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Sprint Nextel must face NY suit over tax fraud - judge

People walk past a Sprint store in New York December 17, 2012. REUTERS/Andrew Kelly
People walk past a Sprint store in New York December 17, 2012. REUTERS/Andrew Kelly

NEW YORK (Reuters) - Sprint Nextel Corp must face a lawsuit brought by New York state accusing the company of deliberately not collecting or paying millions of dollars of taxes for its cell phone service, a judge has ruled.

In a decision made public on Monday, New York Supreme Court Justice O. Peter Sherwood denied a motion by Sprint to dismiss the lawsuit.

Sherwood, however, dismissed a conspiracy claim against Sprint and ruled that certain claims applying to periods before March 31, 2008 are barred by a three-year statute of limitations.

"Sprint is disappointed in the Court's decision, and we intend to file an appeal shortly," Sprint said in an emailed statement. "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."

The lawsuit brought by New York Attorney General Eric Schneiderman was the first tax enforcement action filed under the state's False Claims Act.

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.

Based on whistleblower information, Schneiderman alleged in the lawsuit that Sprint failed to bill customers for more than $100 million in taxes for its wireless services over seven years.

He 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.

The lawsuit seeks three times the amount of underpaid tax, plus penalties.

A spokesman for Schneiderman applauded the ruling in a statement, saying it "sends a message that tax dodgers will be exposed and prosecuted to the fullest extent of the law."

(Reporting by Andrew Longstreth and Karen Freifeld; Editing by Ryan Woo)

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