Qwest Communications has announced it will stop adding a business and occupation tax on Washington customers’ long-distance phone bills.
The company’s decision follows a recent Washington Court of Appeals ruling that Spokane auto dealer Appleway Automotive Group was wrong to tack on the B&O tax directly for each vehicle sale, said Qwest spokeswoman Shasha Richardson.
Richardson noted the B&O surcharge only applies to long-distance customers — both business and residential — in Washington state. Qwest does not add the surcharge for local service, she said.
“Customers who have long distance will see a slight change on their bills as this is phased out over the next few billing periods,” Richardson said.
A spokeswoman for Cingular Wireless, which adds the B&O tax to its Washington cell phone customers’ bills, said the company will review the state court ruling before making any decision.
Sprint Nextel also includes the charge as a line item for its Washington customers. A company spokesman wasn’t available to discuss whether that practice will change.
Verizon spokesman Kevin Laverty said the company does not add the business tax directly. Efforts to contact CenturyTel Inc. were not successful.
Attorneys for Appleway recently filed a request to the Washington Supreme Court to review the appellate decision.
“Since they’re appealing to the Supreme Court, the matter is still under review and could change,” said Cingular’s Pacific Northwest spokeswoman Anne Marshall.
Phone companies doing business in Washington are required to pay a B&O tax of roughly one half of a percent of the revenue they collect from their voice customers. Sprint Nextel and Cingular customers accordingly see a B&O surcharge equal to almost one-half of a percent of their monthly service charge and any additional voice charges. In the case of Qwest’s surcharges, the added fee to consumers is also about one-half of a percent of the long-distance charges.
Representatives of phone companies say the B&O fee added to customers’ bills is no different than other mandatory taxes they list on the monthly statements. Listing the tax shows customers the full components of phone service in Washington, they said.
If phone companies don’t pass on the surcharge to consumers, they still must pay the B&O tax to the state and then adjust their rates to cover that overhead, said Marshall.
Washington levies the B&O tax on nearly all businesses in the state. The rate varies with the type of company. Manufacturing firms, for instance, pay a smaller percentage than service firms like phone companies.
Last month’s state appeals court ruling affirmed a state court ruling from 2004 that said Spokane resident Herb Nelson was wrongly assessed a $79 surcharge by Appleway for the business tax.
State law, said Spokane County Superior Court Judge Kathleen O’Connor, makes the tax a part of corporate overhead and is not to be passed on directly to consumers. The appeals court agreed in October of this year.
Attorneys for Nelson then filed a second lawsuit, naming Spokane’s Camp vehicle group and its Medford, Ore., parent, Lithia Motors, for the same practice. It also asks a Superior Court judge to extend the complaint to all other Washington dealerships that follow the same practice, said Spokane attorney Brian Sheldon.
In their defense at trial and in the appeal, Appleway attorneys have cited state Department of Revenue memos that suggest the tax can be passed along if consumers are made aware of the surcharge.
Glenn Blackmon, regulatory director for the Washington Utilities and Transportation Commission, said he thinks the ruling over auto dealerships would apply to phone carriers as well.
“There’s nothing I know of that would make a wireless company different than any other business, on whether they can pass the charge directly onto the customer,” Blackmon said.
Shelton said he and his partners are considering filing of additional class-action suits over the tax “against other entities.” If a class action against auto dealers ever succeeds, individual buyers might see a refund of between $100 and $200, one witness for Nelson testified.
Mike Gowrylow, spokesman for Washington’s Department of Revenue, said auto dealers and phone companies are the two clearest state examples of companies passing along the tax to consumers.