The Tempe City Council will consider allocating more than $1 million to settle a lawsuit with Cox Commun- ications charging the city wrongly taxed their customers.
City Attorney Marlene Pontrelli is recommending council members approve an agreement that would refund Tempe Cox customers who subscribed to the cable service between 1998 and 2002.
If approved, Tempe would become the state's first municipality to settle with the cable television provider. Since 2002, Cox has contended that numerous cities and towns have been illegally imposing a sales tax on cable services.
Scottsdale, Mesa, Chandler, Gilbert, and Paradise Valley are continuing to battle Cox's efforts to recoup past sales taxes collected from customers in those communities.
"We decided that this would be too costly for taxpayers to fight this out in court," said Pontrelli, who has been negotiating with Cox representatives for the past couple months.
As part of the deal, the city would send out notification letters to customers who subscribed to the cable service between 1998 and 2002, according to city documents. Subscribers could get a refund or donate the amount to the Tempe Community Council, a charitable organization.
City officials expect that it will be nearly impossible to track everyone down and expects to refund about $300,000 to $400,000 of the $1.1 million owed.
"We know that we won't be able to reach everyone, but it is our intention that we make every possible effort to do so," Pontrelli said.
Besides the cost of the refund, the city estimates it would cost $30,000 to send out the notification letters and refund checks, said Jerry Hart, financial services director.
Current and former customers would receive between $1 and $30 depending on how long and what type of service they had, said Ivan Johnson, vice president of community relations for Cox.
He added that the company appreciated the city's efforts to settle.
If approved, the city also would pay $80,000 to Cox for out-of-pocket expenses and agree to never levy a sales tax on cable services unless Arizona law is changed, according to city documents.
For years, some Arizona municipalities have required Cox and other cable companies to charge and collect a local sales tax from their customers.
In May 2002, though, an Arizona Supreme Court ruling barred Tucson from imposing a sales tax on microwave television services, which Cox officials said applied to them.
The company stopped charging their customers the tax in November 2002, contending cities and towns cannot charge tax on cable services.
Lawyers for the Mesa, Chandler, Scottsdale and Paradise Valley did not return phone calls. Gilbert officials said they would not comment on pending court cases.
- Staff writer Amanda Prince contributed to this report.