The State of New York issued an announcement on Thursday that they will be suing Sprint Nextel Corporation (NYSE:S) for allegedly not paying the proper taxes for its services. New York said they will be seeking $300 million from the corporation due to tax fraud over the years.
Sprint did not bill its customers more than $100 million in taxes for its wireless services over a seven year period says the New York Attorney General Eric Schneiderman. The Attorney General officially filed the charges with the New York State Supreme Court on Thursday and used the state’s False Claims Act as the area of violation.
Sprint cheated the government out of $100 million dollars but the government is seeking three times that amount plus fees and penalties. Sprint did not charge sales tax to its customers because their plan was to make it seem as though their mobile phone plans were cheaper than rivals Verizon and Verizon Communications Inc. (NYSE:VZ). Unfortunately, it is going to cost the company $300 million plus.
This just shows you that Sprint is desperate and way behind its competitors. Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (T) have the most reliable service in the country and both offer the iPhone with a range of Android as well. Sprint offers the iPhone but it is pretty recent and quite frankly, it doesn’t matter because if your offer bad service compared to your competitors it won’t matter if you have the iPhone.
Sprint has been looking for an edge for quite some time but it seems as though it can’t get it. Really the best thing for Sprint would be to get acquired by AT&T or Verizon.
The only problem with that is from history we can tell that the US government does like mobile phone mergers because it creates a monopoly, as we saw with AT&T Inc. (T) and T-Mobile merger. Sprint aggressively fought that because if that merger did go through Sprint would have disappeared. Even Verizon would have been hurt by that merger.
The bottom line here is not charging your customers tax on their purchases so it appears that your service is cheaper than your competitors does not work. In fact, I can’t think of a more desperate move. Now instead of paying the original tax bill of $100 million, they will have to pay three times as much plus fees and penalties. Now Sprint is going to be in some trouble cash wise after this. Hopefully they now understand that taxes need to be paid the first time and not after the state sues you.