Cities hit by settlement in AT&T case
CHAMPAIGN — A years-old mistake by AT&T will cost the cities of Champaign, Urbana and hundreds of other municipalities around the state millions of dollars during the next year.
Locally, the budget effect will be significant — city officials say they will just have to tighten up their spending to absorb the tens and hundreds of thousands of dollars they will essentially have to refund after the mobile carrier spent five years allegedly overtaxing customers.
The refund is spurred by a settlement of a class action lawsuit claiming that AT&T Mobility inappropriately collected telecommunications taxes from its customers between November 2005 and September 2010.
The two parties settled for $1 billion, which AT&T must refund to customers who were overcharged. Those customers may include people who were signed up for iPhone data plans, Blackberry data plans, other smart phone data plans, laptop connect cards and pay-per-use data services, according to a settlement website set up by AT&T mobility.
The problem is that the carrier had already remitted those taxes to individual state governments, which in turn sent a portion to local governments. The state must now repay that money to AT&T — which, in turn, will give a refund to customers who were part of the class action — and that means the state will be taking the money back from the cities.
In Champaign-Urbana, customers are charged a 13 percent telecommunications tax, of which the state keeps 7 percent and city governments receive 6 percent. That tax is charged to, among other services, landline and cellphone lines, channel services, certain mobile or two-way radio services and other kinds of electronic transmission of messages.
Under federal and some state laws, the tax may not be charged for Internet access. Although AT&T denies that it violated any laws, according to the settlement website, it agreed to repay a portion of what the class of customers alleged it overcharged.
The $1 billion settlement agreement was reached in 2011 and approved by a federal judge last month. A couple weeks later, the city of Champaign received notice from the Illinois Department of Revenue that it was given nearly $340,000 worth of overcharged tax revenue which must go back to AT&T, said Finance Director Richard Schnuer. The city of Urbana is on the hook for just more than $79,000, according to that city's Comptroller, Rich Hentschel.
The state sends telecommunications tax money to the cities every month — the refund will be withheld in installments from those payments during the next 12 months for Champaign and over nine months for Urbana.
Collectively, more than 700 Illinois municipalities will have to repay $16.7 million of the $1 billion settlement, according to the Illinois Municipal League lobbying group.
The city of Champaign gets about $2.5 million annually from telecommunications taxes. The $340,000 that will be withheld is "significant," Schnuer said, but not a budget buster.
"Not a great way to start the (fiscal) year, but at this point we're not overly concerned about it," he said.
It's too soon to do any rebudgeting, Schnuer said. City officials expect some revenues to come in under budget and some over, so they are hoping the difference will even out by the end of the year.
That's the approach the city of Urbana is taking, too. Hentschel said they are "just going to have to adjust."
"We hope we'll have a positive fiscal year, and any news like this obviously has a negative effect on the city," Hentschel said.
The good news is that the alleged overtaxing stopped years ago, so the telecommunications tax revenue the cities receive now will not be affected in future years. That means they will only have to absorb the refund this year.
But Hentschel said it also means that, for one year, city officials are "just going to have to tighten a little more."
The settlement is years in the making, and although the state of Illinois objected, it was approved by a federal judge last month. Some Illinois municipalities will begin repaying the money this year.
AT&T Mobility has set up a website with resources for customers who may have been involved. For more information, visit attmsettlement.com.