Facts

Twilio Inc. sells software that allows access to its proprietary application programming interfaces (APIs). An API is software consisting of a set of routines and protocols that streamline software-to-software interactions by specifying "ground rules" or "a common language" through which software components interact. Twilio's APIs are cloud-based software that replace the need for companies to own their own software and hardware, allowing them to perform the same functions as Twilio's APIs. Businesses, such as Amazon Web Services, use Twilio's services to employ software application developers to remotely access and use Twilio's APIs to create applications for use in their businesses' mobile, web-based, and desktop applications. After being accessed, by the City and County of San Francisco, Telephone Users Tax in the amount of over $16 million, and Access Line Tax of over $22 million, Twilio filed suit seeking a refund.

PLAINTIFF'S CONTENTIONS: Plaintiff argued that it should not have been imposed those taxes as historically and usually, it only applied to services provided by telecommunications companies, and it was a software company, not a telecommunications company. As part of its services, plaintiff provided use of North American numbering plan numbers purchased from third parties which its customers used. In effect those were virtual numbers associated with plaintiff's software applications rather than telecommunication services. The taxes defendants were attempting to impose had never been applied to other hardware and software companies providing the same function as plaintiff's APIs. Moreover, plaintiff's connectivity is provided outside defendant's borders and its APIs do not transmit, convey, or route voice, data, audio, video, or any other information within those borders. The taxes imposed on plaintiff were already paid by its customers' customers.

DEFENDANT'S CONTENTIONS: Defendant generally denied plaintiff's material allegations, mostly pertaining to plaintiff's argument that its service did not include any telephone communications.

Result

The case settled for $18 million. Also, as part of the settlement, defendant City agreed to not impose additional telephone user taxes and access line taxes, nor related penalties and interest for two months after payment of the settlement. Finally, plaintiff Twilio agreed to collect and remit those taxes thereafter.