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Sprint Must Face $300 Million N.Y. Alleged Tax Fraud Suit

Sprint-Nextel Corp. (S) must face a lawsuit for $300 million brought by the New York attorney general claiming the third-largest U.S. wireless carrier deliberately failed to pay sales taxes.

New York Supreme Court Judge O. Peter Sherwood denied Sprint-Nextel’s bid to dismiss the case in a ruling dated June 27. He ordered lawyers for both sides to appear at a hearing July 24.

Attorney General Eric Schneiderman last year took over the whistle-blower lawsuit filed in New York in 2011, claiming Sprint didn’t collect and pay some sales taxes on flat-rate access charges for wireless calling plans, costing state and local governments more than $100 million.

“Sprint is disappointed in the court’s decision, and we intend to file an appeal shortly,” John Taylor, a spokesman for Overland Park, Kansas-based Sprint said in an e-mailed statement. “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. As we have in the past, we will continue to stand up for New York consumers’ rights and fight this suit.”

The attorney general seeks three times Sprint’s alleged underpayment of more than $100 million plus penalties under the state’s false claims act.

``As the very first case prosecuted under a new provision in state law allowing for tax fraud claims -- and with strong protections for whistleblowers -- this ruling sends a message that tax dodgers will be exposed and prosecuted to the fullest extent of the law,'' Schneiderman said in an e-mailed statement.

Judge's Finding

The complaint “satisfactorily alleges that Sprint knowingly submitted false monthly tax statements,” Sherwood wrote.

Wireless carriers selling a set number of minutes of calling time for a fixed monthly charge must collect and pay sales taxes on the entire charge, Schneiderman claimed. Sprint treated a portion as nontaxable and withheld about 25 percent of the taxes it was supposed to collect and remit to state and local governments, according to the attorney general.

The move arose from a nationwide effort by Sprint to gain an advantage over competitors including AT&T Inc. (T) and Verizon Wireless, which correctly collect and pay the taxes, Schneiderman said.

The case is New York v. Sprint Nextel, 103917-2011, New York Supreme Court (Manhattan).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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