In June of 2011, a federal judge approved a $1 billion class action settlement against AT&T. That lawsuit claimed that AT&T inappropriately collected telecommunications taxes from its customers between 2005 and 2010 for internet services, which is prohibited under Internet Tax Freedom Act. Under the settlement, AT&T agreed to refund these overcharges to its customers. The problem? AT&T had already turned over the tax revenue to state and local governments, including Illinois municipalities. That means that the state (and ultimately, local governments) are on the hook for returning these taxes to AT&T, who will then refund them to customers.
So, why are we talking about this case more than 3 years later? Because recently, Illinois municipalities started receiving notices from the Illinois Department of Revenue (IDOR) that they are responsible for the overcharged taxes. For example, the City of Champaign received a notice that it received $340,000 in overcharged taxes over the five year period in question. The Village of Roselle received about $70,000. In total, Illinois municipalities are on the hook for about $16.7 million of the $1 billion settlement.
Under state law, the IDOR has the authority to offset future tax receipts due to the municipalities until the overcharged taxes are repaid. For many municipalities, the IDOR has put in place a "payment plan" to collect the overcharged taxes over a period of time. For example, one municipality was notified that the IDOR would collect the overcharged revenue of $89,000 from the municipality by reducing the monthly tax distributions over a six month period, beginning in August, 2014. Once the overcharges are collected by the IDOR, it will then remit the collected revenues to AT&T, who will refund customers who paid the taxes.
Fortunately, AT&T stopped overcharging customers in 2010, so current revenues coming in are not subject to the lawsuit.
Post Authored by Julie Tappendorf, Ancel Glink