The Massachusetts Appeals Court today sided with Cingular Wireless and its subscribers and agreed the state could not tax their BlackBerry service just because those devices did not come with parental blocking software.
At issue was roughly $20 million that Cingular, then a subsidiary of AT&T, now only a memory, collected in sales tax on its wireless services between 2005 and 2010.
Massachusetts taxes "telecommunications services," but it turns out a federal law bars state taxes on services that offer parental controls to subscribers. After AT&T subscribers sued over such taxes nationwide, the company agreed to settle and issue rebates for the taxes. In 2010, the company asked the state Department of Revenue to rebate the total it had paid in taxes. The revenue commissioner, however, declined, which started three years of legal wrangling between the company and the revenue department before the department's office of appeals, which upheld the commissioner, which in turn led to an appeal to the state Appellate Tax Board, which finally ruled in favor of the company in 2017, although it did not issue its final ruling until June, 2018 - which the revenue department then appealed to the Supreme Judicial Court.
The state argued it owed the company nothing in part because some of Cingular's phone offerings, such as RIM BlackBerries and the newfangled Apple iPhone, were incompatible with the parental-control-enhanced proprietary Web browser Cingular then offered, and besides, the company charged for its proprietary parental-blocking software. Also, Cingular salespeople didn't go out of the way to advertise the services.
That may be, but, on the whole, Cingular extensively "offered" such software to users of other devices, and at some point during the period, Apple baked parental controls into its iPhone software, the court began:
Through brochures, website pages, bill inserts, box inserts, and mailings, the taxpayer advertised its MEdia Net and Smart Limits parental control features. Furthermore, during some portions of the tax period, the iPhones for which the taxpayer was the exclusive access provider had built-in parental controls.
The failure of salespeople to mention the software every single time? Cingular was covered by all the fliers and stuff it sent or posted, the court said:
It would be passing strange for one to assert that the local grocery store did not offer vegetables because, although it had an extensive vegetable section, no store employee asked the customer whether he wanted 20to purchase some vegetables. Or, more to the point, if someone asserted that the local cell phone store did not offer iPhones, one would assume that it did not sell them at all. If, when confronted with the fact that the store does indeed sell iPhones, the declarant defended the assertion by pointing out that nobody asks whether you would like an iPhone when you purchase a different phone, one would be justified in thinking the declarant either deceptive or obtuse.
The court also concluded that the federal law did not require carriers to give the software away for free, only that they alert subscribers it was available. This makes eminent sense, the court said:
Many Internet access devices are purchased by persons without young children, and many other Internet access devices are not intended to be given to unsupervised children. In such situations, requiring a vendor to ask the customer whether the customer would like screening software would not serve the protective purposes of the ITFA's screening provisions. Accordingly, we conclude that the availability and advertising of screening software by the taxpayer complied with the screening software requirement of the ITFA.
But what about the BlackBerries, huh? The court said the federal law requires that to win exemption from state taxes, carriers merely have to advertise that they have such parental-control software available for some of its devices. The law does not require it for all of the devices and if a customer chooses one without it, that's his right and does not undercut a tax exemption for companies such as Cingular that did offer the software on other devices.