Four wireless phone carriers sue Baltimore over $3.50 tax

Suits contend that city has no authority to collect

February 23, 2005|By Tricia Bishop | Tricia Bishop,SUN STAFF

Four wireless phone companies have filed lawsuits in Maryland Tax Court against the city, requesting a refund of millions of dollars in taxes paid on wireless services sold to Baltimore customers.

T-Mobile, Verizon Wireless, Sprint and Cingular Wireless contend in their lawsuits that the city Department of Finance has no authority to collect the $3.50 monthly tax per customer. They say the tax might illegally apply to services outside city boundaries when cell phone users are on the road and that it amounts to a sales tax, which the city is prohibited from imposing.

The city began assessing the tax in August. A $3.50 charge was imposed on all landlines and cell phones in Baltimore, replacing a 12 percent tax that applied only to wired phones and averaged $2.22 per customer. The tax was part of a $30 million revenue package approved by the mayor and City Council in the late spring to close a projected gap in Baltimore's $2.1 billion budget.

The tax drew criticism from the start, with the cellular companies threatening to sue before it was implemented. Business advocates claimed it made the city appear less than commerce-friendly, and consumers complained that they were already taxed enough.

City officials said they were backed into a corner, and it was either layoffs or the tax.

In December, the wireless companies made good on their promise and took the first step necessary before filing suit: They sent letters requesting a combined refund of $14.8 million from Baltimore and Montgomery County, which has charged a $2 monthly tax per wireless customer since August 2003.

A hearing was held Feb. 10 in Montgomery County to consider the request, but no ruling has been issued.

Baltimore denied the refund request Jan. 18 in responses to each of the carriers. "The Department [of Finance] has thoroughly reviewed your request and strongly disagrees with your arguments," Stanley J. Milesky, chief of the city's Bureau of Treasury Management, wrote.

The companies maintain that the tax is unfair and that the fees are piling up, leading them to file against Baltimore in tax court Feb. 14.

"We're paying about half a million dollars a month to Baltimore City and a million dollars a month to Montgomery County," said Kenneth Silverberg, the carriers' Washington-based attorney.

The wireless carriers, which have added the tax to their customers' bills, said they will return the money to consumers if they win the cases, which might not go to trial until late summer or fall.

"The city has not exceeded its authority, and we will defend these cases in court," City Solicitor Ralph S. Tyler said in a statement.

Silverberg said he expects Montgomery County to deny the carriers' refund request and that they eventually will sue it, too.

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