(CN) - Sprint is denying allegations that it failed to collect more than $100 million in New York sales taxes from the sale of wireless telephone services, potentially subjecting the company to more than $300 million in civil liability and fines, a shareholder derivative action claims.
Since July 2005, Sprint offered calling plans that allowed customers an unlimited number of minutes at a fixed monthly rate. Since 2002 under New York State law, Sprint is required to pay sales taxes on the full amount of the fixed charged monthly plans, which should be collected from costumers then paid to the State.
Beginning in July 2005, Sprint began to unbundle its wireless plans for sales tax purposes. "As part of this program, Defendants caused, or were reckless in allowing, the Company to begin treating part of its fixed monthly access charges for wireless voice services as if they were charges for 'interstate' calls charged on a per-minute basis, and, in states like New York, not collecting and paying sales taxes on that part," the complaint states.
In an effort to reduce tax payments and stay competitive within the wireless market, Sprint decided to implement the unbundling tactic knowing that unbundling cannot be used as a means of avoiding sales taxes, the suit says.
Empire State Ventures filed a lawsuit against Sprint on March 31, 2011, bringing Sprint's allegedly illegal tax practices to light. That suit was ultimately superseded by the New York Attorney General following an investigation.
Sprint subsidiaries Sprint Spectrum L.P., Nextel of New York, and Nextel Partners collectively failed to pay New York State and local sales taxes on 22.5 per cent of fixed monthly charges for wireless plans.
"Sprint concluded that its plans would be about $4.6 million per month cheaper, collectively, than competitors' plans by paying less money to the government, without any cost to Sprint," the suit alleges.
Sprint is presently still allegedly failing to collect or pay what it owes in taxes, leaving the company to face massive penalties under New York Tax Law.
The lawsuit is filed in the U.S.D.C. District of Kansas by M. Bradley Watson of Logan Logan & Watson in Prairie Village, Kan., Peter Safirstein, Domenico G. Minerva, and Elizabeth S. Metcalf of Morgan & Morgan in New York, Christopher S. Polaszek in Tampa and Richard K. Wichko in Gibsonia, Pa.