The Iowa Supreme Court has sided with America Online in its tax dispute with the State of Iowa. The dispute is over whether AOL should pay sales tax to the State of Iowa for the Internet services it provides to Iowans.
The determining issue, according to the court, is where the AOL service — or connection — begins and ends. While a customer in Iowa first conects to A-O-L on an Iowa line, all connections are then routed through an AOL "authentication" system in Virginia. It would be impossible for one Iowa AOL subscriber to communicate with another Iowan who is on AOL without going through that system in Virginia.
The Iowa Supreme Court accuses Iowa Department of Revenue officials of engaging in "legal jujitsu" when it comes to their arguments that AOL should be paying sales taxes to the state. The key part of the Supreme Court’s opinion features this four-word sentence: "We agree with AOL."