By Karen Freifeld
(Reuters) - The state of New York on Thursday sued Sprint Nextel Corp for more than $300 million, accusing the company of tax fraud by deliberately not collecting or paying millions of dollars of taxes for its cell phone service.
Sprint, the third-biggest U.S. mobile service provider, failed to bill customers for more than $100 million in taxes for its wireless services over seven years, according to New York Attorney General Eric Schneiderman.
Schneiderman filed his complaint, based on whistleblower information, in New York State Supreme Court on Thursday, and said the case is the first tax enforcement action filed under the state's False Claims Act. The lawsuit seeks three times the amount of underpaid tax, plus penalties.
Sprint said it "categorically denies" the allegations, and intends to defend itself against the lawsuit.
"We have collected and paid over to New York every penny of sales taxes on mobile wireless services that we believe our customers owe under New York state law," it said. "With this lawsuit, the attorney general's office is claiming New York consumers, who already pay some of the highest wireless taxes in the country, should pay even more."
Schneiderman said Sprint's decision not to collect and pay taxes was part of a nationwide effort by the Overland Park, Kansas-based company to lure customers from rivals such as AT&T Inc and Verizon Wireless, and make its service $4.6 million less expensive per month.
"Everyone else had no trouble figuring out what the tax law was, except Sprint," Schneiderman said on a telephone press conference.
He added that internal documents showed the scheme arose from Sprint's seeking to "maintain an advantage over its rivals."
Schneiderman said the whistleblower is Empire State Ventures, which does investigations and is involved in many false claims cases. The attorney general said he wanted to encourage whistleblowers to scrutinize any state rip-offs.
Under the False Claims Act, whistleblowers may be eligible to receive up to 25 percent of any money recovered by the government as a result of information they have provided.
Wall Street analysts expect Sprint Nextel to report a first- quarter loss of $1.296 billion, or 41 cents per share on April 25.
Sprint shares fell 13 cents, or 5.2 percent, to $2.39 on the New York Stock Exchange in afternoon trading.
(Additional reporting by Sinead Carew and Jonathan Stempel in New York; Editing by Maureen Bavdek)