High court ruling favors cellular wireless data providers

ATLANTA — The Supreme Court of Georgia has ruled that a dealer seeking millions in tax refunds for its customers was not required to advance its own funds to the customers before applying for a refund on their behalf from the Georgia Department of Revenue.

Under the unanimous decision, rendered Monday and written by Presiding Justice Harold D. Melton, the high court has reversed part of a Georgia Court of Appeals decision that upheld a DeKalb County court’s dismissal of a lawsuit brought by four cellular and wireless data providers who sought a refund for their customers, alleging the customers had been improperly taxed.

According to the facts of the case, New Cingular Wireless PCS, LLC and three other data providers – all doing business as Georgia AT&T Mobility – alleged that from 2005 to 2010, they sold wireless Internet access services, which were exempt from state sales tax under Georgia Code § 48-8-2. The statute says that for purposes of state sales and use tax, “telecommunications service” shall not include “Internet access service.” In November 2010, AT&T requested a refund from the Georgia Department of Revenue for sales tax AT&T claimed had been erroneously charged to its Georgia customers on the purchase of wireless Internet access service. Nearly five years later, in March 2015, the Department denied the request to refund almost $6 million to Georgia customers.

On April 17, 2015, AT&T Mobility sued the Department of Revenue and Commissioner Lynnette T. Riley in her official capacity. In response, the department filed a motion to dismiss AT&T’s action. It argued the complaint should be dismissed because: 1) AT&T did not reimburse the alleged illegally collected sales tax to customers before seeking a refund from the department, in violation of department regulation 560-12-1-.25; 2) it lacked standing to file sales-tax-refund claims on behalf of customers for periods prior to May 5, 2009; and 3) the action was barred by Georgia class-action law.

The trial court granted the department’s motion on all three grounds, and AT&T then appealed to the Court of Appeals. The Court of Appeals upheld the trial court’s dismissal because AT&T had not proven that it had reimbursed the customers for the taxes before requesting the refund, in violation of Regulation 560-12-1-.25. Specifically, the regulation states that if taxes are illegally or erroneously collected, “The dealer may secure a refund as provided in Georgia Code Section 48-2-35, provided, however, the dealer must affirmatively show that the tax so illegally or erroneously collected was paid by him and not paid by the consumer or that such tax was collected from the consumer as tax and has since been refunded to the consumer.”

The Court of Appeals agreed that § 48-2-35 does not require that a dealer advance its own funds to customers before knowing if the Department of Revenue will grant a refund, but the appellate court found that the department interprets the regulation to impose that requirement, and it would defer to the department’s interpretation. AT&T then appealed to the state Supreme Court, which agreed to review the case to determine whether the Court of Appeals correctly interpreted Regulation 560-12-1-.25 to require that a dealer seeking a sales tax refund must reimburse its customers before applying for a refund from the Department of Revenue.

In Monday’s opinion, the court wrote, “We find that the answer to this question is ‘no,’ and we find that the Court of Appeals opinion must be vacated in part and reversed in part, and that the case must be remanded with direction.”

Both the trial court and the Court of Appeals concluded that the department’s regulation requires a dealer to refund its customers all taxes that it contends were erroneously collected prior to pursuing a refund action. But such construction of the regulation is “unreasonable,” the opinion says.

Neither Georgia Code § 48-2-35 nor § 48-2-35.1 requires a dealer to prepay potentially refundable taxes to consumers prior to seeking approval of a refund from the department. And while the department argues that the wording of the regulation that the dealer may “secure a refund,” actually means may “apply for a refund” only after the tax has been refunded to the consumer, that interpretation makes “no sense.” The regulation “does not require a dealer to repay funds to its customers prior to filing a request for a refund or prior to the department’s determination of whether or not any refund is due.”

Under that interpretation, a dealer that collected $100 million from its customers, paid this amount erroneously to the Department, and later wished to seek a refund, would first have to refund $100 million to its customers just to initiate the process of seeking the refund. And this would have to be done long before the dealer knew whether the department would approve any refund at all.

“This is illogical, and creates a strong disincentive for dealers to seek refunds on behalf of customers,” the opinion says. “That result, in turn, undercuts the clear intent of § 48-2-35 to ensure that overpaid or illegally collected taxes are returned to taxpayers.”

“For all of the reasons set forth above, with regard to the period beginning on May 5, 2009 and ending on September 7, 2010, the Court of Appeals erred by affirming the dismissal of AT&T’s case on the basis that AT&T was required to prepay any claimed refund amount to its customers prior to receiving a determination from the department as to whether any refund will be approved,” the opinion concludes. “With regard to the period prior to May 5, 2009, the Court of Appeals opinion stands vacated for failure to first consider the issue of standing. Finally, with regard to all time periods for which AT&T may have standing, this opinion now requires the Court of Appeals to consider the trial court’s alternative finding that AT&T’s refund action was barred by Georgia’s class action law.”