Sprint Nextel is arguing in court that the State had imposed a tax on services that are excluded from sales taxes.
Since 2002, New York Tax Law has required mobile phone companies to collect and pay sales taxes on the full amount of their monthly access charges for their calling plans. For example, when a customer pays Sprint a fixed monthly charge of $39.99 for 450 minutes of mobile calling time, the law requires Sprint to collect and pay sales taxes on the entire $39.99.
Sprint Nextel however would "unbundle" the portion of the calls made within the State, on which taxes were paid from calls made to other States, on which Sprint says taxes cannot be levied.
Sprint is citing the New York tax code that excludes interstate phone calls from sales tax, and a Federal law that allows the mobile networks to split taxable and exempt portions of its monthly invoices.
The Attorney General's lawsuit is the first ever tax enforcement action filed under the New York False Claims Act. Fraudsters found liable under the False Claims Act must pay triple damages, penalties and attorneys' fees.
The Attorney General says that it started its investigation following a tip-off from a whistleblower, who stands to receive a portion of any settlement if the court sides with the State.
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