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Originally published on LinkedIn May 26th 2016

This is an interesting case from our Washington State Supreme Court –  Cingular v Clyde Hill.  Cingular collected local utility taxes from its customers within Clyde Hill for a number of years and paid those taxes to the city.  When a class action was commenced against AT&T (Cingular’s parent) for assessing inappropriate taxes, an agreement was reached that the companies could attempt to obtain refunds from the entities to which the taxes were paid.  So Cingular requested Clyde Hill repay $22,053 in taxes that it had collected and paid to Clyde Hill.  Clyde Hill’s response was to fine Cingular $293,131 for filing false tax returns when it submitted and paid the taxes that it had collected.  Clyde Hill’s argument is that Cingular should have known the local taxes it was collecting were preempted by federal law.  But this seems to ignore Clyde Hill’s duty.  Since Cingular was simply collecting a tax that was imposed by Clyde Hill’s municipal code, wasn’t it Clyde Hill’s fault that Cingular collected the tax?    Wouldn’t Clyde Hill have fined Cingular if it failed to pay the tax?

When Cingular appealed the fine to Clyde Hill’s mayor it was upheld.  So it appealed the fine to the superior court but the trial court judge agreed with Clyde Hill’s argument that Cingular had used the wrong process to appeal the fine.  Fortunately the Court of Appeals overturned the trial court and the Supremes upheld the appellate court.

Unfortunately this just means that the case goes back to the trial court and Cingular has to prove the fine was unjustified.   I’m certainly no fan of wireless companies but as a business owner that also has to pay taxes to a dizzying array of different governmental entities, this just seems crazy.  In the facts outlined by the Supreme Court there is no evidence that Cingular did anything other than collect a tax imposed by Clyde Hill’s municipal code and submit that tax to Clyde Hill.  For that it was fined almost $300,000 by the same entity that imposed and actually benefited from the tax.   The fine was based on Cingular’s declaration that all information in its tax reports was “true, complete and accurate” which is basically required on all tax returns.  Perhaps we all need to add language to this standard declaration which reads – and I expect the entity has the lawful authority to collect this tax.


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