AT&T Cell-Phone Tax Draws Lawsuits

Ars Technica reports: AT&T Inc.'s wireless unit has been hit by numerous federal lawsuits over the last month, each arguing that the mobile-phone giant is illegally collecting nonexistent "taxes" on data access plans.

The cases have been filed in states including Georgia, Indiana, and Alabama, but all make the same charges against AT&T—and all use the same idiosyncratic spelling of Apple Inc.'s "I-Phone." That's because the same lawyers are involved in each one.

The charges in these cases stem from AT&T's sales-tax collection practices. The federal Internet Tax Freedom Act bans most taxes on Internet access until 2014. Despite the law, AT&T has allegedly collected sales taxes on its data plans, which the complaint says clearly amount to "Internet access" under the law.

In each state, the lawyers have found an individual to bring the complaint, each version of which is largely identical to the others. The goal is for a judge to certify the case as a class-action lawsuit, opening the door up to the "thousands of individuals" impacted by AT&T's collection of the "purported sales 'taxes'."

In some states, the claim is merely that the "taxes" are not actually taxes at all, just ways to collect more revenue. But in some states, like Alabama, the suit points out that companies which collect sales tax are allowed to hold back tiny percentages from the state in order to cover the cost of compliance (in Alabama, it's 0.25 percent of the tax).

While the law sounds simple, implementation can be complicated, in part because many states disagree on what the law actually covers. According to a 2006 report from the Government Accountability Office, Internet access sold to consumers and businesses is tax exempt, but Internet services sold to ISPs themselves is not (states differ on their acceptance of this distinction). Furthermore, the GAO argues that things like telephone service, video services, and even VoIP should be taxed, since they are "telecommunications" service and not "Internet access."

The GAO report does suggest that basic Internet connections, including those provided by DSL, cable, and wireless technologies, cannot be taxed; the lawsuits argue that such taxes are in fact being levied by AT&T. The company hasn't been commenting on the suits, and AT&T has not yet filed a response in any of the cases we examined. It's quite possible that the company will claim its data plans are not pure "Internet access" under the law, despite being broken out separately on the bill, but we'll have to see.

How much money is at stake here is hard to say. The lawsuits do say that they expect the issue to exceed the $5 million threshold for class-action cases.

The cases appear to be spearheaded by lawyers from Bartimus Frickleton Robertson & Gorny, personal-injury lawyers from Missouri. (Partner Jim Bartimus was the Personal Injury Litigator of the Year in Kansas City for 2009.) BFRG is no stranger to this sort of litigation and has previously secured a $450 million settlement from mobile-phone companies after claiming that the firms hid rate increases as "tax increases."

And AT&T is no stranger to being sued. In the last year alone, the company's wireless unit has faced big lawsuits from songwriters over its ringtones, lawsuits for slow 3G speeds, and even attempted class-action suits over the iPhone's lack of MMS.