Two subsidiaries of AT&T Mobility LLC want the state to refund nearly $17 million they say is owed Arkansas customers after the cellular-phone companies collected unauthorized sales taxes for Internet access from 2005 into 2010.
In a suit filed May 2 in Pulaski County Circuit Court, the subsidiaries — AT&T Mobility Wireless Operations Holdings and New Cingular Wireless PCS LLC — acknowledge they “mistakenly” collected “gross receipts” taxes, which are sales taxes, from customers who used their phones or other wireless devices for Internet access between November 2005 and September 2010 and remitted the payments to the state.
The suit said that AT&T/ New Cingular filed a refund claim with the state Department of Finance and Administration in November, 2010 for $18.2 million in improperly collected taxes remitted to the state. AT&T/New Cingular later reduced its claim by $1.7 million to $16.5 million. Another AT&T Mobility subsidiary, Pine Bluff Cellular, filed a claim for $539,983 in improper taxes collected from customers. It also reduced its claim, bringing it down to $441,679.
The suit, filed against the Finance and Administration Department and its director, Richard Weiss, says, “To date, the State has failed to act to either grant or deny the claims.”
The practice of levying sales taxes on charges generated by mobile-phone Internet use was challenged in a national class-action suit that resulted in a settlement requiring AT&T Mobility and its subsidiaries to refund any claims for sales taxes paid by customers within that time frame. The 2011 settlement, approved by U.S. District Court in the Northern District of Illinois, Eastern Division, combined 54 cases filed by customers in 37 states, including Arkansas, and the District of Columbia.
Plaintiffs in the class-action suit accused AT&T Mobility and its subsidiaries of improperly levying taxes, fees or other surcharges on Internet access, including mobile and smartphone data plans, laptop connect cards and other devices in violation of the federal Internet Tax Freedom Act and other state laws. In settling, AT&T Mobility admitted no wrongdoing and agreed to seek refunds on behalf of customers.
Both the state and AT&T/ Cingular note in their filings that customers who paid the tax would get refunds only if the states repaid the money and only after any escrow or attorneys fees are deducted.
“AT&T Mobility does not stand to benefit from this lawsuit in any way,” spokesman Marty Richter said in an email Wednesday. “Any refunded tax revenue will be passed along to the Class — people who are our customers and residents of Arkansas, and who initially paid the taxes.”
He said the total value of the claims will depend on the amount refunded by various taxing bodies.
Richter wrote that AT&T Mobility believed at the time that it was required to collect the taxes. With the settlement, the company has been “working with [the Finance and Administration Department] to try to reach a resolution of those refund claims short of litigation.”
AT&T Mobility/New Cingular attorney Michael Smith has asked that he be given until June 27 to file a response to the state’s dismissal motion that was filed May 29.
A website created to provide information about the case, http://attmsettlement.com/, includes a statement that “Class Counsel and AT&T will continue to collect refunds of taxes paid from the taxing jurisdictions. As required by the Plan of Distribution, no payments will be made to class members until the maximum amount recoverable for a state, including amounts due from various local governments, has been collected.”
In its May 29 response to the suit, the Finance and Administration Department asked that the case be dismissed, saying AT&T and New Cingular don’t have standing to represent any of its Arkansas customers who might be due a refund under the class-action lawsuit. It also argues that since Arkansas was not a party to the class-action settlement, the department must follow state laws controlling refunds.
Martha Hunt, chief counsel for the Finance and Administration Department, said Wednesday that the department held off issuing a decision on the 2010 refund claim because of the federal court case. She said state law allows for anyone making a refund claim to file suit after six months if the department doesn’t respond.
“That was why we had not ever issued a notice of claim denial because we were waiting to see procedurally how all of this interaction between the states in the federal court would play out,” she said. However, she said, the department has been in regular contact with attorneys for AT&T Mobility/New Cingular after the claim was filed.
In its May 2 filing, AT&T/ New Cingular said that the class-action settlement agreement authorizes it to file for a refund on behalf of affected customers, with the refund money going into an escrow account.
Hunt said the issue of whether AT&T Mobility/New Cingular can claim the refund on behalf of customers is an issue for the court to decide.
“That at least, certainly is the threshold issue, absolutely,” Hunt said.
The case is being heard by Pulaski County Circuit Judge Alice Gray.