Carriers could dole out millions in Missouri tax settlements: Issue could spread to other states

Verizon Wireless’ $30 million wireless tax settlement with a number of Missouri municipalities could mark the start of a broader trend in the state, with other top mobile-phone carriers potentially facing far greater financial liability if a state judge next week grants class-action status to the municipalities’ six-year-old lawsuit.
Cellular operators oppose being saddled with gross receipts taxes previously applied to landline telephone companies, but nonetheless have paid them-under protest-in recent years. The push to extend municipal utility taxes to wireless carriers has mushroomed into a messy, complex controversy encompassing hundreds of lawsuits and a key ruling by the Missouri state supreme court that trumped a legislative effort to cap local wireless taxes. Twenty three Missouri cities have sued Verizon Wireless, Sprint Nextel Corp., AT&T Inc., T-Mobile USA Inc., U.S. Cellular Corp. and Alltel Corp. Wireless carriers, for their part, have brought legal action against various Missouri cities.
The judge overseeing the cities’ suit in St. Louis County Court signed the preliminary approval of the Verizon Wireless settlement. Notice of the settlement will go out to all cities by Sept. 19, and the cities will have until Nov. 18 to submit claims. The court is set to hold a final approval hearing in mid-December. If the settlement is approved, the cities will get the money shortly thereafter. Verizon Wireless said it is moving forward to send out the notice and proceed with the settlement.
The $30 million settlement covers two years of back taxes and attorneys’ fees, with Verizon Wireless-the No. 2 national carrier, but No. 3 in the state-having already paid about $12.5 million in back taxes. As such, there is $17.5 million remaining that it still owes under the settlement.
“The bottom line is that we think the settlement is fair and is in the best interest of all parties. It’s been resolved and we’re moving forward,” said Debra Lewis, a Verizon Wireless spokeswoman.
Verizon Wireless said the settlement is binding for all Missouri cities (unless they opt out), not just the 23 that initiated the suit. That stipulation could prove critical if the suit gains class-action status, the subject of a Sept. 12 hearing. The prospect of hundreds additional cities joining the suit could increase exponentially the financial and legal exposure for other wireless carriers named as defendants in the suit. For budget-crunched Missouri cities in search of new revenue sources, a class action represents a potential windfall.
Sprint Nextel is awaiting court approval of a settlement with St. Louis, a development that could lower wireless taxes in that city. A spokesman said settlements are being pursued in some cities, while litigation is moving forward in others.
“While Sprint Nextel believes the attempts by Missouri local governments to expand local telephone taxes to the wireless industry violate the state constitution, we also recognize that it’s in the interest of our customers, our shareholders and the cities to resolve these disputes on terms that are reasonable and fair,” said Sprint Nextel spokesman John Taylor. “That’s why we’ve arranged a settlement with the City of St. Louis which calls for the lowering of wireless taxes in the city by 25%. We’re open to reasonable and fair settlements with other municipal governments in Missouri, but have not reached a settlement with any other municipality.”
“AT&T is continuing its negotiations with the cities. We’re open to settlement. All the parties involved in this long-running issue would like to see it resolved,” said Kerry Hibbs, a spokesperson for the nation’s largest cellular carrier.
If another wireless carrier settles on more favorable terms than those in the Verizon Wireless pact, Verizon Wireless would be entitled to a better deal with the cities.
“We believe the [Verizon Wireless] settlement is a positive thing for all municipalities,” said Patrick Bonnot, a legal staff associate for the Missouri Municipal League. “It will allow all municipalities to continue offering the same level of services. We believe the taxes have been collected from customers for several years, and we’re glad to see taxes put forth for their intended use.”
Missouri municipal taxes on wireless and wireline carriers range from 2% to 11%. Federal, state and local telecom taxes average 17% in the state, the sixth highest in the country.
“We’re not able to comment on litigation,” said Senada Kazimi, a U.S. Cellular spokesperson. T-Mobile USA and Alltel did not immediately return calls for comment.
Meantime, wireless carriers face similar tax challenges in other states. It is unclear if the Missouri wireless tax suits will have a ripple effect throughout the country.