HomeMy WebLinkAboutRespondent City of Renton's Response and Opposition to Tracfone's Motion for Reconsideration 4-2-211
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S REPONSE & OPPOSITION TO
TRACFONE’S MOTION FOR RECONSIDERATION - 1
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
BEFORE THE HEARING EXAMINER OF THE CITY OF RENTON
RE:
TracFone Wireless, Inc.
Administrative Appeal
RESPONDENT CITY OF RENTON’S RESPONSE AND OPPOSITION TO TRACFONE’S MOTION FOR RECONSIDERATION
The City of Renton (“the City”) hereby submits this response brief opposing TracFone’s Motion
for Reconsideration, dated March 26, 2021.
I. INTRODUCTION
The Examiner’s decision, dated March 12, 2021 (“Decision”), should be affirmed on
reconsideration with one exception clarifying that gross revenues from handset sales are not included in
the measure of tax. The Decision properly granted Respondent City of Renton’s Motion for Partial
Summary Judgment on tax liability and held as a matter of law that: (1) TracFone is a “telephone
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 2
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
business” under the applicable RMC 1 and RCW 2 provisions (COL Nos. 2-5) and (2) TracFone’s gross
income from its retail agents is taxable and not exempt under the resale proviso in RCW 35A.82.060(1)
(COL No. 6). Below, the City briefly explains its opposition to TracFone’s request for reconsideration
of five issues, and the City’s reasoning is explained more fully herein.
II. COUNTERSTATEMENT OF FACTS
The City incorporates by reference the factual assertions set forth in its Motion for Partial
Summary Judgment, on file herein, and the Findings of Fact set forth in the Decision.
III. ISSUES ON RECONSIDERATION
TracFone’s motion seeks reconsideration of five issues 3:
1) Whether the Hearing Examiner mis-applied relevant law regarding sales of telephone
equipment in reaching its conclusions of law?
Not in full, but clarification is needed to exclude revenues from handset sales.
2) Whether the Hearing Examiner disregarded genuine disputes of material fact?
No, summary judgment for the City was proper.
3) Whether the Hearing Examiner erred by improperly relying on expert opinions as to legal
issues in determining findings of fact?
No, summary judgment for the City was proper.
4) Whether the Hearing Examiner’s conclusions of law disregard findings of fact?
No, summary judgment for the City was proper.
5) Whether the Hearing Examiner erred by determining that the “Resale Proviso” was an
exemption rather than a statement of the scope of city statutory taxing [authority]4?
No, summary judgment for the City was proper.
1 RMC 5-11-1(A)(1) (local code authorizing the City to levy and collect a utility tax “for the privilege of conducting a
telephone business within the City limits.”); RMC 5-11-1(A)(2) (defining “Telephone Business” and “Cellular Telephone
Service.”).
2 RCW 35A.82.060(1) (state statute authorizing code cities to impose imposes a tax upon the business activity of engaging
in the telephone business, as defined in RCW 82.16.010, which is measured by gross receipts from the business); RCW
82.16.010(7)(b)(iii) (defining “telephone business”) and (7)(b)(ii) (defining “network telephone service”).
3 See TracFone’s Motion for Reconsideration at pp. 5-6.
4 Id. at p. 6. The word “activity” on page 6 appears to be a typographical error and should instead be “authority”
consistent with TracFone’s argument on page 13 of its Motion for Reconsideration.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 3
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
IV. LEGAL ANALYSIS & ARGUMENT
A. Legal Standard on Reconsideration.
RMC 4-8-100(I)(3) provides in pertinent part that: “[a] party of record to a decision who asserts
the decision was based on erroneous procedure, error of law or fact, or error in judgment may make a
written request for reconsideration by the decision maker.” The decision on a motion for reconsideration
is discretionary. Fishburn v. Pierce County Planning and Land Services Dept., 161 Wn. App. 452, 250
P.3d 146 (Div. 2 2011); Lilly v. Lynch, 88 Wn. App. 306, 945 P.2d 727 (Div. 2 1997). Moreover, a
motion for reconsideration does not provide litigants with an opportunity for a second bite at the apple.
Reconsideration does not permit parties to merely re-argue issues already addressed. See Sligar v.
Odell, 156 Wn. App. 720, 233 P.3d 914 (Div. 1 2010); Anderson v. Farmers Ins. Co. of Washington, 83
Wn. App. 725, 923 P.2d 713 (Div. 2 1996), as amended on denial of reconsideration, (Nov. 22, 1996).
The tribunal may decline to consider new arguments or new evidence on reconsideration where those
arguments or evidence were available earlier. See, e.g., River House Development Inc. v. Integrus
Architecture, P.S., 167 Wn. App. 221, 272 P.3d 289 (Div. 3 2012). A litigant, finding a judgment
unsatisfactory, cannot suddenly propose a new theory of the case. Eugster v. City of Spokane, 121 Wn.
App. 799, 91 P.3d 117 (Div. 3 2004).
A party opposing a dispositive motion must submit competent testimony setting forth specific
facts, as opposed to general conclusions, to demonstrate a genuine issue of material fact. See CR 56(e)
(emphasis added). It is not enough to rely on conclusory statements, speculation, argumentative
assertions, and self-serving affidavits. Seven Gables v. MGM/UA Entertainment, 106 Wn.2d 1, 13
(1986). See also Gardner v. Seymour, 27 Wn.2d 802, 809 (1947) (refusing admission of presumption,
speculation, and conjectural theories). As articulated in Trimball v. Washington State University, 140
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 4
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
Wn.2d 88, 93 (2000), “bare assertions that a genuine material issue exists will not defeat a summary
judgment motion in the absence of actual evidence.”
B. The Decision’s Application of Utility Tax to Sales of Handsets and Airtime Cards Can
Be Clarified.
The statutes at issue – RCW 35A.82.060(1), RCW 82.16.010(7)(b)(ii) and (iii) – authorize code
cities like Renton to impose a tax on the business activity of engaging in the telephone business, which
is measured by “. . . the total gross revenue derived from [network telephone service].”5
The City offers a point of clarification to the wording of the Decision’s conclusion. Specifically,
the Decision’s conclusion at page 8, lines 19-20 can be clarified to fully align with the authorizing statute
and the City’s assessment by simply revising the last full sentence of the Decision, as follows: “The
gross income subject to tax includes that derived from sales to retail sellers of Tracfone’s handsets and
airtime cards both directly and indirectly through retailers.” (Please see Attachment A, filed herewith.
Attachment A is the City’s proposed refinement to the Decision, incorporating the proposed revision to
the Decision’s conclusion, together with associated supporting clarifications.)
The Decision is otherwise correct in all respects, including when it states: “This Ruling concludes
that TracFone has been engaging in the telephone business in the City of Renton and that its gross
income/receipts from that activity is subject to the City’s utility tax.” Were it not for TracFone, its
customers would not have network telephone service; TracFone’s customers do not receive network
telephone service from either the underlying carrier (e.g., Verizon) or the middleperson retailer (e.g.,
Walmart). It is TracFone, not Verizon or Walmart, who is a telephone business as to TracFone’s
customers. It would be both impractical and illogical to consider either the underlying carrier or the pass-
5 The term “network telephone service” is defined in RCW 82.16.010(7)(b)(ii).
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 5
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
through retailer to be the network telephone service provider where, as here, the undisputed material
facts demonstrate that it is TracFone who is the network telephone service provider that is subject to the
City’s telephone utility tax. The Decision properly ruled that TracFone is a telephone business and
should only be clarified to exclude handset sales revenues from the tax measure.
To be clear, TracFone’s sales of wireless airtime, both directly and indirectly through retailers,
are sales of network telephone service. TracFone sells wireless airtime to its end user subscribers both
directly through sales and uploads of airtime minutes by TracFone to the subscriber and indirectly
through its retail distributors. The retailers do not purchase wireless airtime (the retailers are not
TracFone subscribers), do not have access to airtime, and do not use airtime. The airtime card units
available through retailers are one of TracFone’s designated methods to sell airtime to subscribers.
TracFone confuses the issue by obfuscating the true object of the telephone utility tax, that is, TracFone’s
airtime sales to its end user subscribers. As was addressed in the City’s motion for partial summary
judgment filings, the resale proviso does not apply because the retailers do not purchase wireless airtime
for resale and never own or access the airtime as TracFone subscribers; instead, the retailers are merely
conduits for TracFone’s sales of network telephone service to its ultimate subscribers. TracFone’s
position is factually incorrect and belied by the contracts between TracFone and its retailers, as well as
by the retailers’ resale certificates, and finally, by the express terms and conditions between TracFone
and its end users. It is TracFone, not the retailers, that provides wireless service to its end user customers.
Thus, TracFone’s revenues derived from retailers are not exempt as “charges for network telephone
service that are purchased for the purpose of resale” under the so-called “resale proviso” in RCW
35A.82.060(1).
As noted above, the Hearing Examiner should affirm the Decision by issuing a clarified decision
as proposed in Attachment A.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 6
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
C. TracFone Incorrectly Asserts the Decision Disregarded Three Genuine Disputes of Material Fact.
A party opposing a dispositive motion must submit competent testimony setting forth specific
facts, as opposed to general conclusions, to demonstrate a genuine issue of material fact. See CR 56(e)
(emphasis added). It is not enough to rely on conclusory statements, speculation, argumentative
assertions, and self-serving affidavits:
A nonmoving party in a summary judgment may not rely on
speculation, argumentative assertions that unresolved factual issues
remain, or in having its affidavits considered at face value . . . the
nonmoving party must set forth specific facts that sufficiently rebut
the moving party’s contentions and disclose that a genuine issue as
to a material fact exists.
Seven Gables v. MGM/UA Entertainment, 106 Wn.2d 1, 13 (1986); see also, Gardner v. Seymour, 27
Wn.2d 802, 809 (1947) (refusing admission of presumption, speculation, and conjectural theories). As
articulated in Trimball v. Washington State University, 140 Wn.2d 88, 93 (2000), “bare assertions that
a genuine material issue exists will not defeat a summary judgment motion in the absence of actual
evidence.”
a. TracFone’s Issue of “Whether TracFone or Third-Party Retailers Sell Handsets
and Airtime to Consumers (Subscribers)” Does Not Warrant Reconsideration.
As written, TracFone’s issue statement conflates equipment and airtime sales, which are taxed
differently, and thus, a distinction must be made between TracFone’s sales of equipment (handsets) and
TracFone’s sales of network telephone service (airtime), the latter of which is the correct focus of the
City’s telephone utility tax assessment against TracFone as a telephone business. These are different
transactions and are taxed differently. The Examiner reviewed the evidence presented regarding
TracFone’s business model and correctly found that it is the same business model described in TracFone
Wireless, Inc. v. Washington Dep't of Revenue, 170 Wn.2d 273, 297-98, 242 P.3d 810, 812 (2010). This
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 7
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
case is also like Western Telepage, Inc. v. City of Tacoma, 140 Wn.2d 599, 998 P.2d 884 (2000), which
held that, “the language of RCW 82.04.065 compels the conclusion paging services meet the definition
of network telephone services in RCW 82.04.065” and “RCW 82.04.065 plainly contemplates taxation
of paging services because such services involve data transmitted by microwave.” Western Telepage,
140 Wn.2d at 612. Similarly, here, TracFone is clearly providing its subscribers network telephone
service as defined in RCW 82.16.010(7)(b)(ii), and RCW 35A.82.060 plainly authorizes cities to tax
telephone businesses providing such service. Thus, the Examiner correctly decided as a matter of law
that TracFone engages in the telephone business when it provides network telephone service (airtime)
to its Renton subscribers, and the correct measure of this tax is gross revenues attributable to TracFone’s
sales of wireless service in Renton. Notably, TracFone has never provided clear data regarding its gross
revenues attributable to TracFone’s airtime sales in Renton, which is why the City’s auditors at Tax
Recovery Services, LLC (“TRS”) estimated those revenues for audit purposes as measured by
TracFone’s gross revenues from its direct sales via its website and toll-free customer care number and
from its indirect sales via its third-party retailers in Renton. The applicable RMCs and RCWs make no
distinction between these two revenue streams (direct and indirect), as both constitute gross revenue to
TracFone for utility tax purposes.
b. TracFone’s Issue of “Whether Third-Party Retailers or TracFone activate wireless
airtime cards” Does Not Warrant Reconsideration.
Activation is not a material fact and the timing of activation does not warrant reconsideration.
The Examiner found activation timing to be “a significant point of disagreement” between TracFone
and the City, which is accurate, but activation timing is not a material fact for either of the two legal
issues presented in the City’s Motion for Partial Summary Judgment. As to the first legal issue, activation
timing is not material to whether TracFone is a telephone business for purposes of telephone utility tax
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 8
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
authorized in RCW 35A.82.060(1) and as defined in RCW 82.16.010(7)(b)(iii). Regardless of whether
the airtime is sold “live” or not, reasonable minds must agree that TracFone, not the retailers, provides
network telephone service to TracFone’s Renton subscribers and is therefore a telephone business. The
retailers never “own the airtime,” nor do they become TracFone’s subscribers (the retailers are not the
recipients of the wireless service provided by TracFone), nor do they provide network telephone service
to TracFone’s end user subscribers.
As to the second legal issue, activation timing is not material as to whether the resale proviso
applies as a matter of law to exclude TracFone’s gross income from retailers. No credible evidence
supports TracFone’s argument that the retailers are purchasing network telephone service (airtime) for
resale. It is TracFone, not the retailers, who purchase wireless service from network carriers for resale
to subscribers. This is TracFone’s business model today, which is the same as it was described in the
earlier 2010 case decided by the Washington state supreme court in TracFone Wireless, Inc. v.
Washington Dep't of Revenue, 170 Wn.2d 273, 297-98, 242 P.3d 810, 812 (2010). As the state supreme
court observed in TracFone Wireless:
As the Department points out, while TracFone distributes handsets and airtime
cards through numerous mass market retail stores, TracFone itself provides the
use of [commercial mobile] radio access lines to the subscribers of TracFone’s
wireless service. As a [commercial mobile] radio communications service
company, TracFone is responsible for activation and assignment of [commercial
mobile] radio access lines to the subscribers. If there are problems requiring
service, TracFone, not the retail store, provides the service.
Id. at 296, n.15 (emphasis added).6 The TracFone Wireless court held that TracFone effectively asked
it to find an implied exemption for prepaid wireless service. Id. The court squarely rejected this request,
holding that “taxation is the rule and exemption is the exception, and where there is an exception, the
6 See also, Decision, COL No. 6, at p. 6:17-18 (“Nor is there any difference in the business model between that addressed in
the TracFone case and that identified in FOF No. 4.).
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 9
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
intention to make one should be expressed in unambiguous terms.” Id. at 296-97 (citing Columbia Irrig.
Dist. v. Benton County, 149 Wash. 234, 240, 270 P. 813 (1928); accord Homestreet, Inc. v. Dep't of
Revenue, 166 Wn.2d 444, 455, 210 P.3d 297 (2009); Budget Rent–A–Car of Wash.-Or., Inc. v. Dep't of
Revenue, 81 Wn.2d 171, 174, 500 P.2d 764 (1972)). Again, while this case analyzes the applicability of
a different tax (E-911 tax) than the utility tax at issue here, this case illustrates TracFone’s repeated
strategy to avoid taxation based on arguments surrounding its chosen business model. As in TracFone
Wireless, TracFone’s arguments that it should not be subject to taxation as a telephone business under
RMC 5-11-1(A) and RCW 35A.82.060 – and that its gross income from retail agents should be excluded
under the resale exemption in RCW 35A.82.060(1) – both fail as a matter of law.
c. TracFone’s Issue of “Whether TracFone Controls Final Consumer Access to
Network Carrier Facilities” Does Not Warrant Reconsideration.
Again, this is not a material fact and does not warrant reconsideration. And it is not the
appropriate argument. Whether the Network Carriers control the network carrier service for TracFone
subscribers does not alter the correct conclusion as a matter of law that TracFone is a telephone business
subject to Renton telephone utility tax under the applicable RMCs and RCWs.7 Even if carriers (e.g.,
Verizon) ultimately control the network facilities used to transmit the voice, text, and data services that
support the Service offered by TracFone, it is still TracFone that is providing the Service to its end user
subscribers at issue here, that is, network telephone service. Further, based on the contracts between
TracFone and carriers and the terms and conditions between TracFone and its end user subscribers,
reasonable minds must agree that TracFone’s subscribers can only obtain network telephone service
from TracFone, not the underlying carrier, because TracFone’s subscribers have a service agreement
with TracFone only. Nevertheless, whether the carriers or TracFone ultimately control the networks is
7 See Section I, Introduction, at p. 2, n.1 and n.2, supra.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 10
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
immaterial, and TracFone presents no arguments or authorities that necessitate reconsideration of the
Examiner’s Decision on this basis.
D. TracFone Incorrectly Asserts the Decision’s Conclusions of Law Disregarded Material
Facts.
TracFone’s motion for reconsideration asserts that the Examiner’s Decision “disregarded its own
factual findings”8 and reaches “contradictory conclusions”9 about the taxable incident – sale of
“equipment” or “network telephone service” – for the purpose of imposing the tax under RCW
35A.82.060(1). The undisputed material facts demonstrate that TracFone is a network telephone service
provider that is properly subject to the City’s telephone utility tax. TracFone’s motion for
reconsideration asserts there is a “genuine dispute between the parties as to what the product sold through
this distribution chain is—‘network telephone service’ or ‘equipment.’” Cf. TracFone’s Motion for
Reconsideration at 9:8-10 and at 11:20–12:14. TracFone confuses and conflates the issue, yet the City’s
position is clear—and reasonable minds must agree—that the taxable incident under RCW
35A.82.060(1) is “the business activity of engaging in the telephone business.” The Examiner’s Decision
concurs, squarely and appropriately concluding that the taxable incident is “the business activity of
engaging in the telephone business.” See Decision, COL 7, at p. 8:8-16. The Examiner’s conclusion and
the authorizing statute, RCW 35A.82.060(1), are consistent. TracFone, not the retailers, engages in the
telephone business when it provides its Renton customers network telephone service. “[C]ell phone
service is what is involved in this case. The plain language of the controlling statutes requires payment
of the [Renton telephone utility tax] on TracFone’s prepaid wireless service.” TracFone Wireless, Inc.
v. Dep’t of Revenue, 170 Wn.2d at 283 (emphasis added).
8 See TracFone’s Motion for Reconsideration at 11:21-22.
9 Id. at 11:5-14.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 11
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
TracFone seeks to avoid taxation by arguing either its airtime cards are equipment and therefore
not subject to the tax on providing network telephone service, or its revenues from retailers are exempt
from tax under the resale proviso in RCW 35A.82.060(1). TracFone is wrong as to both arguments and
reconsideration is not warranted. As noted previously in Section IV.B, supra, the Decision properly
ruled that TracFone is a telephone business and should only be taxed upon the business activity of
engaging in the telephone business, specifically providing its end user subscribers access to network
telephone service. Sales of handsets are not such. This needs to be clarified as proposed in Attachment
A, filed herewith.
In contrast, like a gift card, the airtime cards provide a gateway to the service offered by the card
issuer, which in this case is TracFone. Sales of gift cards by retailers do not make the retailers the service
provider when marketing materials, contracts, and terms and conditions of service all clearly show that
the provider of prepaid wireless service here is TracFone.
Further, as noted previously in Section IV.C.a, supra, TracFone has never provided clear data
regarding its gross revenues attributable to engaging in the business activity of telephone business in
Renton, which is why the City’s auditors at Tax Recovery Services, LLC (“TRS”) estimated those
revenues for audit purposes as measured by TracFone’s gross revenues from its direct sales via its
website and toll-free customer care number and from its indirect sales via its third-party retailers in
Renton. The applicable RMCs and RCWs make no distinction between direct and indirect revenue
streams, as both comprise TracFone’s gross revenues for utility tax purposes. Here, the retail agents do
not offer access to telephone networks; TracFone does. End users who buy TracFone airtime cards from
third party retailers must always go through TracFone to activate and use the wireless service.
//
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 12
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
E. TracFone Incorrectly Asserts the Decision Relied on Expert Opinions on Ultimate
Issues of Law.
The Decision reflects that the Examiner, as the decisionmaker, reviewed the excerpts of the
contracts and relied on the specific language of those contracts – not Mr. Ashpaugh’s interpretation –
and the Examiner formed his own conclusion as to what those contracts provide in terms of TracFone’s
responsibilities to the carriers in relation to the retailers. As the decisionmaker, it is appropriate to
examine the facts set forth by both parties and make a final determination based upon the record.
In addition to referencing Mr. Ashpaugh’s testimony, the Examiner also referenced TracFone’s
witness, Vice President for Corporate Taxation Chesley Dillon, within FOF No. 4 to highlight each
party’s position:
A significant point of disagreement between the City and Tracfone
for transactions involving third-party retailers is whether it is the
retailer or Tracfone who “activates” consumer access to network
carrier service and thereby provides final network access to the
consumer. Tracfone’s Vice-President for Corporate Taxation,
Chesley Dillon, asserts that some prepaid wireless airtime that
Tracfone sells to retailers is “active” at the time the cards are shipped
to the retailers, while other sales wireless airtime is activated at the
register of the retailer immediately prior to the sale to the consumer.
See Decision, at 2:25–3:3 (emphasis added). Reviewing and referring to expert opinion does not equate
to improper reliance on these opinions on ultimate issues of law. In administrative hearings, evidence of
any kind is admissible if, “in the judgment of the presiding officer it is the kind of evidence on which
reasonably prudent persons are accustomed to rely in the conduct of their affairs.” RCWA 34.05.452(1);
see also, Nisqually Delta Ass'n v. City of DuPont, 103 Wn.2d 720, 733, 696 P.2d 1222, 1229
(1985) (even relevant hearsay is admissible in administrative hearings). The City provided Mr.
Ashpaugh’s testimony, as his expertise is both efficient and helpful to understanding the issues present
in this case consistent with RMC 4-8-100(E)(1). Mr. Ashpaugh’s two declarations were helpful to
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 13
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
provide relevant excerpts from among hundreds of pages of representative contracts between TracFone
and network carriers to highlight the nature of TracFone’s relationship with the carriers in relation to the
retailers. Mr. Ashpaugh’s declarations provided not only relevant expert analysis, but also laid out the
pertinent provisions of TracFone contracts with Sprint and T-Mobile for the Examiner’s review and
analysis. See Declaration of Garth Ashpaugh in support of the City of Renton’s Motion for Partial
Summary Judgement at Exhibit 2 and ¶¶4-10. Moreover, Nate Malone, Tax and License Manager for
the City, provided similarly helpful testimony about TracFone’s contractual relationship with Circle K
and T-Mobile. See Declaration of Nate Malone in support of the City of Renton’s Motion for Partial
Summary Judgement at ¶¶11-12.
TracFone conflates mere references to expert opinion, which is different from improper reliance
on expert opinion, on the ultimate issues of law to be decided. The Examiner appropriately laid out the
respective positions of both the City and TracFone within FOF No. 4, reviewed the excerpts of the
contracts, relied on the specific language of those contracts, and formed his own conclusion as to what
those contracts provide in terms of TracFone’s responsibilities to the carriers in relation to the retailers.
F. TracFone Incorrectly Asserts the Decision Erroneously Interpreted the Utility Tax
Scope as an Exemption.
The Examiner found the exemption ambiguous. See Decision, COL No. 6, at 7:3-5. A statute or
regulation is ambiguous if it is susceptible to more than one reasonable interpretation. Seattle
FilmWorks, Inc. v. Dep't of Revenue, 106 Wn. App. 448, 453, 24 P.3d 460 (2001). Here, the City’s
position has been that there is only one reasonable interpretation. RCW 35A.82.060(1), which provides
an exemption for “charges for network telephone service that is purchased for the purpose of resale,”
does not apply to TracFone’s revenues from retailers, as the retailers do not resell airtime. The statutory
language at issue does not refer to TracFone’s wholesale sales of prepaid wireless services to retailers,
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 14
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
because TracFone does not resell network telephone service to retailers and instead resells network
telephone service to its end user subscribers through retailers.
The Decision’s conclusion that the statute is ambiguous is also correct, because when a reviewing
tribunal is interpreting a regulation or statute granting a tax exemption or deduction, the tribunal
must construe it “‘strictly, though fairly and in keeping with the ordinary meaning of their
language, against the taxpayer.’” Id. (quoting Group Health Coop. of Puget Sound, Inc. v. Dep't of
Revenue, 106 Wn.2d 391, 401-02, 722 P.2d 787 (1986)). As taxation is the “‘rule’” and “‘exemption is
the exception,’” the taxpayer who “‘claims an exemption carries the burden of proving [it] qualifies for
it.’” TracFone Wireless, Inc. v. Dep't of Revenue, 170 Wn.2d 273, 296-97, 242 P.3d 810 (2010).
TracFone has long alleged that even if it were engaged in the telephone business, and therefore
generally subject to local utility taxation, the City’s authority is limited to taxing TracFone for its
revenue received from direct sales to end users (which TracFone refers to as its “retail” sales) and that
its indirect sales through its retailers (which Tracfone refers to as its “wholesale” sales) is exempt. For
the first time now, in support of reconsideration, TracFone alleges that the so-called “resale proviso” is
not a tax exemption and instead is part of the Legislature’s grant of utility tax authority to cities. See
TracFone’s Motion for Reconsideration, p. 13. Under Washington law and common sense, RCW
35A.82.060(1) supplies both the required taxing authority and exemptions to that taxing power. See
Qwest Corp. v. City of Bellevue, 161 Wn.2d 353, 362, 166 P.3d 667 (2007) (“all interstate services are
exempt from taxation.”) (emphasis added.). Previously, in TracFone’s appeal letter in response to the
City’s tax assessment, TracFone argued that “its gross income from wholesale sale[s] are statutorily
exempt from the city’s telephone utility taxing authority.” TracFone’s November 6, 2019 Appeal of
Utility Tax Assessment, p. 4 (emphasis added). TracFone’s entire appeal has been largely premised on
shoehorning itself within the statutory exemption for “network telephone service that is purchased for
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 15
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
the purpose of resale.” RCW 35A.82.060(1). It has now changed its position for the first time on
reconsideration.
If the statutory language is susceptible of a construction that carries out the purpose and intent
of the statute, that construction should be adopted. See Dep 't of Labor & Indus. v. Gongyin, 154 Wn.2d
38, 46, 109 P.3d 816 (2005). As noted in the Decision, exempting Tracfone from the utility tax because
it chooses to subcontract out sales to retailers disrupts the level playing field objective of the broad
definition of network telephone service. Decision, COL No. 6, p. 8:2-7. Allowing the tax loophole that
TracFone seeks would give it a competitive advantage over network telephone service providers who
sell directly to consumers when there is no policy or equitable reason to create such a loophole. Id. The
Decision was therefore correct in construing the statutory language consistent with the purpose and
intent of the statute. For these reasons, the Decision was correct in construing any ambiguity against the
taxpayer and in concluding that the resale exemption does not apply to TracFone’s gross revenues from
sales of network telephone services through retailers.
V. CONCLUSION
TracFone has presented no new arguments that would alter the fundamental—and correct—
conclusion underlying the Examiner’s Decision, other than the clarification needed to exclude handset
revenues from the tax measure. TracFone’s motion for reconsideration does not raise any new or
different arguments that were not fully considered in the Examiner’s Decision. Apparently, TracFone
simply disagrees with the Examiner’s Decision and largely restates its previously rejected arguments. If
postpaid wireless providers must pay the telephone utility tax, then prepaid wireless providers must also,
or else they are given an unintended competitive advantage. The Examiner properly decided that
TracFone is a telephone business because it provides network telephone service; in addition, the
Examiner properly decided that TracFone’s revenues from retailers are taxable and not exempt under
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 16
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
the resale proviso in RCW 35A.82.060(1) because it is TracFone, not the retailers, who provides network
telephone service. Based on the foregoing, the Decision should be revised to clarify as shown in
Attachment A that the telephone utility tax applies to gross revenues attributable to airtime sales (access
to telephone networks) and not to handset sales. In all other aspects, TracFone’s motion for
reconsideration should be denied, and the Decision should otherwise stand.
RESPECTFULLY SUBMITTED this 2nd day of April, 2021.
OGDEN MURPHY WALLACE, PLLC
By /s/Kari L. Sand
Kari L. Sand, WSBA #27355
Julia Norwood, WSBA #52876
Attorneys for Respondent City of Renton
ksand@omwlaw.com
901 Fifth Avenue, Suite 3500
Seattle, WA 98164-2008
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
{KZS2394933.DOCX;2/07851.000003/ }
CITY OF RENTON’S RESPONSE BRIEF OPPOSING
TRACFONE’S MOTION FOR RECONSIDERATION - 17
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
DECLARATION OF SERVICE
I, Kenya Owens, an employee of Ogden Murphy Wallace, PLLC, certify that on the date below,
I filed and served the Respondent City of Renton’s Response and Opposition to Tracfone’s Motion for
Reconsideration via email on the following parties:
TracFone Wireless, Inc.
Scott Edwards
Lane Powell, PC
1420 5th Avenue, Suite 4200
Seattle, WA 98101
EdwardsS@LanePowell.com
Grant S. Degginger
Lane Powell, PC
1420 5th Avenue, Suite 4200
Seattle, WA 98101
DeggingerG@LanePowell.com
City of Renton Hearing Examiner
Cynthia Moya
Renton City Clerk
1055 South Grady Way
Renton, WA 98057
cmoya@rentonwa.gov
olbrechtslaw@gmail.com
I declare under penalty of perjury under the laws of the State of Washington that the foregoing
is true and correct.
Executed at Seattle, Washington this 2nd day of April, 2021.
/s/Kenya Owens
Kenya Owens
Legal Assistant