Attorneys with the state's finance department told lawmakers that they reached a settlement with a wireless provider to give $18 million in tax credits for tax revenue that shouldn't have been collected.
Arkansas Department of Finance and Administration attorney Joel DiPippa told members of the Legislature's Litigation Reports Oversight Subcommittee on Monday that the settlement -- which will need to be approved Friday by the Arkansas Legislative Council -- is not a payout to AT&T Mobility LLC subsidiaries but rather to their customers.
"The end result of this would be to provide a refund to taxpayers in Arkansas," DiPippa said. "In negotiations, [AT&T Mobility LLC] agreed that any money that couldn't be paid to identified taxpayers [and customers] from this amount would be sent back to the state under the unclaimed property act."
The $18 million in sales-tax credits will go to AT&T Mobility LLC over several months, and those former or current customers who were improperly charged will be notified that they are eligible for compensation, finance department officials said Monday.
State attorneys and those working for AT&T Mobility Wireless Operations Holdings and New Cingular Wireless PCS LLC first began talks after the subsidiaries filed suit in Pulaski County circuit court last year.
In the suit, the subsidiaries claimed they mistakenly collected sales and use taxes from customers between November 2005 and September 2010 for using their phones to access the Internet. The companies then remitted those taxes to the state.
Finance department spokesman Jake Bleed said Monday that Arkansans who were AT&T account holders between September 2007 and October 2010 are eligible for compensation from AT&T Mobility LLC.
He said the money will be rolled into an escrow account and that AT&T attorneys will track down eligible class members and notify them they have a check waiting for them.
Bleed said Monday that according to the settlement, the finance department isn't allowed to discuss how many Arkansans are eligible and it would be difficult to estimate how much the average class member would be eligible to receive.
According to federal law, such exactions are prohibited by the 1998 Internet Tax Freedom Act and only valid in states that have taxes on Internet access, which Arkansas does not.
"If you ever look at your cellphone bill, you've seen it itemized between data, text and cell minutes .... that data component is what they alleged they paid tax on that should be refunded," DiPippa said Monday.
In 2010, a nationwide class-action suit was filed against AT&T Mobility LLC for illegally levying sales taxes on Internet use through cellphones.
In a 2011 settlement, the company agreed to pay out nearly $1 billion in claims to customers who had been improperly charged.
Before filing suit, AT&T and New Cingular requested that the finance agency refund $18.2 million.
The settlement, which was agreed to in December, will not include interest on the backlogged taxes, DiPippa said.
The company will be eligible for $3 million in tax credits every month between April and September, an agreement aimed at minimizing any effect on the state budget.
Although the wireless carrier's attorneys said the "mistaken" taxation went on for five years, DiPippa said that state statutes only allow claims to be made going back to 2007.
Business on 01/12/2016