Tax refund up for review

Savings for telephone companies could cost the state government millions.
Wednesday, September 14, 2005 | 12:00 a.m. CDT; updated 1:30 p.m. CDT, Tuesday, July 22, 2008

JEFFERSON CITY — For the second time in three years, the Missouri Supreme Court is considering a contested tax refund for telephone companies that, if allowed, is projected to cost state and local governments about $200 million.

The court ruled in June 2002 that a sales and use tax exemption for manufacturing machinery should apply to equipment used to transmit telephone calls — even though phone companies don’t produce a product as tangible as most factories.

The case was sent to the Administrative Hearing Commission to determine which particular pieces of equipment qualified. On Tuesday, after the Revenue Department disagreed with those decisions, the case was back before the Supreme Court on appeal — and its price tag had risen.

The state Revenue Department projected in 2002 that the ruling could cost state and local governments up to $130 million in tax refunds with interest. The Revenue Department put the cost Tuesday at $200 million — reflecting nearly 200 refund claims filed by telephone companies and their suppliers.

State Solicitor Jim Layton, representing the department, argued that the court should exclude anything used in the transmission of phone calls from the definition of tax-exempt basic telephone equipment. He drew comparisons to delivery trucks and pipelines, neither of which qualify for the manufacturing tax break.

Former Supreme Court Judge Ann Covington argued on behalf of Southwestern Bell Telephone Co. that the tax refunds should stand.

The case before the court Tuesday focused on about half of a $598,944 refund awarded to Southwestern Bell by the Administrative Hearing Commission for the second quarter of 1992. But the precedent involved could apply to other time periods and other phone companies.

Revenue Department Director Trish Vincent said a ruling fully favoring the phone companies could put “an undue strain on the budget.”

“We are trying to protect the taxpayers’ money here,” she said.

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