The Joplin Globe, Joplin, MO

January 11, 2013

Lawsuit filed against Missouri cities over Internet taxes

By Debby Woodin

JOPLIN, Mo. — Cities face another round of litigation regarding disputes over the collection of sales taxes on wireless telephone services.

Previous lawsuits sought payments of local taxes on land-line and cellular telephone service. This time the lawsuit involves taxes imposed by AT&T Mobility on Internet services, which the cities have refused to refund.

This lawsuit is filed on behalf of consumers who were required to pay sales taxes on Internet services, which the suit alleges are illegal taxes.

There are more than 250 cities and St. Louis County named in the lawsuit filed Jan. 4 in U.S. District Court at Kansas City, although the petition says there may be others too numerous to list. Those cities in Southwest Missouri named are Aurora, Butterfield, Carl Junction, Carthage, Joplin, Monett, Neosho, Nevada, Pierce City and Webb City.

Joplin’s city attorney, Brian Head, said the lawsuit has not been served yet on all the cities, but he is aware that there has been a filing. Once the city is served, he said, “we’ll be reviewing it and considering our options, but we intend to defend it vigorously.”

A Jefferson City consumer, Bert Kimble, is the first listed plaintiff in the lawsuit that was filed as a class action on behalf of all Internet access customers of AT&T Mobility.

The lawsuit contends that federal law, the Internet Tax Federal Act, has prohibited imposing taxes for Internet access. The lawsuit states that Missouri has excluded Internet access from the definition of telecommunications services subject to state and city sales taxes since 1998.

According to the petition, the cities enacted ordinances imposing business license taxes on the telecommunications companies several years ago, before 2005, and the cellphone companies refused to pay the taxes, contending they were not telecommunications companies because they provided wireless services rather than traditional wired services. The cities filed lawsuits.

Then the Missouri Legislature enacted a law defining cellphone companies as telecommunication services, which resolved the basis for the lawsuits. That law reduced the business license taxes to make them revenue neutral so that they did not violate the Hancock Amendment, which prohibits tax increases without a vote of the people. However, the law was challenged and parts of it were invalidated.

As a result, the cities and the cellphone companies negotiated settlements with cities and St. Louis County on the taxes.

The new lawsuit contends that as a result of the settlements, companies such as Verizon, Sprint, T-Mobile, and U.S. Cellular did not tax Internet access in keeping with the law but that AT&T did assess taxes.

Additionally, the AT&T settlement agreements allowed it to charge its customers for the back-tax settlement and future tax payments, although customers were not a party to the lawsuits or the settlements and had no say in the decision. Those charges ranged from 50 cents to $1.99, which AT&T had said it never collected from customers.

Subsequently, a nationwide consumer class action suit was filed and settled, and AT&T Mobility quit collecting local and state taxes on Internet access in 2010. AT&T was required to request refunds from the cities of the taxes paid on Internet services but the cities have refused to give refunds, the lawsuit contends.

AT&T customers are the only cellphone and wireless users who have had to the pay the tax on Internet access, according to the lawsuit.

Tax disputes

Joplin in 2009 and 2010 received settlements of approximately $983,000 from land-line providers for taxes owed and about $2.175 million from cellphone services. The money has been used on projects such as repair and renovation of Schifferdecker Golf Course.

Carthage received about $189,000 from land-line companies and $250,000 from cell companies. Neosho received $178,000 from land-line providers and about $220,000 from cellular companies. Webb City received $341,000 in back taxes from cell companies.