AT&T Wants City to Refund Taxes on Wireless Internet Services

City officials are once again preparing for the possibility of legal action against the City of Sierra Madre, but this time it's not about water rates.

Instead, wireless Internet provider AT&T Mobility is threatening the city with litigation over Utility Users Taxes it improperly collected from city residents and turned over to the city.

According to a letter sent to the city and discussed during the City Council's closed session on Tuesday, March 8, AT&T is seeking a refund in the amount of $56,861.22. That amount, according to the claim, includes taxes collected from Sierra Madre customers of the company between Nov. 1, 2005 and Sep. 30, 2010. The claim is part of a massive action by AT&T requesting refunds from cities across the country.

The problem, according to AT&T's official refund claim, is that the collection of taxes on Internet services violates the Internet Tax Freedom Act (IFTA) of 2003, which expressly forbids the taxing of Internet services by states, counties or cities.

While Sierra Madre's Utility Users Tax, as well as similar taxes imposed by cities around the county, does call for the taxation of certain telecommunications products, AT&T is claiming that the extension of that tax to it's "Data Services" violates the IFTA.

As for whether or not AT&T customers can expect a refund directly from the city, Aguilar said that would not happen.

"These taxes have clauses built into them that say it's the company, not the cities, that are responsible for refunds," Aguilar said.

The move by AT&T to recoup the taxes comes in the wake of what the letter describes as "numerous lawsuits" in "numerous jurisdictions claiming that the AT&T Mobility Data Services the plaintiffs had purchased were the sale of 'Internet access' as it is defined under the federal Internet Tax Freedom Act, … and this could not be subjected to state or local taxation."

The letter further states that the refund claim is being made as part of a settlement agreements with AT&T customers and that all monies collected as part of the refund will be given back to AT&T customers who were erroneously charged.

Though the legal repesentatives have responded to the claim with a letter, details of that letter and the City Council's closed session discussion regarding pending litigation are not made available.

So far, the city is taking a wait and see approach.

"We're waiting for this to make it's way through the courts," City Manager Elaine Aguilar said. "They admit in their own letter that it was their error, not ours,"  "The UUT doesn't say Internet should be taxed."