The Massachusetts Appellate Tax Board held that charges for data services were exempt from Massachusetts sales tax under the Internet Tax Freedom Act (“ITFA”). New Cingular Wireless PCS LLC v. Commissioner of Revenue, Appellate Tax Board Docket No. C321816 (June 21, 2018). As a result of the Appellate Tax Board's (“the Board”) decision, New Cingular Wireless PCS LLC (“New Cingular”) is entitled to a refund of approximately $20 million in previously collected sales tax, bringing to close a lengthy litigation that has also been the subject of several other cases nationwide.


New Cingular, an affiliate of AT&T Mobility, LLC (“AT&T”) that conducted AT&T’s business in Massachusetts, is a wireless telecommunications service provider that offers three primary lines of service: voice, text messaging, and data. Because Massachusetts sales tax law generally taxes telecommunications services, New Cingular collected and remitted sales tax on all three lines of service.

In 2011, New Cingular settled a federal class action lawsuit alleging that charges for data services were charges for internet access, and that New Cingular had improperly collected sales tax in multiple jurisdictions on charges for data services in violation of the ITFA, which generally exempts charges for internet access from sales taxation. In re AT&T Mobility Wireless Data Servs. Sales Tax Litigation, 789 F.Supp.2d 935 (N.D. Ill. 2011). Under the settlement agreement, New Cingular agreed to cease collection of sales tax on charges for data services and established an escrow fund for settlement payments. If a taxing jurisdiction issued a refund to New Cingular, the refund would be deposited into the escrow account and paid on a pro rata basis to customers who had been erroneously charged sales tax. Massachusetts was not a party to the class action settlement agreement.

New Cingular filed claims in Massachusetts seeking a refund for sales tax collected from Massachusetts customers on charges for data services, claiming that all such charges were exempt from sales tax under the ITFA. The Commissioner denied New Cingular’s refund claims on the basis that the data charges were bundled with other services, and therefore not exempt under the ITFA as a charge only for internet access.

The Board’s Opinion

The Board held that New Cingular had met its burden to prove that the data charges were charges for Internet access, and were thus exempt from Massachusetts sales taxation under the ITFA. In so holding, the Board rejected the Commissioner’s arguments that New Cingular did not meet certain technical requirements for tax exemption under the ITFA, including an accounting rule that charges for Internet access be separately stated, and a rule requiring wireless providers to offer screening software to their customers. The Board found credible the testimony and documentary evidence offered by New Cingular showing that all charges for data services were itemized and separately stated, and that New Cingular offered screening software to its customers.

Finally, the Board held that the escrow account set up pursuant to the federal class action lawsuit satisfied New Cingular’s obligation to prove that all refund amounts would be repaid to Massachusetts customers – a prerequisite to obtaining a refund of sales tax under Mass. G.L. c. 62C, § 37.

The Board’s decision adds Massachusetts to the list of states that have already considered this issue, including New York, New Jersey, Georgia, and Tennessee. Testimony at the hearing before the Board also indicated that 24 states had already granted refunds on this issue. We are closely monitoring developments in this area.