Sprint Nextel (NYSE:S) was sued Thursday for more than $300 million by the New York attorney general, who alleged that Sprint had deliberately underpaid state sales taxes for seven years in order to keep its prices down.
New York Attorney General Eric Schneiderman said that Sprint failed to collect more than $100 million in taxes from customers, and the lawsuit is seeking three times that amount plus penalties. "This case represents a new era in tax fraud prosecutions," Schneiderman said at press conference, according to Bloomberg. "The deliberate failure to collect or pay your fair share of taxes will not be tolerated in New York state."
Schneiderman noted that carriers that sell calling plans for a fixed monthly rate must collect and pay sales taxes on the entire charge. The lawsuit alleges that Sprint deliberately did not pay about 25 percent of the taxes it was supposed to pay to state and local governments, which made Sprint's services less expensive than those of its competitors.
In a statement, Sprint said the lawsuit is without merit and that it categorically denied the claims in the lawsuit. "We have collected and paid over to New York every penny of sales taxes on mobile wireless services that we believe our customers owe under New York state law," the company said. "With this lawsuit, 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. We intend to stand up for New York consumers' rights and fight this suit."
Sprint claims it must only pay taxes on inter-state calls, not calls made between parties in different parts of New York. It's unclear whether the New York lawsuit could lead to more by other attorneys general. Either way, $300 million is a significant amount of money for Sprint, which generated $257 million of free cash flow in the fourth quarter of 2011.
The CTIA has long fought for bills from Congress that would place five-year moratoriums on new state and local taxes targeting wireless services but not other goods or services. However, the legislation has perennially failed to make it out of Congress.
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