Sprint Runs Afoul of the Tax Man

by Matt Klassen on October 22, 2015

It looks like Sprint has run afoul of the tax man in New York State, as America’s fourth largest wireless carrier lost its appeal over a 2012 lawsuit regarding a decision to not collect taxes for its wireless services in the state. According to the filing against Sprint, the company knowingly and purposefully failed to bill customers for taxes on its wireless services over a seven year period beginning in 2005.

The office of the Attorney General Eric Schneiderman said that Sprint’s actions were deliberately done to gain a competitive advantage over honest competitors in the area, part of a “nationwide effort” by the wireless company to lure customers away from the likes of AT&T and Verizon. Furthermore, the tax evasion scheme is said to have saved New York customers a combined $4.6 million per month, and resulted in $100 million of lost tax revenue.

Sprint had appealed an earlier decision regarding its failure to collect taxes, stating that a 2002 state law imposing sales taxes on interstate mobile phone services violated the U.S. Constitution. But in a 4-1 decision this week, lost that appeal and will now be forced to pay a hefty $300 million penalty in the fraud lawsuit.

“After the New York Tax Law amendments were enacted in 2002, Sprint paid sales tax on all of its receipts from its flat-rate plans,” the decision explains. “In 2005, however, Sprint began a nationwide program of ‘unbundling’ charges within these flat-rate monthly plans. Specifically, Sprint unbundled the portion of the fixed monthly charge that it attributed to intrastate mobile voice services, and did not collect taxes on the portion that it attributed to interstate and international calls. For the tax years at issue, the percentage of the fixed monthly charge on which Sprint collected sales tax ranged from 71.5% to 83.6%. Sprint did not separately state on customers’ bills the charges for interstate and international voice services included in the flat-rate plan.”

According to Schneiderman, the fraud lawsuit was based on information gathered from a company whistleblower in 2012 that claimed Sprint intentionally ignored the law and failed to collect approximately $100 million in taxes. While tax evasion itself is a problem for the state, as Schneiderman notes, when companies dodge taxes they place “honest competitors” at a disadvantage.

“There has to be one set of rules for everyone, no matter how rich or how powerful, and that includes the biggest corporations paying their fair share of taxes,” he said.

Further, the case alleges that Sprint knowingly attempted to utilize a loophole in the New York tax code to evade the collection and payment of these taxes, again all part of an attempt to undercut the prices of its larger competitors.

Interestingly enough, Sprint had reported in a Securities and Exchange Commission filing that this investigation into the claims that the company had knowingly failed to collect and pay for than $100 million inNew York state taxes had been closed on July 2, 2013, with the SEC recommending that no action be taken against the company. Unfortunately for Sprint, it seems, the Attorney General disagreed, and now Sprint finds itself open to damages triple the amount of which it failed to collect and pay.

As one might expect, a Sprint representative said the company is “disappointed with the decision.”

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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