The law that will make AT&T pay almost $1 billion to consumers

Class-action attorneys charged that AT&T Mobility improperly collected millions of dollars in taxes from nearly 2,000 state or territorial areas. All this was contrary to the Internet Tax Freedom Act, the lawyers contended. Nevertheless as is so often the case, the matter never went to trial. Instead, the parties settled.

The Internet Tax Freedom Act in 1998

Congress first enacted the Internet Tax Freedom Act in 1998. The key to the legislation is found in its opening provisions:

In other words, no new taxes on 'Net usage. Congress renewed the bill in 2001 and 2004, and reenacted it but again in 2007. The latest iteration of the law extends the moratorium until November 1, 2014. And it creates a more detailed version of "Internet access," that would evidently extend to cable and DSL.

The legislation defines such access as "a service that enables users to connect to the Internet to access content, information, or other services offered over the Internet." And it covers features associated with that definition, including "a homepage, electronic mail and instant messaging, video clips, and personal electronic storage capacity, that are provided independently or not packaged with Internet access."

The ITFA exactly excludes other features

But the ITFA exactly excludes other features. For instance, it does not include "voice, audio or video programming, or other products and services" "that utilize Internet protocol or any successor protocol and for which there is a charge"—that is, VoIP (Voice over Internet Protocol) and IPTV services like AT&T's U-Verse.

"Significantly, AT&T Mobility has agreed to pay the money owed up front, even if a taxing jurisdiction issues future tax credits to AT&T Mobility in lieu of a refund of monies sought on a refund claim for Internet Taxes," the settlement summary notes.