Technical Information Release  TIR 21-5: New Cingular Wireless PCS LLC v. Commissioner of Revenue – Sales of Internet Access

Date:	04/26/2021
Referenced Sources:	Massachusetts General Laws

I. Introduction

On September 4, 2020, the Massachusetts Appeals Court affirmed the decision of the Appellate Tax Board in favor of the taxpayer in New Cingular Wireless PCS LLC v. Commissioner of Revenue, 98 Mass. App. Ct. 346 (2020) (“New Cingular”). At issue were sales and use taxes collected from customers and remitted to the Commissioner by New Cingular Wireless PCS LLC (“Provider”), a mobile wireless company, in connection with its sales of internet access services.  The Appeals Court held that the Internet Tax Freedom Act (“ITFA”) preempted the imposition of sales and use taxes on these transactions.  This Technical Information Release (“TIR”) explains the position of the Department of Revenue (“Department”) on the application of ITFA to sales and use taxes on internet access services with regard to the facts presented in the New Cingular decision.

II. Discussion

A.  Background

Massachusetts imposes sales tax on “telecommunication services,” which are defined “as any transmission of messages or information by electronic or similar means, between or among points by wire, cable, fiber optics, laser, microwave, radio, satellite or similar facilities but not including cable television.”  G.L. c. 64H, §§ 1, 2.  Generally, the sales tax is collected by the vendor from the purchaser, and the vendor remits the sales tax to the Commissioner, unless the sale is otherwise exempt.  G.L. c. 64H, § 2.  Sales which Massachusetts is prohibited from taxing under the laws of the United States are exempt from tax.  G.L. c. 64H, § 6(a). 

Congress enacted ITFA[1] in 1998, prohibiting, for a period of ten years, state and local governments from imposing taxes on “internet access” when vendors met certain conditions.  Congress subsequently extended this prohibition, and made it permanent in 2015 as the Permanent Internet Tax Freedom Act (“PITFA”).[2]   As a result, pursuant to ITFA and G.L. c. 64H, § 6(a), sales of internet access services in Massachusetts that would otherwise be taxable under G.L. c. 64H, §§ 1 and 2, are not taxable if they comply with ITFA’s requirements.

In 2010, as the result of a class action lawsuit filed by its customers, Provider filed applications for abatement with the Commissioner relating to the monthly sales tax periods between November 1, 2005 and September 30, 2010.  Provider claimed that it had improperly collected and remitted sales taxes on the sale of internet access, which should have been exempt from taxation under ITFA.

For ITFA’s prohibition on taxation to apply to the tax periods at issue, internet access providers had to meet several requirements, two of which were at issue in New Cingular.  First, ITFA provided that:

If charges for Internet access are aggregated with and not separately stated from charges for telecommunications services or other charges that are subject to taxation, then the charges for Internet access may be subject to taxation unless the Internet access provider can reasonably identify the charges for Internet access from its books and records kept in the regular course of business.  ITFA § 1106.

Second, ITFA directed that the prohibition on taxation shall not apply to a sale by a provider to a customer 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.”  ITFA § 1101(e).

The Commissioner contended that neither of these requirements were met in New Cingular, and that the transactions were thus subject to tax. 

B.  ITFA’s Accounting Requirement

Under ITFA, a vendor of internet access services was required to separately state the charges for those services from charges for other services on the customer’s invoice, or to reasonably identify the internet access charges in its books and records.  In its Findings of Fact and Report, the Appellate Tax Board found that Provider was able, from its books and records, to identify “individual transactions for each customer down to the level of particular services purchased by a customer.”  New Cingular Wireless PCS LLC v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2018-313.  As a result, the Board found that Provider could separate tax-exempt charges for internet access from taxable charges for other telecommunications services. 

C.  ITFA’s Screening Software Requirement

ITFA also requires that internet access providers offer customers “screening software that [was] designed to permit the customer to limit access to material on the Internet that is harmful to minors.”  ITFA § 1101(e).  The Appeals Court found that Provider did make such software available to its customers, and communicated this to them in numerous ways, including through “brochures, website pages, bill inserts, box inserts, and mailings.”  New Cingular at 356.  While Provider did not consistently “affirmatively ask customers whether they would like the software,” the Court found that it was sufficient that Provider simply made the software available to customers.  Id.

Further, the Appeals Court found that Provider met the screening software requirement even though the software was not compatible with all the sold devices.  The Court held that “all that Congress required for an Internet service provider to satisfy the screening software requirement” was that the provider “offered screening software designed to function on at least some of its devices.”  Id. at 359.

III. Application of New Cingular Decision; Provider Requirements for ITFA to Apply

The Department will continue to enforce the statutory imposition of sales and use taxes on the sale of internet access services in instances where ITFA (and PITFA) does not apply.  As confirmed in New Cingular, both the Act’s accounting requirement and screening software requirement must be met by internet access providers for the prohibition on taxation to apply. 

 

                                                                   /s/Geoffrey E. Snyder
                                                                   Geoffrey E. Snyder
                                                                   Commissioner of Revenue

 

GES:RHF:mc

April 26, 2021

TIR 21-5

[1] See P.L. 105-277, Div. C, Title XI; 112 Stat. 2681-719.

[2] See 47 U.S.C. § 151 note.