RadioShack Files Class-Action Suit to Recover Telephone Excise Tax

2. Unnamed Plaintiffs, and thus the class, consist of all corporations, non-corporate entities, or individuals, wherever organized and existing, that, after proper notice, elect to be included as Plaintiffs in this action pursuant to R. Ct. Fed. Cl. 23(c)(2)(B) (or are otherwise determined by the Court to be included), and that erroneously have paid the Federal excise tax imposed by 26 U.S.C. § 4251 because that tax was erroneously and illegally applied to toll telephone services the charges for which did not vary based on distance. Radioshack and the unnamed Plaintiffs are referred to collectively herein as "Plaintiffs."

3. Defendant is the United States of America.

6. Radioshack paid approximately $159,740.25 to Carriers as Federal excise tax with respect to toll telephone services provided for the three calendar quarters ending on June 30, 2002, September 30, 2002, and December 31, 2002.

7. Radioshack and the other members of the class also paid Federal excise tax to Carriers in various amounts with respect to toll telephone services provided during various periods, and continue to pay such excise taxes to such Carriers with respect to ongoing toll telephone services.

8. On or about March 5, 2003, Radioshack timely filed with the IRS Service Center a Form 8849, Claim for Refund of Excise Taxes, with respect to the Federal excise taxes described in paragraph 6, in which Radioshack claimed a refund of Federal excise tax in the total amount of $159,740.25 ("Claim for Refund"). A copy of Radioshack's Claim for Refund is attached hereto and marked as Exhibit A. Certain other class members have filed similar claims for refund with respect to some of the overpaid Federal excise taxes identified in paragraph 7.

9. As of the date hereof, the Commissioner of Internal Revenue has not allowed Radioshack's Claim for Refund, and has not denied such claim. More than six months has elapsed since the date on which the Claim for Refund was filed.

10. Radioshack has not filed claims for refund similar to the Claim for Refund described in paragraph 8, with respect to all of its portion of the Federal excise taxes identified in paragraph 7. Many other class members also have overpaid Federal excise taxes referenced in paragraph 7 for which claims for refund have not yet been filed.

11. The filing of claims for refund with respect to the Federal excise taxes referenced in paragraph 7 is not limited by any statutory period of limitations because Federal excise taxes are not taxes "in respect of which the taxpayer is required to file a return" (section 6511(a)) and because a claim has not accrued against Defendant (as required to start the running of the 6-year period of limitations provided by 28 U.S.C. § 2501, to the extent that provision is even relevant to an action for refund of Federal excise taxes) until the requirements of sections 6532(a)(1) and 7422(a) have been satisfied (section 6532(a)(1) sets forth separate and exclusive rules relating to suits after such a claim for refund is filed).

(a) In the alternative, such claims for refund must be filed within the general 6-year period of limitations set forth in 28 U.S.C. § 2501, in whole or in part, because the Federal excise tax is imposed by agents of Defendant (the Carriers) in a manner that results in many class members having limited or no knowledge of the imposition of such tax or their rights with respect to such imposition (including the right to have the tax refunded when it is improperly overpaid due to Defendant's erroneous and illegal actions in imposing such tax on charges for services to which such tax plainly does not apply).

(b) In the alternative, no claim for refund is required to sue for a refund of Federal excise taxes and the period of limitations relating to any such suit is governed by 28 U.S.C. § 2501.

(c) In the alternative, the three year period of limitations on the filing of a claim for refund provided by section 6511(a) applies to the overpaid Federal excise taxes identified in paragraph 7 for which no claim for refund has yet been filed.

12. Without regard to any period of limitations that may apply to the filing of refund claims by each of the class members with respect to the Federal excise taxes identified in paragraph 7, the information required to be received by Defendant (or its agents) and the actions required to be taken by Plaintiffs within such period or periods of limitations are satisfied by the filing of this Complaint. Pursuant to the Supreme Court's ruling in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974):

(a) In the alternative, the filing of this Complaint and contemporaneous service of same on the Commissioner of Internal Revenue constitute the filing of a claim for refund which satisfies the requirements of sections 6511(a) and 7422(a) with respect to all class members for all Federal excise taxes identified in paragraph 7 for which claims for refund have not been filed previously.

(b) In the alternative, the filing of a claim for refund is not required because, based on Defendant's unambiguous actions and public announcements, the filing of same would be futile and class members that have not filed such a claim can proceed in this action even though such a claim has not been filed previously.

(c) In the alternative, this Court should immediately require Defendant to notify all potential class members that such claims for refund must be filed to protect their interests in the subject matter of this litigation.

13. The Federal excise taxes identified in paragraphs 6 and 7 constitute overpayments of Federal excise tax as that term is defined under section 6402(a).

14. The Federal excise tax for which Plaintiffs seek a refund is the Federal excise tax that is imposed by section 4251(a)(1) on certain "communications services" (the "Communications Excise Tax"). Plaintiffs received certain services from the Carriers which are not properly considered "communications services." The Carriers, due to Defendant's actions, improperly charged to Plaintiffs, and Plaintiffs paid, Communications Excise Tax with respect to those services.

15. Pursuant to subsections (a), (b), and (c) of section 4251, the Communications Excise Tax is imposed only with respect to three types of services: (i) "local telephone service," (ii) "toll telephone service," and (iii) "teletypewriter exchange service."

16. Under section 4252(a), "local telephone service" is defined to include "access to a local telephone system, and the privilege of telephonic quality communication with substantially all persons having telephone or radio telephone stations constituting a part of such local telephone system."

17. Section 4252(b) defines "toll telephone service" to include: (i) "a telephonic quality communication" for which there is "a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication," and such charge is paid within the United States, and (ii) "a service which entitles the subscriber, upon payment of a periodic charge (determined as a flat amount or upon the basis of total elapsed transmission time), to the privilege of an unlimited number of telephone communications to or from all or a substantial portion of the persons" that have telephone access in a specified area outside of the local telephone system area.

18. Pursuant to section 4252(c), "Teletypewriter exchange service" is defined as "the access from a teletypewriter or other data station to the teletypewriter exchange system of which such station is a part, and the privilege of intercommunication by such station with substantially all persons having teletypewriter or other data stations constituting a part of the same teletypewriter exchange system, to which the subscriber is entitled upon payment of a charge or charges (whether such charge or charges are determined as a flat periodic amount, on the basis of distance and elapsed transmission time, or in some other manner)."

20. Plaintiffs purchased toll telephone services from certain of the Carriers.

21. The toll telephone services allowed Plaintiffs to make and/or receive toll telephone calls. The Carriers charged Plaintiffs either a flat rate per minute or a flat rate per call for the toll telephone services, without regard to the distance of each call. The Carriers calculated these charges on the basis of each individual call without regard to the specific location from which the call was made or received.

22. The charges that a Plaintiff paid to a Carrier for toll telephone services covered only such services, and such charges were separate from other charges collected from that Plaintiff by the Carrier for other services.

23. The toll telephone services that Plaintiffs received from the Carriers did not allow Plaintiffs access to a local telephone system or the privilege of telephonic quality communication with substantially all persons having telephone access within that local telephone system.

24. The toll telephone services did not constitute local telephone services pursuant to section 4252(a). America Online, Inc. v. United States, 64 Fed. Cl. 571, 582-583 (Fed. Cl. 2005); Honeywell Int'l, Inc. v. United States, 64 Fed. Cl. 188, 203 (Fed. Cl. 2005)

25. The charges levied by the Carriers on Plaintiffs for the toll telephone services did not vary in amount with the distance and elapsed transmission time of each call, and did not constitute a periodic charge determined as a flat amount or on the basis of elapsed transmission time.

26. The toll telephone services did not entitle Plaintiffs or anyone calling Plaintiffs to the privilege of an unlimited number of telephonic communications to or from all, or a substantial portion, of the persons who had telephone access in a specified area that was outside of the local telephone system area in which the toll telephone services were provided.

27. The toll telephone services did not constitute toll telephone services pursuant to section 4252(b). America Online, 64 Fed. Cl. at 581-582; Honeywell Int'l, 64 Fed. Cl. at 198-203.

28. The toll telephone services for which Plaintiffs paid the Carriers did not provide to Plaintiffs either (i) access from a teletypewriter or other data station to any teletypewriter exchange system, or (ii) the privilege of intercommunication by any such station with substantially all persons that had teletypewriter or other data stations as part of the same teletypewriter exchange system.

29. The toll telephone services did not constitute teletypewriter exchange services within the meaning of section 4252(c).

30. Because the toll telephone services which Plaintiffs purchased from the Carriers did not constitute (i) local telephone services, (ii) toll telephone services, or (iii) teletypewriter exchange services, such services were not properly subject to Federal excise tax under section 4251.

31. Based on the foregoing, Radioshack has an overpayment of Federal excise tax in the amount of not less than $159,740.25 with respect to toll telephone services for the three calendar quarters beginning April 1, 2002 and ending December 31, 2002. All other class members have overpayments of Federal excise tax for various periods (and Radioshack for certain periods), that are similar in type but not necessarily in amount.

33. Section 7430 provides for the award of costs and attorneys' fees to certain parties that prevail in litigation with the United States.

34. Section 7430 does not apply if the position of the United States is "substantially justified." Section 7430(c)(4)(B). In determining whether a position of the United States is substantially justified, the Court "shall take into account whether the United States has lost in courts of appeal for other circuits on substantially similar issues." Section 7430(c)(4)(B)(iii). Defendant has lost the precise issue presented herein in three United States Circuit Courts of Appeals (National Railroad Passenger Corp. v. United States, 2005 U.S. App. LEXIS 26884 (December 9, 2005); OfficeMax, Inc. v. United States, 428 F.3d 583 (6th Cir. 2005); Am. Bankers Ins. Group v. United States, 408 F.3d 1328 (11th Cir. 2005)). In two of those three opinions, the decisions of the panel were unanimous. In the remaining opinion, OfficeMax, the dissent was poorly reasoned and is not compelling. In addition, this Court (in two separate opinions, America Online, supra, and Honeywell Int'l, supra) and three additional United States District Courts have ruled in favor of Plaintiffs on the same issue. See Hewlett-Packard Co. v. United States, 2005 U.S. Dist. LEXIS 19972 (N.D. Cal. Aug. 5, 2005); Reese Bros., Inc. v. United States, 2004 U.S. Dist. LEXIS 27507 (W.D. Pa. Nov. 30, 2004); Fortis, Inc. v. United States, 2004 U.S. Dist. LEXIS 18686 (S.D.N.Y. Sept. 16, 2004). Defendant has not sustained its position in any jurisdiction. Defendant's position with respect to the issues presented herein is not substantially justified.

35. Section 7430 applies to individual Plaintiffs with a net worth of $2,000,000 or less and to other Plaintiffs with a net worth of $7,000,000 or less that employ less than 500 employees. Section 7430(c)(4)(A)(ii); 28 U.S.C. § 2412(d)(2)(B). Any and all Plaintiffs that satisfy these "net worth" requirements are entitled to costs and attorneys' fees pursuant to section 7430 that are incurred in connection with the collection of refunds of the Communications Excise Taxes referenced herein.

37. The subject matter of this action satisfies the commonality requirement of R. Ct. Fed. Cl. 23(a). Upon certification of the class (or any subclasses that this Court may find appropriate), the common issue presented in this case is the application of the conclusions of law reached by this Court in America Online, supra, and Honeywell Int'l, supra, to the toll telephone services purchased from Carriers by each class member, including the determination of the amount of damages (in the form of a tax refund) owed to each such member. In America Online and Honeywell Int'l, this Court rejected the argument that the tax imposed on toll telephone services charged on the basis of "distance and elapsed transmission time" could be applied to tax services charged solely on the basis of "elapsed transmission time" and not based on distance. This Court also decided in those cases that ancillary arguments raised by Defendant to subject such services to tax (under sections 4252(b)(2) and 4252(a)) were, for example, "contrary to the plain meaning of the statute" and "mischaracterize[d] the structure of the statute" (see, e.g., America Online, 64 Fed. Cl. at 582)). These are the same legal conclusions reached by the Circuit Courts of Appeals in National Railroad Passenger Corp., supra; OfficeMax, Inc., supra, Am. Bankers Ins. Group, supra and by the Hewlett- Packard Co. v. United States, 2005 U.S. Dist. LEXIS 19972 (N.D. Cal. Aug. 5, 2005); Reese Bros., Inc. v. United States, 2004 U.S. Dist. LEXIS 27507 (W.D. Pa. Nov. 30, 2004); and Fortis, Inc. v. United States, 2004 U.S. Dist. LEXIS 18686 (S.D.N.Y. Sept. 16, 2004). The common task for this Court in this action is simply to apply this legal conclusion to the various toll telephone services purchased by members of the class and to determine the amount of damages (in the form of a tax refund) owed by Defendant to each of the class members. See also Hannon v. United States, 31 Fed. Cl. 98, 103 n.3 (Fed. Cl. 1994) ("[a] showing of common factual issues should be weighed more heavily than a showing of common legal issues in granting certification").

38. Named Plaintiff satisfies the typicality requirement of R.Ct. Fed. Cl. 23(a). Radioshack's issues are, as set out in detail above, typical of the issues to be presented by the other class members in this action.

39. Named Plaintiff will fairly and adequately protect the interests of the class as required by R. Ct. Fed. Cl. 23(a). Named Plaintiff has more than $159,740.25 at stake in this litigation and intends to fully and vigorously litigate this case to a conclusion. Named Plaintiff has no known conflicts with any potential class member with respect to the issue in controversy herein. Named Plaintiff has engaged counsel competent and experienced in complex and high stakes Federal tax litigation.

41. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy. Thus R. Ct. Fed. Cl. 23(b)(2) is satisfied. The United States is essentially exempt from the imposition of injunctions barring the collection of tax. See 26 U.S.C. 7421. Upon certification of the class (or subclasses) and a determination that each Plaintiff is a member of the class (i.e., purchased toll telephone services the charges for which did not vary based on distance), the only unresolved questions of law and fact that are relevant to the resolution of this action for each class member concern the simple calculation of the amount of the refund due to each such member based on the legal conclusion that the Communications Excise Tax does not apply to toll telephone service the charge for which does not vary based on distance. Accordingly, common questions of law and fact predominate over any questions of law or fact that may implicate individual class members. The widespread nature of this issue, coupled with: (i) the cost of litigating the issue to fruition weighed against the relatively small amount of damages suffered by any single class member, and (ii) Defendant's egregious behavior even when faced with multiple adverse decisions from various Courts of Appeals, compels the conclusion that certification of this action as a class action will result in efficiencies to the litigation process for both Plaintiffs and the Courts of the United States. See also Hannon, 31 Fed. Cl. at 103 n.3 ("[c]ertification should be granted most liberally where the amount of the individual recovery is small in relation to litigation costs").