Between 2005 and 2010, New Cingular Wireless PCS LLC (NCW) collected and remitted $20 million of sales tax on its sales of internet access to customers in Massachusetts. After a class-action suit was initiated by its customers objecting to the tax, NCW requested refunds in several states based on the prohibition on sales tax on internet access provided by the Internet Tax Freedom Act (ITFA). The Massachusetts Department of Revenue (DOR) denied the application for abatement. On appeal, the Massachusetts Appellate Tax Board and the Massachusetts Appeals Court agreed with NCW.
The ITFA was originally enacted in 1998 to prohibit state and local governments from imposing sales tax on internet access. After extending this temporary provision several times, the ITFA was made permanent in 2015. One exception to the prohibition stated that it would not apply with respect to an internet access provider “unless, at the time of entering into an agreement with a customer for the provision of internet access services, such provider offers such customer (either for a fee or at no charge) screening software that is designed to permit the customer to limit access to material on the internet that is harmful to minors.”1
The DOR contended that NCW must affirmatively ask customers whether they would like the software, and the screening software must be compatible with all devices sold by the taxpayer. In refuting these contentions, the Appeals Court noted that Congress only intended “to create an expectation that screening software would be available to those customers who sought it.” The taxpayer had satisfied these requirements by providing brochures, website pages, bill inserts, and mailings to customers, as well as the fact that some of the telephones sold had built-in parental controls.
147 U.S.C. § 1101(e)(1).
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