KPRC 2 Investigates: Internet customers wrongly charged for years, now getting refund

$180+ back for some customers

With rising inflation and interest rates, consumers are looking to save wherever possible. What some fail to realize is they have been paying extra for internet access. KPRC 2 Investigates discovered customers wrongly paying a certain sales tax for years and now, those customers will be getting a refund. What we uncovered will have you checking your bills a little closer.

KINGWOOD, Texas – With rising inflation and interest rates, consumers are looking to save wherever possible. What some fail to realize is they have been paying extra for internet access. KPRC 2 Investigates discovered customers wrongly paying a certain sales tax for years and now, those customers will be getting a refund. What we uncovered will have you checking your bills a little closer.

Are you being charged an internet sales tax?

When the internet was established, there was a sales tax of around six to eight cents that was imposed on internet access charges. However, in 2016 former President Barack Obama passed the Internet Tax Freedom Act, which gave all states still charging an internet tax until June 30, 2020, to stop.

This was not the case for Kingwood customer Patrick McCracken, who noticed $98 in sales taxes on his Phonoscope internet bill in 2021, a year after the tax was supposed to be eliminated. When he gave the company a call, they were not aware of the current sales tax act.

KPRC2 Investigates customers wrongly charged sales tax for internet services. Some customers are now getting a refund. (Copyright 2021 by KPRC Click2Houston - All rights reserved.)

“They were they were not familiar at all with the act and made the comment that, you know, ‘we pay taxes,’” McCracken said. “And, ‘you know, we charged those taxes to you as well.’”

In an email statement to KPRC 2, Phonoscope said it will begin the process of getting taxes paid back from the state and refunding its customers.

“Upon review, it does appear that... Phonoscope had not yet corrected its sales tax accounting accordingly,” Phonoscope said in the email.

Customers will be getting their money back

The president and founder of Sales Tax Institute Diane Yetter specializes in helping businesses know which taxes they must collect and pay. The Phonoscope internet tax that has been collected over the past two years was a pass-through tax, therefore, Phonoscope did not keep the money. Moving forward, the company must help its customers get their money back.

“If the estimate was $100 for the year- might be a $200... which certainly in today’s time... a bonus check of $200 would be very helpful to many of your viewers,” Yetter said.

When different services are bundled, sometimes customers can be confused about what tax is going towards what service. Legally, you can be taxed on cable, security and other services, just not for the internet.

KPRC2 Investigates customers wrongly charged sales tax for internet services. Some customers are now getting a refund. (Copyright 2021 by KPRC Click2Houston - All rights reserved.)

“It may be difficult looking at a bill knowing exactly what is being charged because if part of it is a cable charge, that might be subject to a different type of tax at different rates,” Yetter said.

Due to McCracken’s diligence, hundreds of internet customers will now receive refunds for internet taxes they paid.

“Nowadays, everybody wants to auto bill. I’ve always stayed away from that because I like to look at my bills, and, you know, make sure we’re being billed properly,” McCracken said.

Now, hundreds of Phonoscope customers can thank McCracken for checking his bills and noticing the sales tax no one should have been charged.

How to get a refund on sales taxes charged

If you are one of those people you will be receiving some forms from Phonoscope that you need to sign so they can send you your refund. A Phonoscope spokesperson says they will go back, and based on our analysis, determine the amount of sales tax for each customer account incorrectly charged since July 1, 2020 (the date the old grandfather clause expired).

Phonoscope anticipates conducting this process during the remainder of the month of June and into July. At which point, per the process provided by the State of Texas Comptroller, Phonoscope will issue to each customer the following to submit their request for a refund to the State:

  1. Form 00-957 (Filled out with as much information as we can provide - only customer signature should be needed);
  2. Form 01-911 (Filled out with our calculated schedule of charges to be reimbursed); and
  3. Form 00-985 (Assignment of Right to Refund for Transactions where Purchaser did not have Sales Tax Permit).

As mentioned, Phonoscope said they will provide these forms and information but you can also check out the forms on the Texas Comptroller’s website.


We checked with various other internet service providers

We also reviewed dozens of bills and contacted several internet service providers to see if any others were still charging sales tax. We did not find any other companies doing it but you should check your own bills. The companies below did send us statements on the issue.

Comcast

“Comcast does not charge customers a Texas sales tax on internet services. Comcast stopped charging this tax on internet services as of July of 2020. If customers have any questions about their billing statement they may visit one of our Xfinity retail locations, contact our Xfinity call center or log in to their account using the Xfinity app.”

Suddenlink

“After looking into it, I can confirm that Suddenlink does not charge sales tax for internet services in Texas; the taxes noted in the customer bills provided are related to equipment, which is taxable in Texas.”

Consolidated Communications

“Related to your question below, Internet service is not taxable; however, there are surcharges associated with certain non-internet broadband add on services and optional maintenance plans which are taxable. If a customer has questions on their invoice, we’d be happy to review their bill. They can contact us at 844-968-7224.”

Eastex Net

“Eastex Net does not charge sales tax for internet access services. Eastex Net does sell other goods and services that are subject to Texas sales tax.”


Full Phonoscope statement: Thank you for inquiry regarding sales tax being charged on internet services. Per our earlier conversation, upon review it does appear that the sunset of the twenty year old grandfather clause had been missed and Phonoscope had not yet corrected its sales tax accounting accordingly.

As such Phonoscope has needed to undertake a multi-step process to correct this issue. The first step was to go into the present accounting and invoicing system and make changes to the system to remove certain charges from being subject to sales tax. In other words, the first step was to stop collecting sales tax where it should not be collected. Per the Texas Comptroller Office Opinion(s), while just simple internet access provision is not taxable, the provision of internet in conjunction with the provision of other services or content is generally taxable. In such a case, the State still requires

Phonoscope to collect a sales tax and transmit it to the State Comptroller. As Phonoscope delivers other services and content in addition to it simple provision of internet access, the analysis of what should be taxable is not a simple straight-forward, push-button process. I wish to emphasize that the analysis must be done carefully and accurately. Just as collecting a sales tax where it shouldn’t be creates the right to a refund for a customer, failing to collect that sales tax creates a liability for the company to the State which the company would not otherwise assume.

Nonetheless, in the little over two weeks since Phonoscope was first alerted to the issue, I am proud to say that the invoicing system has been updated and invoices with correct sales tax calculations are already going out. The next step will be to go back, and based on our analysis, determine the amount of sales tax for each customer account incorrectly charged since July 1, 2020 (the date the old grandfather clause expired).

Phonoscope anticipates conducting this process during the remainder of the month of June and into July. At which point, per the process provided by the State of Texas Comptroller, Phonoscope will issue to each customer the following to submit their request for refund to the State:

1) Form 00-957 (Filled out with as much information as we can provide - only customer signature should be needed);

2) Form 01-911 (Filled out with our calculated schedule of charges to be reimbursed); and

3) Form 00-985 (Assignment of Right to Refund for Transactions where Purchaser did not have Sales Tax Permit).

All three of these forms can be found on the Texas Comptroller’s website.

https://comptroller.texas.gov/taxes/forms/refunds.php

At which point, the sales tax error should be completely corrected. Please do not hesitate to contact me regarding questions on this or any other inquiries.

Jon Hill, General Counsel, Phonoscope, Inc


About the Author:

Passionate consumer advocate, mom of 3, addicted to coffee, hairspray and pastries.