An appeals court ruled Tuesday that Sprint must face a $300 million tax fraud lawsuit filed by New York state that claims the carrier intentionally failed to enforce the collection of taxes on its interstate wireless services over the course of seven years.
In a 4-1 decision, the court denied Sprint’s appeal to dismiss the case and rejected the carrier’s argument that a New York law taxing interstate wireless services was unconstitutional.
“Sprint is disappointed in the appellate court’s decision,” a Sprint spokeswoman said Tuesday. “We are reviewing the opinion and considering our legal options.”
According to Tuesday’s ruling, the appeals court found “the Tax Law unambiguously imposes a tax on receipts from every sale of mobile telecommunications services that are voice services sold for a fixed periodic charge” and determined that the lawsuit “adequately alleges” “in great detail” how the carrier knowingly turned in false tax statements to the state.
Filed in 2012 by state Attorney General Eric Schneiderman based on information provided by a whistleblower, the complaint accuses Sprint of intentionally omitting nearly $100 million in taxes from customer bills in a bid to “gain an advantage over its competitors by reducing the amount of sales taxes it collected from its customers and, thereby, appearing to be a low-cost carrier.” The practice allegedly began in July 2005, when Sprint began “unbundling” charges within its flat-rate monthly plans and failed to collect taxes on the portion of the services it attributed to interstate and international calls, the ruling said.
The complaint further alleges that Sprint willfully ignored the advice of a tax department field auditor in both 2009 and 2011 after the official informed the company its sales tax practice was illegal.
The lawsuit is seeking civil penalties and triple damages against Sprint for each false document submitted to the state.