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Supreme Court rejects cell-phone tax case

Wireless carriers are fighting state and local laws that, in their view, force them to "hide" government taxes and fees from their customers. So far, they haven't been totally successful.

The U.S. Supreme Court has declined to weigh a dispute that could affect how taxes show up on Americans' cell phone bills, dealing a setback to wireless companies.

The case at hand, which pitted Sprint Nextel and T-Mobile USA against state utility regulators, centers on whether states should be allowed to forbid wireless carriers from breaking out various state and local taxes as line-item fees on a customer's bill.

Sounds like a simple enough matter, but it has actually stirred up quite a fuss.

The wireless companies, naturally, maintain they should be able to establish a visible separation between the base prices of their services and the fees required by various regulators. States and localities have increasingly been passing laws prohibiting those line items expressly in order to "hide" arguably unpopular taxes and fees from consumers, Sprint Nextel and T-Mobile said in their brief to the high court.

And because taxes and fees vary by locale, building them into the base price would make it impossible to advertise one price to all customers nationwide, they contended--and therefore make it harder for consumers to compare prices among wireless carriers.

But state utility regulators have countered that the wireless companies are missing the point: The fees and taxes they impose are generally meant to fall on the wireless carriers themselves, not on consumers. Wireless companies should simply raise their rates to reflect that distinction, they argue.

An example of one such law, according to the court filings, is in Indiana, which imposes a tax on the "gross receipts" of corporations in the state. Indiana passed a law insisting that wireless carriers not pass on the tax to their customers as line-item fees. They are, however, allowed to raise their base rates accordingly.

The Federal Communications Commission has already sided with the wireless carriers. It issued an order in 2005 that said states can't impose such restrictions, citing a chunk of federal communications law that says wireless carriers must disclose all "rates charged." But the U.S. Court of Appeals for the 11th Circuit disagreed, saying there's nothing in that law to stop states from regulating how line item fees show up on wireless bills.

Without comment on Tuesday, the nation's highest court said it wouldn't hear an appeal by wireless carriers to overturn the appeals court decision. The U.S. Department of Justice had urged the high court not to take up the case because the appeals court had already sent the decision back to the FCC for further review. That means the fate of Americans' cell phone bills is now effectively back in the federal regulators' hands.