to ask the carrier to float the entire bill. In addition, Schneiderman is looking to require Sprint to allow its customers to end their contracts with the carrier if they see fit, and without having to pay any termination fee.

For years, Sprint has remained competitive with rival carriers like Verizon and AT&T by keeping its prices low. If Schneiderman's accusations prove accurate, we'll all know how they pulled it off. Schneiderman even suggested in a conference call that the alleged fraud was an effort by Sprint to “maintain an advantage over its rivals.”

Sprint denied the claims in an emailed statement to Bloomberg, noting that it has paid “every penny of sales taxes on mobile wireless services that we believe our customers owe under New York state law.”

Stay tuned.

Edited by Jennifer Russell

TechZone360 Contributor

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