Sprint Communications, Inc., has agreed to pay a record $330 million to resolve a New York False Claims Act lawsuit alleging that the wireless company knowingly failed to collect and remit more than $100 million in state and local taxes on its flat-rate wireless calling plans, the state attorney general’s office announced today.
“Sprint knew exactly how New York sales tax law applied to its plans — yet for years the company flagrantly broke the law, cheating the state and its localities out of tax dollars that should have been invested in our communities,” said New York Attorney General Barbara Underwood, who will soon be making way for the newly elected attorney general and returning to her old role as the state’s solicitor general. “Now, Sprint will pay the price with this record-setting settlement. This should serve as a clear reminder that the New York False Claims Act protects New Yorkers from companies that attempt to flout their obligations under New York tax law.”
The lawsuit was first initiated in 2011 by a whistleblower, Empire State Ventures LLC, and filed under the state's False Claims Act. The attorney general’s office took over the proceeding in 2012, with a lawsuit alleging that Sprint’s decision to stop collecting the sales taxes arose out of a nationwide scheme to gain advantage over its competitors by reducing the costs of its products. The lawsuit further alleged that Sprint avoided paying sales tax on about 25% of its receipts for flat-rate calling plans.
AG Underwood said her office’s investigation showed that for nearly a decade Sprint knowingly violated the tax law and continued to violate the law even after the investigation began and the lawsuit was filed.
“By blatantly understating the amount of sales tax owed to the tune of $100 million, Sprint violated the trust of its customers and deprived communities across New York State of revenue needed for vital services,” Acting Tax Commissioner Nonie Manion said in a statement today.
The attorney general noted that since the enforcement action was filed in 2012, the New York Supreme Court, the New York Supreme Court Appellate Division, First Department, and the New York Court of Appeals had all issued opinions rejecting Sprint’s attempts to dismiss the lawsuit. Sprint attempted to argue, among other things, that federal law preempted state law on sales taxes for interstate mobile services, but that argument was rejected.
According to the settlement, the whistleblower responsible for the initiation of the investigation, Empire State, will receive $62.7 million, in accordance with the provisions of the New York False Claims Act. The attorney general also points out that a “substantial portion” of the settlement has already been distributed to local municipalities that have been impacted.
The attorney general further noted that the $330 million payment by Sprint is the largest recovery ever resulting from an action under the New York False Claims Act. —Carrie DeLeon, [email protected]
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