AOL LLC v. Iowa Department of Revenue

Summary

The Supreme Court of Iowa considered whether Iowa could impose sales tax on internet services provided by AOL to Iowa customers. The court held that the Iowa Department of Revenue's rule requiring both the origination and termination points of a communication to be within Iowa applied to internet services, and that AOL's services were interstate because authentication and essential communications occurred through AOL's Virginia data centers. The court vacated the Court of Appeals decision and affirmed the district court judgment in favor of AOL.

Holdings

1. The definition in rule 18.20(1)(b) applies fully when determining whether internet services under rule 18.20(5) are subject to Iowa sales tax. The Department could not treat rule 18.20(5) as a stand-alone provision and avoid the generally applicable definition.
2. AOL's services were interstate rather than intrastate communication services under rule 18.20(1)(b), because the transmission and receipt of information did not occur wholly within Iowa. The Iowa access point and local modem hotel did not themselves constitute a taxable intrastate communication service.

Questions Presented

1. Whether the definition of communication service provided "in this state" in Iowa Administrative Code rule 18.20(1)(b) applies to the internet-service provision in rule 18.20(5).
2. Whether, under the undisputed facts and the applicable administrative rules, AOL provided taxable intrastate communication services in Iowa.

Disposition

vacated