WASHINGTON-The mobile-phone industry has signaled it will aggressively litigate taxes deemed illegal, suing the City of Baltimore over a wireless fee and persuading an Illinois court to order hundreds of towns to return to wireless subscribers $1.3 million in charges ruled unconstitutional by the state’s high court.
Industry’s pushback on wireless taxes is a companion effort to its campaign to take on states when they attempt to regulate mobile-phone service. California is ground zero on the latter front.
T-Mobile USA Inc., Sprint Corp., Cingular Wireless L.L.C. and Verizon Wireless have filed suit in Maryland Tax Court against the City of Baltimore, seeking more than a $2 million refund of all wireless taxes paid since August.
“With this action, the wireless industry is sending the message that it is determined to stand up to unfair taxes in Maryland and around the country,” said Kenneth Silverberg, a partner in the law firm of Nixon Peabody L.L.P., which represents the four carriers. “If government officials think that imposing taxes on wireless companies is going to be an easy way to raise revenues, they should think again, because these companies are committed to fighting unfair taxes-which represent additional costs to their customers.”
The lawsuit is the second step in challenging the $3.50-per-subscriber monthly wireless tax imposed by Baltimore. In December, the wireless companies filed a refund request with the City of Baltimore. That request was denied.
The wireless carriers want the court to hold that the tax was imposed illegally and ultimately to overturn it. T-Mobile, Sprint, Cingular Wireless and Verizon Wireless intend to pass on any refund to subscribers.
The carriers claim the tax is illegal for two reasons. First, they assert the tax applies to any wireless telephone subscriber account with a home or business address within the city-regardless of whether that service was actually used within the jurisdiction or outside of it. Mobile-phone operators claim the city has exceeded its taxing authority by taxing activities that occur-and value that exists-outside of city boundaries.
The wireless operators also argue that Baltimore exceeded its taxing authority because the charge amounts to a sales tax, which the city is prohibited from imposing under Maryland law.
Baltimore is defending the wireless tax.
City Solicitor Ralph S. Tyler was quoted as saying, “The city has not exceeded its authority, and we will defend these cases in court.” Tyler did not respond to an e-mail request for comment.
The wireless carriers plan to file another lawsuit in Maryland Tax Court to recover nearly $13 million in refunds of a separate $2-a-month wireless tax levied by Montgomery County, Md.
At least one wireless legal challenge has paid off.
Last month, a Cook County Circuit judge ruled 234 municipalities must reimburse wireless consumers $3.1 million for fees charged to U.S. Cellular Corp.-and passed on to consumers-between 1998 and 2001. The municipalities indicated they will appeal the ruling of Cook County Court Judge Patrick McGann.
PrimeCo Personal Communications L.L.P. actually brought the lawsuit, but the company was later acquired by U.S. Cellular.
“We believe that Judge McGann’s decision was thorough and well reasoned and consistent with Illinois law,” said Karina DeHayes, an attorney at Tabet DiVito & Rothstein, the law firm that represented PrimeCo.
In 2001, the state supreme court ruled the Illinois Infrastructure Maintenance Act-which levied a 2-percent gross receipts tax in large and mid-sized cities and 1-percent tax in small communities-was unconstitutional as applied to mobile-phone service because the fee had no relationship to the object of the legislation that created the IMA.
McGann’s ruling determined how much money each municipality should return to wireless customers in their territories.
“We’re pleased to win. This was wrong… Someone had to stand up for consumers, and I’m glad it was us,” said John Simley, a U.S. Cellular spokesman.
Litigation is pending in other states where carriers have challenged wireless taxes.
