Iowa Supreme Court: AOL not required to pay state sales tax

The Iowa Supreme Court ruled today AOL doesn't have to pay state sales tax.

The court ruled the Internet service isn't provided to Iowa customers by local phone number access. The main issue was determining where service begins and ends.

The Iowa Deparment of Revenue said AOL was subject to sales tax from July 1, 1995 to Dec. 31, 2000, but the district court and Court of Appeals disagreed.

A resident in Iowa must first place a call to a local phone number, but the call is then forwarded to one of AOL's data centers in Virginia, according to the ruling. No information is transmited to Iowa until a member's account is authenticated in Virginia.

The Iowa access for this service doesn't come under the provision of an intrastate “communication service” subject to tax, the court ruled. The provision involves both transmission and receipt of information occurring in the state.

Mark Schuling, Iowa Department of Revenue director, said this was an assessment case, not a refund case, so there's no fiscal impact from the decision. "This case was a pre-2001 case. The Legislature in 2001 specifically exempted Internet access charges from sales tax. This is no longer an issue in Iowa.”

Attorneys for AOL didn't return phone messages.