Limiting a Taxpayer's Right to Recover Tax Costs Through Line Item Surcharges


Two recent federal Court of Appeals decisions, BellSouth Telecommunications, Inc. v. Farris (“BellSouth”)[1] and Peck v. Cingular Wireless, LLC (“Peck”),[2] provide guidance regarding the restrictions imposed upon states to prevent or limit vendors from recovering their gross receipts tax costs through the use of line item surcharges on customer bills. Cumulatively, these decisions appear to signify that states cannot prohibit vendors from disclosing or recovering tax costs from their customers by line item charges, but that states do have leeway to prescribe when and how such line item customer charges can be applied.

In addition to examining the above-referenced decisions, this article summarizes the history and development of line item surcharges and addresses several of the legal and practical questions facing taxpayers and states regarding the implementation and enforcement of possible government limitations upon vendors seeking to recover their tax costs.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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