INSIGHT: Massachusetts Appeals Court Upholds Internet Access Tax Preemption Against Screening Software Challenge

Sept. 16, 2020, 8:01 AM

On Sept. 4, 2020, in New Cingular Wireless PCS LLC v. Commissioner of Revenue, No. 18-P-1317, the Massachusetts Appeals Court held that the Internet Tax Freedom Act (ITFA) preempted Massachusetts’ sales tax on New Cingular Wireless’ (NCW) Internet access charges.

In New Cingular Wireless—the first judicial decision interpreting ITFA’s screening software provision—the court concluded that NCW satisfied the requirement by making the software available or accessible to its customers. It was not relevant that: (1) NCW’s salespersons did not affirmatively ask each customer whether it wanted to purchase the software; and (2) the software was not compatible with every device NCW sold. The court’s broad reading of the provision may ward off other states from making this argument against ITFA’s Internet access tax prohibition.

Eversheds Sutherland filed an amicus curiae brief in support of NCW on behalf of the Broadband Tax Institute.


Between Nov. 1, 2005, and Sept. 30, 2010, NCW collected and remitted nearly $20 million of Massachusetts sales taxes on its sales of Internet access (primarily through service plans). Following a class action lawsuit initiated by its customers, NCW requested refunds in numerous states on the basis that ITFA prohibited the states from imposing sales tax on the Internet access charges. The Massachusetts Department of Revenue rejected NCW’s application for a sales tax abatement. On June 21, 2018, the Appellate Tax Board issued an opinion in favor of NCW. On appeal to the appeals court, the department narrowed its arguments down to one: ITFA did not preempt sales tax on NCW’s Internet access charges because NCW did not offer screening software to its customers.

Internet Tax Freedom Act

Enacted in 1998, ITFA prohibits state and local governments from imposing “[t]axes on Internet access,” including Massachusetts’ sales tax. See 47 USC Section 151, note Sections 1101(a)(1), 1105(10)(B) (“The term ‘tax on Internet access’ does not include a tax levied upon or measured by net income, capital stock, net worth, or property value.”). Following several extensions, Congress made this prohibition permanent in 2015. Trade Facilitation and Trade Enforcement Act of 2015, Public Law No. 114-125, Title IX, Section 922(a), 130 Statutes 122 (2015).

But ITFA’s prohibition on taxes on Internet access does “not apply with respect to an Internet access provider, unless, at the time of entering into an agreement with a customer for the provision of Internet access services, such provider offers such customer (either for a fee or at no charge) screening software that is designed to permit the customer to limit access to material on the Internet that is harmful to minors.” ITFA Section 1101(e)(1).

It is that provision that was at issue in New Cingular Wireless. If NCW had failed to satisfy the ITFA screening software requirement, Massachusetts would be entitled to impose its sales tax on NCW’s sales of Internet access as a taxable telecommunication service. See Massachusetts General Laws Chapter 64H, Sections 1, 2.

Massachusetts Appeals Court Decision

Before deciding the primary issue—what it means for a vendor to “offer” screening software—the court first rejected NCW’s contention that the screening software requirement does not apply to the Massachusetts sales tax.

NCW argued that the “with respect to an Internet access provider” clause limited the requirement to only taxes imposed on Internet access providers. The court disagreed, reading the provision to have an “expansive sweep” and “broad scope.” No. 18-P-1317, at p. 16 (quoting Acushnet Co. v. Beam, Inc.). Here, the Massachusetts sales tax was “with respect to” NCW because NCW collected and remitted the tax. Analyzing ITFA’s definition of “tax,” the court concluded:

This definition underscores Congress’s intent to construe sales taxes broadly, without regard to the intricacies and idiosyncrasies of particular State sales taxing schemes.

Eversheds Sutherland Observation: Because the Appellate Tax Board is “an agency charged with administering the tax law and has expertise in tax matters,” the court will typically “give weight to its interpretation of tax statutes, and will affirm its statutory interpretation if that interpretation is reasonable.” (quoting Veolia Energy Boston Inc. v. Assessors of Boston). But the court refused to defer to the board in this instance: “To the extent … that [the court is] interpreting a Federal statute, rather than the State tax scheme, there is no reason to defer to the board on Federal tax matters.” Taxpayers should be aware of New Cingular Wireless when contesting an ITFA matter; while a state taxing agency may have expertise in its state’s tax provisions, it does not necessarily follow that it has expertise for federal statutes.

Having disregarded NCW’s first argument, the court turned to whether NCW adequately offered screening software to its customers. The department argued that: (1) the vendor “must affirmatively ask customers whether they would like the software”; and (2) the screening software must have been compatible with all of the devices sold. The court rejected both arguments.

The court determined that an Internet access provider “offers” screening software when it makes the software “available or accessible.” While the department’s definition—“to present for acceptance or rejection”—is the dominant meaning for contract law, the former definition is “the most natural” and the “common sense view.”

In support, the court noted that Congress does not require that the screening software “be free, or even affordable.” Congress did not even place any “demands for any particular functionality or effectiveness.” Overall, Congress intended “to create an expectation that screening software would be available to those customers who sought it.” Thus, “[r]equiring that a vendor display for sale software intended to function with at least some devices provided by the vendor is sufficient to allow a concerned customer to obtain parental controls and to meet Congress’s objective.”

In this matter, it was irrelevant that NCW’s salespersons did not ask each customer whether they wanted to obtain screening software. It was enough that: (1) its customers were notified of screening software from the taxpayer’s brochures, website pages, bill inserts, box inserts, and mailings; and (2) for part of the tax period, certain phones it sold had built-in parental controls.

The court also rejected the department’s argument that the screening software had to be compatible with all of the devices NCW sold during the tax period. Instead, it was sufficient that NCW offer “screening software designed to function on at least some of its devices throughout the tax period.”

Eversheds Sutherland Observation: The court’s decision is a major win for Internet access providers. The court has taken an expansive view of the screening software requirement, in line with Congress’ intent that screening software be available to those customers that desire it. As explained further in the Broadband Tax Institute’s amicus curiae brief, the department’s approach would have given rise to absurd results. In particular, a vendor would be required to affirmatively ask customers whether they would like screening software at the renewal of each contract for Internet access, even if the customer already has screening software.

The department has: (1) 14 days from the date of the decision to file a motion for reconsideration or modification of the decision; and (2) 21 days to file an application for further appellate review of the case by the Supreme Judicial Court. Massachusetts Rules of Appellate Procedure 27(a), 27.1(a). Acceptance of the case by the Supreme Judicial Court is discretionary.


In New Cingular Wireless, the Massachusetts Appeals Court confirmed the common sense approach to ITFA’s screening software requirement. The provision will not bar Internet access tax preemption as long as the provider makes the software available or accessible to its customers. This approach meets the goals of keeping Internet access affordable and also giving parents the opportunity to protect their children from harmful materials on the Internet.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Eric Tresh is a partner at Eversheds Sutherland’s Atlanta office in the firm’s state and local tax practice and serves as a member of the firm’s global board of directors. He regularly appears in administrative forums, trial courts, and appellate courts around the country and has obtained several landmark victories for his clients.
Todd Lard is a partner at in the Washington office and a nationally known state tax lawyer with significant experience and insight into state tax policy, digital economy, and communications tax issues.
Charles Capouet is an associate in the Washington office and advises clients on the full range of state and local tax matters, including sales and use, excise, income and transfer taxes.

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