ST. LOUIS — A Missouri appellate court has issued a mixed ruling in a decades-long dispute between dozens of municipalities and AT&T, concluding that certain wireless revenues must be included in local business license tax calculations while others remain excluded under a 2007 settlement agreement.
The Missouri Court of Appeals Eastern District held that AT&T is required to include prepaid wireless service revenues in its tax base under the parties’ agreement, reversing a trial court’s ruling on that issue and remanding the case for further proceedings to determine damages owed to the cities, according to a decision filed April 7.
The case stems from litigation that began in 2001, when University City and more than 20 other municipalities across the state filed a class action alleging that AT&T failed to fully pay business license taxes on gross receipts generated within their jurisdictions.
The dispute led to a 2007 settlement agreement, later incorporated into a final judgment, requiring AT&T to pay portions of past taxes and continue paying taxes in the future under defined terms.
The appellate court concluded that prepaid wireless services fall within the scope of taxable receipts under the agreement.
It also found that those revenues meet the agreement’s broad definition of business license taxes and are subject to sourcing rules under the federal Mobile Telecommunications Sourcing Act.
As a result, the court ordered further proceedings to determine damages for two periods, the first from Dec. 1, 2007, until 2016, when AT&T did not include prepaid revenues in its tax base.
The second period, from 2016 to the present, was when the company’s method of allocating those revenues may not have complied with federal sourcing requirements.
However, the court affirmed the trial court’s ruling in favor of AT&T on the remaining categories.
The court held that equipment sales and miscellaneous contract charges are not subject to the tax base outlined in the settlement agreement because they do not qualify as mobile telecommunications services under applicable law.
On internet access revenues, the court also sided with AT&T, determining that such charges are excluded from taxation under both the agreement and the federal Internet Tax Freedom Act.
The court found that AT&T satisfied the conditions necessary to exclude those charges, either by separately stating them on customer bills or by reasonably identifying them through its records and accounting methods.
The ruling found that federal law broadly prohibits taxation of internet access and that the agreement incorporates similar language.
It further concluded that AT&T’s billing and recordkeeping practices met the “reasonable identification” standard required under federal law, even if they did not provide exact precision.
The appellate court rejected several additional arguments advanced by the cities, including claims that the agreement’s terms were ambiguous or that constitutional provisions limiting taxation applied. Instead, the court characterized the dispute as one of contract interpretation, focused on determining what the parties agreed to in 2007 rather than creating or expanding any tax obligations.
Missouri Court of Appeals, Eastern District, Special Division case number: ED113046
