Sprint Loses Bid to Dismiss New York Tax Case on Appeal

Sprint Corp. (S), the third-largest U.S. wireless carrier, lost a bid to dismiss a lawsuit by New York’s attorney general seeking more than $300 million over claims it deliberately failed to pay sales taxes.

A New York state appeals court today upheld a lower court decision denying the company’s request to throw out the case. Sprint is accused in the suit, filed by a whistle-blower in 2011 and now being pursued by Attorney General Eric Schneiderman, of failing to collect and pay some sales taxes on flat-rate access charges for wireless calling plans.

Scheiderman’s office said in an amended complaint filed in August that the unpaid taxes amounted to more than $100 million since July 2005. The tax liability is now more than $130 million, Schneiderman’s office said today.

The attorney general is seeking three times the alleged underpayment by Overland Park, Kansas-based Sprint plus penalties under the state’s False Claims Act, putting the potential recovery of almost $400 million, according to his office. Sprint’s revenue rose 1.5 percent to $9.14 billion in the fourth quarter, posting a net loss of $1.04 billion compared with a loss of $1.32 billion a year earlier.

“Today’s decision allows my office to proceed in holding Sprint accountable,” Schneiderman said in a statement.

John B. Taylor, a spokesman for Sprint, said by e-email that the company is disappointed by the court’s decision and exploring its options.

‘Properly Denied’

In its ruling today, the appeals court said New York Supreme Court Judge O. Peter Sherwood “properly denied the motion to dismiss the complaint in its entirety. Plaintiff’s complaint adequately alleges that defendants violated New York’s False Claims Act.”

Whistle-blower laws allow individuals and companies to be held liable for any fraud on the government. Tax fraud is included as a result of a bill Schneiderman wrote while serving as a state senator, according to his office.

After taking office in 2011 as attorney general, Schneiderman created the Taxpayer Protection Bureau, which investigated the whistle-blower case filed against Sprint, according to his office.

Sprint’s decision not to collect the taxes at issue arose out of nationwide effort to gain an edge on competitors by being able to offer less expensive customer plans, Schneiderman said.

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

To contact the reporters on this story: Chris Dolmetsch in New York State Supreme Court in Manhattan at

cdolmetsch@bloomberg.net; Christie Smythe in Brooklyn at csmythe1@bloomberg.net

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

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