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Verizon rejected by U.S. Supreme Court in $51M tax fight

The U.S. Supreme Court turned away an appeal by a Verizon Communications Inc. unit in a $51 million fight over taxes on a now-obsolete service used to connect to the Internet with a dial-up modem.

The justices on Monday left intact a federal appeals court ruling that rejected Verizon’s bid for a $25 million refund. The Internal Revenue Service is seeking another $26 million in back taxes and interest, Verizon said in court papers.

The clash centered on the reach of a decades-old federal excise tax on local telephone service. A federal appeals court in New York said Verizon’s disputed service, originally owned by WorldCom Inc., was subject to the tax because it had technological capacity to be used for local phone calls.

Verizon had the backing of corporate trade groups, which told the Supreme Court that the ruling might give the IRS sweeping power to impose a tax on Internet data services.

The case is WorldCom v. Internal Revenue Service, 13-1269.