ALBANY – Sprint has agreed to pay a $330 million settlement after the company skirted New York tax law for nearly a decade, New York’s attorney general announced Friday.
The record-breaking settlement came in the wake of a false claims lawsuit filed by Attorney General Barbara Underwood alleging the cellular provider failed to collect and remit over $100 million in state and local taxes on flat-rate calling plans.
The $330 million settlement is the largest recovery by a single state in a false claims lawsuit, according to the attorney general’s office.
“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,” Underwood said in a statement.
By failing to comply with the state’s tax law, Sprint harmed not just the state but local municipalities where sales tax is the largest source of revenue, according to the attorney general.
A “substantial portion” of the $330 million settlement has already been distributed to local municipalities that have been affected, according to the attorney general’s office, which did not specify which municipalities and how much.
“We are pleased with the settlement, and while we disagree with the State’s characterizations, we believe resolving this matter is in the best interest of the company,” Sprint said in a statement.
Details of the lawsuit
The lawsuit, which was filed in state Supreme Court in Manhattan, dates to March 2011 when a whistleblower, Empire State Ventures LLC, brought a lawsuit against the company under New York’s False Claims Act.
Under the law, whistleblowers and governments can sue to recover damages from companies and individuals who defraud the government.
Sprint, according to Menz Bonner Komar & Koenigsberg LLP, the law firm representing Empire State Ventures, had failed to collect sales tax on its flat-rate cellular plans dating to 2005.
After the initial suit was filed, the state’s attorney general’s office and Department of Taxation and Finance conducted an investigation into the matter.
The investigation found that Sprint had failed to properly collect sales tax on its flat-rate cellular plans, a violation of a 2002 tax law.
Under the law, cellular providers must collect sales tax on all plans sold with a fixed periodic charge without differentiating between intrastate, interstate or international calls.
In other words, if a carrier sold a plan that carried 2,500 voice-only minutes for $49.95 a month, the monthly fee would be taxed regardless where those calls were made.
Sprint not only failed to do this, according to the attorney general’s office, but it did so knowing exactly what the law stated.
The attorney general’s office then filed a civil suit in April 2012.
“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,” Nonie Manion, acting commissioner of the Department of Taxation and Finance, said in a statement.
Empire State Ventures, LLC will receive $62.7 million for their assistance with the case, according to the attorney general’s office.