Washington Court Rules On Statutory Exclusion For Internet Service, Awards Refund To Online Services Provider

On June 4, 2013, the Washington Superior Court issued a decision that AOL, Inc. is entitled to a multi–million dollar refund of sales tax paid on services that AOL purchased for use in providing Internet access and online services to its members during the period 2002-2006. In response to an appeal by the Washington Department of Revenue from a decision of the Washington Board of Tax Appeal rendered in AOL’s favor, the Superior Court agreed with the arguments made by AOL. The company asserted the services at issue were “internet services” under RCW 82.04.297(3), and thus excluded from the statutory definition of taxable “network telephone service” under RCW 82.04.065(2) in effect during the time period in question. The Washington Department of Revenue had argued that the services AOL purchased were nothing more than transmission services, subject to Washington sales tax. The Court rejected the Department’s arguments, finding that AOL met each and every independent subpart of the exclusion for internet services. Consequently, the Court held that the services were not subject to taxation under the applicable state statute. As a result, the Court concluded that the Board properly awarded AOL a full refund of all amounts paid to the Department.

AOL was represented in the case by Martin Eisenstein and Matt Schaefer of Brann & Isaacson.