A state Supreme Court justice in Manhattan has denied Sprint-Nextel Corp.’s attempt to dismiss a tax-fraud lawsuit that seeks to recoup three times the more than $100 million dollars in taxes owed to state and local governments in New York since 2005, plus penalties, according to Attorney General Eric Schneiderman.
Justice O. Peter Sherwood ruled that Sprint’s sales tax practices were not consistent with state law and that Schneiderman’s office had presented enough evidence of fraud for the case to move forward.
In a complaint filed last year, Schneiderman claimed that Sprint-Nextel, starting eight years ago, “knowingly failed to collect and pay to New York taxing authorities sales taxes on about one quarter of its receipts for its flat-rate charges for wireless calling plans.” Schneiderman said the company continues to avoid the taxes and faces up to triple damages and mandatory civil penalties. The lawsuit was the first of its kind filed under New York’s False Claims Act, an anti-fraud statute, for “knowingly” violating state tax law, he said.
“On behalf of responsible taxpayers, local governments and businesses in New York State, I am very pleased with today’s decision, which clears the way for my office to hold Sprint accountable for its avoidance of over a hundred million dollars in taxes it knowingly evaded,” he said in a statement. “As the very first tax case prosecuted under the False Claims Act – which rewards and protects whistleblowers – this ruling sends a message that tax dodgers will be exposed and prosecuted to the fullest extent of the law.”
The False Claims Act allows whistleblowers to bring lawsuits on behalf of the government, and they receive a percentage of the proceeds. The case began with a whistleblower, and the attorney general intervened, Schneiderman said.
Schneiderman said the court, in rejecting Spring’s motion, ruled that his office was correct that state tax law requires wireless carriers to collect and pay the government sales taxes on the full amount of their flat-rate charges for cell phone service. All the other major wireless carriers do that, he said.
Sprint had argued that part of its flat-rate plan was considered non-taxable, but the court ruled that is not the case, according to the attorney general.
“I applaud the Attorney General for quickly and aggressively pursuing the facts about Sprint’s tax scheme that our client brought to light, and for fighting to uphold the law for the benefit of the New York taxpayers and fairness in general,” said David Koenigsberg, attorney for the whistleblower.