All States ~ Multiple Taxes: Settlement Approved in Challenge to Internet Taxes in Data Plans

A federal court in Chicago has given final approval to a nationwide class action settlement to resolve allegations that AT&T Mobility LLC (AT&T) improperly collected tax on Internet access under data plans for smart phones and laptop computers. “Tax on Internet access” means that term as defined in the federal Internet Tax Freedom Act (ITFA). The court’s preliminary approval of the settlement was previously reported. (TAXDAY, 2010/08/16, S.1)

Under the settlement, AT&T, which denies any wrongdoing and makes no admission of liability, will cease collecting the challenged taxes. It also will process, or assist in processing, claims for refunds or credits, including interest, from the state and local taxing jurisdictions to which it remitted the taxes. Refunds and credits will be placed in an escrow account for the class, which consists of customers of AT&T who were charged taxes on Internet access in bills issued after November 1, 2005. AT&T will also refund to the class any vendor compensation it has received for collecting the challenged taxes.

The court rejected numerous objections raised to the settlement, including the objection that states’ budget situations will impede any recovery. The court noted that the settlement agreement includes an appeal process under which AT&T will cooperate with class counsel in appealing refund denials. The court also rejected objections raised by several states in amicus briefs. It noted that, contrary to some of the statements made by the states, the settlement does not enjoin the collection of any state or local tax. Rather, the settlement is an agreement, enforceable in contract, that AT&T will cease collecting the relevant taxes. Furthermore, it reserves the right to AT&T to resume collecting a tax if any law or ruling requires or permits it to do so. The settlement would not preclude AT&T from collecting any tax on Internet access that was grandfathered under ITFA. Finally, since the settlement does not enjoin the collection of any tax, the federal Tax Injunction Act did not deprive the federal court of jurisdiction.

Subscribers can view the order.

In re AT&T Mobility Wireless Data Services Sales Litigation, U.S. District Court for the Northern District of Illinois, No. 10-C-2278, order entered June 2, 2011

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