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Georgia Sales and Use Tax: Wireless Service Providers’ Refund Denied Because Customers Were Not Reimbursed

Tax Development Feb 24, 2017

The Georgia Court of Appeals upheld a trial court’s decision that a group of wireless communications service providers were barred from seeking refunds prior to refunding the taxes to their customers (New Cingular Wireless, PCS, LLC v. Georgia Department of Revenue, Georgia Court of Appeals, No. A16A2003, February 21, 2017). The wireless service providers requested refunds pursuant to O.C.G.A. § 48-2-35. Specifically, the providers argued that the Internet access services they provided along with other communications services were excluded from the definition of a “telecommunications service” according to O.C.G.A. § 48-8-2. Accordingly, the providers erred when they collected sales tax on these exempt services.

The wireless communication service providers admitted that they did not refund the sales tax to their customers, but did not see it as a prerequisite in seeking the refunds. In its arguments, the Department cited Regulation 560-12-1-.25 that states the following:

In the case of taxes illegally or erroneously collected, the dealer may secure a refund as provided in O.CG.A. § 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 collected from the consumer as tax and has since been refunded to the consumer.

As such, the Department explained that Regulation 560-12-1-.25 prevents the providers from seeking a refund prior to reimbursing the erroneously collected taxes to their customers.

The providers contended that the Department’s interpretation of the regulation was unreasonable. They further reasoned that O.C.G.A. § 48-2-35 “does not require that a dealer advance its own funds to customers before knowing if the Department will grant the claimed refund of sales tax.” 

The Court of Appeals found the Department’s interpretation of the regulation to be reasonable. The court heavily relied upon a settlement agreement between the providers and their customers in upholding the trial court’s decision. The terms of the agreement required “prepayment” of the erroneous sales tax into an escrow fund and contained measures to prevent a potential “windfall” to customers. The appellate court ruled that the prepayment of refunds was required prior to requesting a refund. Because the providers did not refund the tax to their customers, the court ruled that the refunds were properly denied.