State taxpayers can't collect more than $5 million from AT&T because the telecommunications company is not responsible for taxes related to 900-number transactions between Maryland consumers and out-of-state providers, the Court of Appeals ruled yesterday.
The case deals with a 1992 law on imposing sales and use tax on 900-number services in Maryland. At issue is whether AT&T Communications of Maryland, which provided the 900-numbers to third-party vendors over its long-distance lines, was obligated to collect the tax from Maryland consumers and be liable for paying the tax to the Maryland comptroller after not doing so. Consumers pay for 900-area code calls, which typically provide information or services, such as sports scores, weather information or psychic and dating hotlines. The customer typically is charged for the call on their telephone bill.
Maryland's highest court said that AT&T acted as a "common carrier" of the 900-number transactions, exempt by the Commerce Clause from Maryland tax collection or payment responsibilities.
"What AT&T was saying was, 'Look, that's a product that happens to be carried on our network. There is no connection from what we do as a telecom company and the product," said Frederick M. Joyce, an attorney and chairman of the telecommunications group at Venable LLP.
The ruling reversed several lower court decisions, which concluded that AT&T acted as an agent of the out-of-state vendors, thereby establishing a link between the vendors and Maryland that was sufficient enough for the state to require the company to collect and pay the tax.
The comptroller's office completed an audit in 2001 and found that AT&T owed $5.16 million, plus interest, in sales and use tax for 900-number transactions between Jan. 1, 1992, and Feb. 28, 2001.
"For the past seven years, AT&T argued before state agencies and the courts that it is not subject to additional taxes on transactions made by vendors of 900-number services," said AT&T spokesman Dan Langan. "We're pleased that Maryland's highest court ultimately agreed with our arguments."
Langan said he did not know whether AT&T changed its policy in collecting the Maryland tax on 900 numbers.
Had AT&T lost, other states could go after telephone companies for similar taxes, Joyce said.
John K. Barry, an assistant attorney general for the comptroller, said yesterday that state officials will determine whether to take the case to the U.S. Supreme Court. AT&T "delivered what the legislature described as a taxable service," Barry said.
He said evidence indicated that other long-distance phone companies operating in the state collected tax on 900-number transactions.
The comptroller's office could not determine yesterday how much tax revenue is collected annually from 900-number transactions.