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Home My WebLink About11-06-2019 - Appeal - Lane Powell CITY OF RENTON ( elr NOV 0,6 2019 liVo RECEIVED LANE POW E L L / CITY CLERK'S OFFICE Scum'M.EDWARDS 206.223.7010 edwardss@lanepowell.com 1420 5th Avenue,Suite 4200 P.O.Box 91302 Seattle,WA 98111-9402 November 6, 2019 CONFIDENTIAL—EXEMPT FROM PRA City Clerk City of Renton Renton City Hall 1055 S. Grady Way Renton, WA 98057 Re: TracFone Wireless, Inc. ("TracFone") Appeal of Utility Tax Assessment Dear City Hearing Examiner: Pursuant to Renton City Code Section 5-26-18.B, TracFone submits the following appeal of the City of Renton's ("City") tax assessment dated February 14, 2019. This appeal petition is presented to the City-Clerk as required by the Section 5-26-18.B. The appeal is for the tax period January 1, 2007 through October 31, 2017, (the"Tax Period"). A check for the $150 filing fee is enclosed herewith. All "Personal Information," as defined in RCW 42.56.230, relating to the tax assessment referenced in the October 17, 2019, letter enclosed, or related to this appeal, is confidential and not subject to disclosure under the Public Records Act. Any unauthorized disclosure of TracFone's Personal Information or Tax Information is a gross misdemeanor subject to prosecution. See RCW 84.08.210; 82.32.330. 1. Taxpayer Name, Phone Number, and Address: The taxpayer in this appeal is TracFone Wireless, Inc. ("TracFone"). TracFone's business address and telephone number are: 9700 NW 112th Avenue Miami,FL 33178 (800) 867-7183 STREET ADDRESS: 1420 FIFTH AVENUE,SUITE 4200 I SEATTLE,WA 98101-2375 P 206.223.7000 F 206.223.7107 LANEPOWELL.COM MAILING ADDRESS: P.O. BOX 91302 I SEATTLE,WA 98111-9402 A PROFESSIONAL CORPORATION City Clerk November 6, 2019 Page 2 2. Determination Under Appeal: TracFone hereby appeals the October 17, 2019, final determination of the City of Renton Administrative Services Department ("Department"), affirming the City's February 14, 2019, telephone utility tax assessment. 3. Receipt: A copy of the receipt evidencing payment of the contested assessment is attached as Exhibit A. 4. Statement of Grounds for Appeal: A. Factual Background TracFone is a non-facilities based reseller of prepaid wireless airtime. The company does not own, operate, or manage any telephone facilities. Rather, TracFone purchases airtime at wholesale from facilities based telecommunications companies and resells that airtime at both wholesale and retail. TracFone's wholesale sales of prepaid wireless airtime are made both to distributors (who in turn resell the airtime at wholesale) and to retailers who resell the airtime at retail to consumers who use the airtime. TracFone's retail sales of airtime are made via the internet and/or by calling an 800 telephone number. In or about June 2013, Michael Crisp of Tax Recovery Services, LLC contacted TracFone to perform a telephone utility tax audit on a contingent fee basis for the City. The City agreed to pay Mr. Crisp 25% of any taxes he assessed that the City collected. In order about August 2017, Mr. Crisp sent TracFone a preliminary draft schedule of asserted City utility taxes for periods through May 31, 2013. The draft schedule calculated tax on both (1)TracFone's retail sale of prepaid wireless airtime to City residents and (2)the estimated value of airtime estimated used by Renton residents that the residents purchased from unrelated third party sellers who had purchased the airtime at wholesale. Contemporaneously with sending the draft schedule, Mr. Crisp sent a "methodology" document asserting that the draft schedules calculated tax on the estimated value of "usage" of airtime purchased from persons other than TracFone because "it is true that taxation of this prepaid phone activity is properly owed on usage, not sales." The "methodology" document does not cite any authority or provide any analysis in support of Mr. Crisp's position. Throughout the contingent fee audit process, Mr. Crisp repeatedly declined requests to schedule meetings between the City and TracFone's counsel. In December 2017, Mr. Crisp acknowledged that telephone utility tax "is not based on usage" as asserted in his "methodology" and amended the "methodology" document to omit that assertion, without changing the draft tax schedule. Crisp characterized the estimated value of usage of airtime purchased from unrelated third parties as estimated"indirect" sales of airtime that"customers buy indirectly from TracFone, via outside carriers such as Target or Best Buy." 125110.000002/7832340v1 City Clerk November 6, 2019 Page 3 On or about February 14, 2019, on TRS letterhead, Mr. Crisp sent two letters purporting to enclose audit assessments issued on behalf of the City, one for the period January 1, 2007, through May 31, 2013, and the second for the period June 1, 2013, through October 31, 2017. The City subsequently advised that it had authorized Mr. Crisp's letter and considered the letters to constitute a formal tax assessment. The City subsequently extended the deadline to petition for a correction of the assessment through June 17, 2019. On June 17, 2019, TracFone timely filed a petition for a correction of assessment. The City Administrative Services Department ("Department") and TracFone participated in a conference regarding the petition for correction and on October 17, 2019, the Department issued its final determination. As required by Renton Municipal Code 5-26-18.A,TracFone has paid the contested assessment as a condition precedent to appealing to the City Hearing Examiner. B. Legal Analysis 1. Renton is not authorized to impose telephone utility tax on TracFone because TracFone is not engaged in the "telephone business"as defined by RCW 82.16.010. Cities do not have plenary taxing authority. Rather"[m]unicipalities must have express statutory authority to levy taxes." City of Seattle v. T-Mobile Mobile West Corp., 199 Wn App. 79, 82, 397 P.3d 931 (2017). While cities have been statutorily authorized to "license for revenue,"their authority to impose local telephone utility taxes have been specifically limited by RCW 35A.82.060. RCW 35A.82.060 limits the imposition of local utility taxes to persons engaged within the city in the "telephone business" as that term is defined by RCW 82.16.010. The term "telephone business" means "the business of providing network telephone services," RCW 82.16.010(7)(b)(iii), which in turn is defined as either (1) providing "access to a telephone network", or (2) providing "telephonic, voice, data or similar ... transmission for hire." RCW 82.16.010(7)(b)(iii). TracFone does not transmit telephonic, voice, data, or other signals. Nor does TracFone provide "access to" a telephone network within the meaning of RCW 82.16.010. The statute does not specifically define the activity of providing access. The statute does, however, impose limits on the measure of tax that help discern the scope of that statutory activity. Specifically, RCW 35A.82.060 prohibits taxing the "portion of the network telephone service which represents charges to another telecommunications company as defined in RCW 80.04.010." (Emphasis added). The use of the word"another"reflects that a person engaged in a taxable telephone business must be a "telecommunications company" as defined by RCW 80.40.010. It is axiomatic that "each word of a statute is to be accorded meaning." State v. Roggenkamp, 153 Wn.2d 614, 624, 106 P.3d 196 (2005). By using the word "another" rather than "a," the Legislature indicated that persons engaged in the telephone business subject to utility tax must be telecommunications companies. 125110.000002/7832340v1 City Clerk November 6, 2019 Page 4 A "telecommunications company" is defined as an entity "owning, operating, or managing any facilities used to provide telecommunications for hire sale, or resale to the general public within the state." RCW 80.04.101(emphasis added). This also indicates that a person who does not own operate or manage network facilities cannot engage in the activity of providing access to a telephone network. Access to the network is provided by the telecommunications companies that own, operate, or manage the network facilities. Further, any ambiguity as to whether the statute authorizes imposition of utility tax on persons who do not own operate or manage utility facilities is required to "be construed most strongly against the taxing power and in favor of the taxpayer." Agrilink Foods, Inc. v. Dep't of Revenue, 153 Wn.2d 392, 396-97, 103 P.3d 1226 (quoting Ski Acres, Inc. v. Kittitas County, 118 Wn.2d 852, 857, 827 P.2d 1000 (1992)). In short, because TracFone is not engaged in the telephone business as defined by statute, Renton is not statutorily authorized to impose telephone utility tax on TracFone. 2. Even if TracFone is subject to local telephone utility tax, its gross income from wholesale sale are statutorily excluded from the city's telephone utility taxing authority. Even if TracFone were engaged in the telephone business, and therefore subject to local utility tax authority, City's authority is limited to taxing gross income from retail sales on"intrastate toll telephone service." RCW 35A0.82.060 expressly prohibits Renton taxing gross income from "charges for network telephone service that is purchased for the purpose of resale." TracFone's wholesale sales of wireless airtime to persons who purchase the airtime to resell it (i.e. purchase at wholesale) are outside the City's statutory authority. 8. Conclusion: Accordingly, TracFone submits this appeal seeking the City Hearing Examiner's cancellation of the assessment and refund of TracFone's full payment plus interest. For the reasons set forth above, the City's utility tax does not apply to TracFone. Alternatively, TracFone seeks remand of the assessment to recalculate the correct amount of utility tax by removing wholesale sales of wireless airtime from TracFone's taxable gross income. Very truly yours, LANE PO WELL Pc 4/110 Scott M. Edwards Cc: Administrative Services Department Administrator 125110.000002/7832340v1 Exhibit A CITY OF RENTON 1055 S GRADY WAY RENTON, WA 98057 425-430-6850 Reg# #/RoOt#: 001-00162469 f OH ] Accounting Date: Mon, Nov 4, 2019 Date/Time: Mon, Nov 4, 2019 2:44 PM **************************************** PRAXIS REF #: TRACFONE WIRELESS TC:9000 FEE AMOUNT: $ 336,442.69 RECEIPT TOTAL $ 336,442.69 **************************************** Payment Data Pmt# :1 Payer :TRACFONE WIRELESS METHOD :CHECK $ 336,442.69 Ref# : 24764 *************************4:************** RECEIPT SUMMARY **************************************** TOTAL. TENDERED $ 336,442.69 RECEIPT TOTAL $ 336,442.69 CHANGE DUE $ 0.00 **************************************** HAVE A NICE DAY! **************************************** E1.0.5238 LANE POWELL PC DATE: 11-05-19 PAYEE: City of Renton VENDOR#: 80409 CHECK#: 773872 REF. # INV. # INV. DATE ACCT# INVOICE DESCRIPTION AMT. PAID 673451 125110.02 191105 11-05-19 150.00 • TOTAL • 150.00 CHECK DATE LANE POWELL PC 773872 11-05-19 ATTORNEYS AT LAW 1420 FIFTH AVENUE,SUITE 4200 11-24/1210(8) P.O.Box 91302 Wells Fargo Bank SEATTLE,WA 98111-9402 1215 4th Avenue (206)223-7000 Seattle,WA 98101 CHECK AMOUNT $150.00 ONE HUNDRED FIFTY AND 00/100 Dollars Two Slgna e�/ equl ed on Che Over$2,500 PAY City of Renton YCLLC -V TO THE 1055 S. 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