Appellate Division Reverses Tribunal and Remits Case for Consideration of Sales Tax Refunds -

The New York State Appellate Division, in a strongly worded opinion, reversed the decision of the Tax Appeals Tribunal denying sales tax refunds of over $100 million to New York customers, finding that the Tribunal had abused its discretion in refusing to reopen the record to allow evidence of the funding of a pre-refund escrow account set up to facilitate repayment to customers of improperly collected tax. Matter of New Cingular Wireless PCS, LLC v. Tax Appeals Trib., 2017 NY Slip Op. 06010 (3d Dep’t, Aug. 3, 2017).

Background. In order to resolve litigation claiming that New Cingular Wireless, now known as AT&T Mobility (“ATTM”), improperly collected and remitted sales tax on charges for Internet access, ATTM entered into a nationwide class action settlement agreeing to reimburse its customers, including New York customers, for the overcollected tax by filing refund claims for their benefit. The agreement involved the creation of escrow accounts to receive sales tax refunded by the states, with those funds to be distributed to the customers by an escrow agent under court supervision. In states like New York that require a vendor to refund the overcollected tax to its customers prior to receiving a refund from the state, ATTM agreed to fund a pre-refund escrow fund. However, ATTM had not made any payments to the pre-refund escrow fund with respect to the overcollected New York sales tax before claiming the refund for New York customers.