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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 1 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
BEFORE THE HEARING EXAMINER OF THE CITY OF RENTON
RE: TracFone Wireless, Inc. Administrative Appeal
TRACFONE’S MOTION FOR SUMMARY JUDGMENT ORAL ARGUMENT REQUESTED
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - i LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
TABLE OF CONTENTS
Page
INTRODUCTION .....................................................................................................................1
STATEMENT OF FACTS ........................................................................................................2
A. TracFone’s Business Activities. .........................................................................2
B. The TRS Audit of TracFone. .............................................................................3
1. TRS Failed to Inquire about TracFone’s Business Activities. ...............4
2. TRS’s Audit had Multiple Errors. ..........................................................4
a. TRS fundamentally misunderstood the basic structure of
Renton’s utility tax – it is NOT a tax on consumer use. ............4
b. TRS failed to meet with TracFone to understand its
business. .....................................................................................5
c. TRS confused the estimated income of third-party
retailers with TracFone’s income. ..............................................5
d. TRS made significant errors in computing the zip code
population to city population ratio. ............................................8
3. TRS Delayed Issuance of the Assessment for 18 Months –
substantially increasing the assessed interest and TRS’s
expected fee ...........................................................................................9
4. TRS Failed to Maintain a Separate, Segregated File on the
TracFone Renton Audit........................................................................11
LEGAL ARGUMENT .............................................................................................................12
A. TracFone is not subject to Renton telephone utility tax because it is not
engaged in the business of “providing network telephone services” as
defined by statute. ............................................................................................12
B. Even if TracFone is deemed to be engaged in the business of providing
network telephone service as defined by statute, the assessment
substantially overstates the amount of tax due, by imposing tax on the
estimated value of airtime purchased from third party retailers. .....................14
CONCLUSION ........................................................................................................................16
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 1 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
INTRODUCTION
This case presents two issues. First, whether TracFone Wireless, Inc. (“TracFone”) is
subject to the City of Renton’s (“City”) telephone utility tax at all. Second, if so, whether the
tax is limited to TracFone’s income from retail sales to Renton buyers or whether tax also
applies to the estimated retail value of airtime sold by third party retailers, amounts that are
not TracFone’s income but the estimated income of the retailers who purchased airtime at
wholesale and resold it at retail. Because cities only have such taxing authority as is granted
to them by the Legislature, these legal questions are controlled by state statute.
RCW 35A.82.060 only grants cities’ authority to impose tax on companies engaged in
the business of “providing network telephone service” as defined by RCW 82.16.010(7)(ii)
measured by the taxpayer’s income from “intrastate toll telephone services” sold to buyers in
the taxing city. RCW 35A.82.060 also prohibits cities from imposing tax on a taxpayer’s
wholesale sales; specifically, cities are prohibited from taxing income from sales of network
telephone service “purchased for the purpose of resale.”
With respect to the first issue, as discussed in Legal Argument Section A below,
TracFone is not subject to Renton’s telephone utility tax because TracFone is not engaged in
the business of “providing network telephone service.” Specifically, RCW 82.16.010(7)(ii)
defines network telephone service, in relevant part, as the activity of “providing access to a
telephone network”; an activity performed by companies that own, operate, or manage
telephone network facilities. Since TracFone does not own, operate, or manage any telephone
network facilities, it cannot be engaged in the business of providing network telephone service
as defined by statute.
However, as discussed in Legal Argument Section B below, even if TracFone were
deemed to be engaged in the activity of “providing network telephone service,” its Renton
utility tax liability would be limited to the portion of its retail sales to Renton buyers
attributable to “intrastate toll telephone service” – less than 20% of the tax assessed. More
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 2 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
than 80% of the assessed tax is not measured by TracFone’s income at all but is instead an
estimate of the value of prepaid airtime sold by third party retailers. In short, the amounts
labeled “non-direct sales” in the assessment are not subject to Renton’s utility tax: (1) because
the so-called “non-direct sales” are not TracFone’s income at all; the figures TRS labels “non-
direct sales” are the estimated income of the retailers who purchased airtime at wholesale and
resold it; and (2) because, even if the TRS figure labeled “non-direct sales” instead represented
TracFone’s wholesale income—income from TracFone’s sales to retailers who purchased
prepaid airtime for resale—RCW 35A.82.060 expressly prohibits cities from imposing tax on
“charges for network telephone service that are purchased for the purpose of resale.”
STATEMENT OF FACTS
A. TracFone’s Business Activities.
TracFone is a non-facilities-based seller of prepaid wireless airtime. TracFone
purchases wireless airtime from facilities-based carriers such as Verizon, T-Mobile, Sprint,
and AT&T and resells the airtime on a prepaid basis at both retail (to end-users) and at
wholesale (to businesses such as Walmart, Fred Meyer and Target who purchase prepaid
wireless airtime from TracFone for the purpose of reselling it at retail to end users). 1
Declaration of Chesley Dillon, paras 2-5. TracFone does not have any physical stores.
TracFone’s retail sales of prepaid wireless airtime are made via the internet and/or by calling
a toll free (1-800) telephone number. Id., paras 6-7.
TracFone does not own, operate, or manage any telecommunications facilities in
Renton or anywhere else. Id., para 12.
1 TracFone also sells prepaid wireless airtime to distributors who purchase the prepaid wireless airtime for the purpose of reselling it at wholesale (either to retailers or to other distributors both of which are themselves purchasing the prepaid wireless airtime for the purpose of resale). C. Dillon Decl., para. 8.
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 3 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
B. The TRS Audit of TracFone.
In June 2013, Tax Recovery Services, LLC (“TRS”), a contingent fee auditing
company owned by Michael and Tamara Crisp, approached the City about performing a
utility tax audit on TracFone under a contingent fee audit contract that TRS had entered into
with the City in 2011. Ex. 5 to Michael Crisp’s deposition, copy provided as Ex. 5 to the
Declaration of S. Edwards.2 In February 2014, Renton sent TracFone a letter informing
TracFone that the City had authorized TRS to conduct a telephone utility tax audit of
TracFone. Edwards Decl., Ex. 8.
Michael Crisp is a former City of Tacoma auditor who formed TRS upon his
departure from the City of Tacoma. His wife, Tamara Crisp, is a former Boeing engineer
with no prior audit experience and no audit training. Their company, TRS, conducts tax
audits for cities on a contingent fee basis, receiving a percentage of the amounts (including
interest and penalties) that their audit targets pay to their client cities. Edwards Decl. Exs.
101 and 102 (excerpts from M. and T. Crisp deposition transcripts).
While Mr. Crisp secured the assignment from Renton, it was Tamara, rather than
Michael who performed most of the work on the TracFone audit. T. Crisp. Dep. Tr., p. 14,
lines 19-25 (Edwards Decl., Ex. 102.) TRS has a single email address and many of the
emails sent using that shared email address were written by Tamara Crisp despite being
signed “Mike.” T. Crisp. Dep. Tr., p. 29, lines 7-16 (Edwards Decl., Ex. 102). Other than a
single phone call that took place on or about December 17, 2014, all communications
between TRS and TracFone were by email.3 Id., p. 23, lines 2-23 and p. 296, lines 1-13.
2 For ease of reference, the Edwards Declaration has retained the original numbering of the Exhibits used in the depositions of Michael and Tamara Crisp.
3 Although TRS reported to the City that TRS had initially contacted TracFone by email on June 6, 2013, to
notify TracFone about the Renton audit, (Ex. 6), no such email has been produced. Tamara Crisp testified that
Renton did not approve TRS’s request to audit TracFone until June 13, and TRS now believes that its initial
contact with TRS was by leaving a voicemail message. T. Crisp, Dep. Tr., p. 32, line 17 to p. 33, line 16.
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 4 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
Tamara Crisp prepared both the audit schedules and the “Methodology”, a document
that accompanied the audit schedules, which describes the mechanics of how the amounts
shown on the schedules were calculated. M. Crisp Dep. Tr., p. 39, lines 5-7, p.242, lines 19-
23 (Edwards Decl., Ex. 101); T. Crisp Dep. Tr., p. 15, lines 3-6 (Edwards Decl, Ex. 102).
She also drafted most of the emails to TracFone. Id., p. 28, line 24 to p. 29, line 16.
1. TRS Failed to Inquire about TracFone’s Business Activities.
Mr. Crisp admitted at his deposition that, when auditing a business, “you need to
determine whether their activity is something that is subject to tax under the relevant code or
statute.” M. Crisp Dep. Tr., p. 102, lines 9-12 (Edwards Decl. Ex. 101). He explained that,
when auditing a business “we’re trying to find out the business activity that – that’s going on
– in the audit and in the company and what they’re doing … and most important is talking to
the company itself and directly asking them questions, a lot of questions, on what they do and
how they do it.” Id. at p. 151, lines 12-18. Yet the emails produced by TRS do not ask what
TracFone does or how they do it but are instead focused on financial and other data.
2. TRS’s Audit had Multiple Errors.
TRS’s work on the TracFone audit was disorganized, poorly documented, and
involved multiple material errors.
a. TRS fundamentally misunderstood the basic structure of Renton’s utility tax – it is NOT a tax on consumer use.
Although the parties disagree about the proper interpretation of RCW 35A.82.060, we
believe there is at least current agreement that the statute authorizes Renton to tax the activity
of “providing network telephone services” in the City, measured by the taxpayer’s income
from “intrastate toll telephone service” sold to customers with a principal service address in
Renton.
Unfortunately, throughout most of the time it was conducting the audit, TRS labored
under the erroneous belief that Renton’s telephone utility tax was a “utility users tax” or
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 5 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
UUT, imposed on a caller’s “use” of telephone service. An error the City never corrected.
Thus, the first three versions of the Methodology prepared by TRS all state:
• “it is true that taxation of this prepaid phone activity is properly owed on usage, not sales”
• “We would like to stress here that taxes are not being levied on sales, but rather sales are being used as a method to estimate usage” (emphasis original)
• “How the taxable usage was estimated”
Edwards Decl., Ex. 12, Bates 00636 and Ex. 16, Bates 00667. As Tamara Crisp testified,
both Michael Crisp and the City reviewed the Methodology and neither ever called out this
fundamental error. T. Crisp Dep. Tr., p. 56, lines 2-12 (Edwards Decl. Ex. 102).
b. TRS failed to meet with TracFone to understand its business.
The prevailing standard in performing a tax audit is to meet with the taxpayer to
understand its business and sources of revenue. This principle was recited by Mr. Malone,
the City’s tax manager at pages 20-21 of his deposition. Degginger Decl. Ex. 4. TRS did not
start its audit by meeting with TracFone. In fact, throughout the audit, TracFone repeatedly
requested to meet with TRS and the City to discuss TracFone’s business activities and the
application of Renton’s telephone utility tax to those activities. TRS repeatedly refused. C.
Dillon Decl., para. 17.
c. TRS confused the estimated income of third-party retailers with TracFone’s income.
i. TracFone’s income from retail sales to Renton buyers – labeled “direct sales” by TRS.
Interested only in data, TRS requested and received information from TracFone
regarding TracFone’s retail sales of prepaid wireless airtime to purchasers in specified zip
codes. Initially TRS requested retail sales data for the zip codes 98055, 98056, 98057,
98058, and 98059. C. Dillon Decl., para. 13. After receiving that sales data, TRS asked for
retail sales to the zip code 98178, explaining “We found out Friday that Renton residents
make up a small amount of zip code 98178, but the number is material, about 496 people,
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 6 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
(2%) of the zip code according to city-data.com.” Edwards Decl., Ex. 63, at p. 151. The
retail sales data for sales to the identified zip codes is TracFone’s income. However, only the
portion of those sales that are sales to Renton buyers can be taxed by Renton. RCW
35A.82.060(1); accord Lone Star Cement Corp. v. City of Seattle, 71 Wn.2d 564, 572, 429
P.2d 909 (1967) (a “city has not power to either authorize, license or tax activities beyond its
territorial limits.”). Errors in the zip code population to city population ratio TRS used to
make that adjustment are discussed in Section B.2.d below.
TRS also requested data distinguishing the percentage of airtime used for intrastate,
interstate and international calling, and for internet access (data), which data TracFone
provided on a national basis. Dillon Decl., para. 14. TRS applied these ratios to exclude the
portion of TracFone’s sales into Renton attributable to interstate calls, international calls, and
internet access, which sales are outside the City’s statutory taxing authority because the City
is only authorized to tax income from sales of “intrastate toll telephone service.” RCW
35A.82.060(1). If it is determined that TracFone is subject to Renton utility tax, TracFone
does not dispute the adjustment of its retail sales into Renton by the applied interstate,
international, and internet access ratios.4
ii. TRS estimated the retail value of airtime purchased by Renton residents from third party Retailers – labeled “non-direct sales” by TRS – that estimated retail value is not TracFone’s income, it is an estimate of the retailers’ income.
Finally, TRS requested the percentage of total company-wide sales that were made at
retail. Again, TracFone provided the requested data. C. Dillon Decl., para. 15. Those
percentages were used to apply a multiplier to TracFone’s “direct sales,” with the resulting
product labeled “non-direct sales.” For example, in 2010, the percentage was 17%. Since
100% less 17% is 83% and 17/83 = 4.88, TRS simply multiplied the figure it had computed
4 As discussed in more detail below in Section B.2.d, TRS miscalculated the zip code population to City population ratio by excluding the population of zip code 98178 from its calculation, thereby overstating TracFone’s Renton sales by about 14%.
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 7 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
as “direct sales” by 4.88 to compute a figure that TRS then labeled “non-direct sales.” 5 See
T. Hilton Decl., Ex. B, Schedule 1. The label “non-direct sales” falsely implies that the
computed figure represents TracFone’s income; it does not. It is the estimated retail value of
airtime sold by third party retailers, which is further assumed to have been sold to Renton
residents. C. Dillon Decl., para. 16.
The amount TracFone charges retailers and distributors for prepaid wireless airtime
purchased for the purpose of resale is less than the suggested retail price. TracFone does not
control the price at which retailers and distributors resell prepaid wireless airtime. C. Dillon
Decl., para. 9.
As a hypothetical example, if TracFone sold a 30-day unlimited airtime card at retail
for $30 dollars on its website, it would sell a 30-day unlimited airtime card to a retailer (i.e.
Walmart or Fred Meyer) for a lower price, for illustrative purposes let’s say $24 dollars.
When Walmart or Fred Meyer sells that 30-day airtime card to a retail buyer (whether for the
SRP of $30 dollars or something lower, perhaps $29 dollars), the amount the retail buyer
pays Walmart or Fred Mayer (whether $29 or $30) is simply not TracFone’s income, it is the
retailers income. C. Dillon Decl., para. 11.
The amounts charged by retailers who make retail sales of prepaid wireless airtime
that they purchased for resale (at wholesale), is not TracFone’s income, it is the income of
the retailer who makes the retail sale. C. Dillon Decl., para. 10.
5 The term “non-direct” sales does not appear anywhere in the tax statutes or in Renton’s ordinance, it was simply made up by TRS for the TracFone audit. T. Crisp Dep. Tr., p. 60, lines 15-16, Edwards Ex. 102
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 8 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
d. TRS made significant errors in computing the zip code population to city population ratio.
TRS transmitted the first version of Tamara Crisp’s audit schedules to the City on
June 30, 2017. Edwards Decl., Ex. 12.6 On August 7, 2017 TRS unilaterally transmitted a
second version of its audit schedules to the City, which revised the method used to compute
the ratio of zip code populations to City population. Edwards Decl., Ex. 16, bates no.
00666.7 In that transmittal, TRS asked Renton whether annexations may have impacted U.S.
census city population data TRS found on the internet. TRS’s revised zip code population to
city population ratio computations increased the tax amount shown on the second version of
the audit schedules from $142,153.40 to 146,526.60.8
Ten minutes after TRS submitted that second version of the audit schedules, Renton
provided a link to its then most recent Comprehensive Annual Financial Report advising that
the City’s population “over the years can be found in Table 5” of that report. Id., Bates no.
00665. The next day, on August 8, 2017, TRS transmitted yet a third version of the audit
schedules applying a third method of computing the zip code population to City population
ratio, which method used zip code populations from a different internet source than the first
two versions.9 Edwards Decl., Ex. 16. This third version with revised zip code population
6 Ex. 12, the email transmitting the schedules also attached a document titled “Methodology” that describes how the tax amounts asserted in the schedules were computed.
7 Although Mrs. Crisp created a second version of the Methodology, named “Methodology2” no record has been produced indicating that the second version of the Methodology was ever shared outside TRS.
8 One version of the schedule titled “ExcelPrelimRenton Tracfone.xls” produced before Tamara Crisp’s deposition with a “creation date” of 11/5/2020 shows tax of $142,153.40, while another produced after her deposition with exactly the same name but a “creation date” of 12/18/2020 shows a calculated tax amount of $ of $141,982.20. The PDF image of the email attachment, Ex. 12, bates no. 00639, does not show the calculated tax amount at all.
9 The first two versions of the audit schedules, ExcelPrelimRenton Tracfone.xls and Excel2PrelimRenton TracFone.xls purport to use zip code population data found at www.zip-codes.com while the third version Excel3PrelimRenton TracFone.xls uses zip code population data found at www.unitedstateszipcodes.org.
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 9 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
ratios increased the computed tax again, this time from $146,526.60 to $147,108.72.10 TRS
explained to the City that the latest revised zip code population estimates that it pulled from
the other website “are a bit lower for census years than the census numbers, so the advantage
is on the city’s side” and suggested that the City should “feel good” about reducing the
assessment if TracFone complained about the use of the lower zip code population data.
Edwards Decl., Ex. 16. The City responded, “I’m fine with your approach.” Edwards Decl.,
Ex. 17.
However, all three iterations of TRS’s zip code population to City population ratio
calculation exclude the population of zip code 98178 despite TRS having separately obtained
the sales to zip code 98178 and despite including the 98178 sales in the tax base calculation.
TracFone’s expert witness has calculated that the exclusion of the zip code population to city
population ratio increased TRS’s tax calculation by $20,407, roughly 14% of the tax
assessed. T. Hilton Decl., paras 3-4 and Ex. B.
3. TRS Delayed Issuance of the Assessment for 18 Months – substantially increasing the assessed interest and TRS’s expected fee
By August 10, 2017, TRS had completed the audit and provided the City with its
proposed assessment. Although TracFone again requested a meeting to discuss the proposed
assessment, TRS again asked the City for permission to decline on the grounds that TracFone
“seems to be more concerned about whether or not some or all of their business activity is
taxable rather than how we came up with the methodology or the tax estimates.” Edwards
Decl., Ex. 18.
At the same time, TRS asked the City to hold off issuing the completed assessment
because “[t]here are some other things happening concerning utility audits that may help this
audit that we are not able to discuss right now due to non-disclosure agreements signed by
10 The third version of the audit schedules were also accompanied by a third version of the Methodology, whose only change involved the description of the computation of the zip code population to City population ratio. Id.
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 10 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
our company.” Id. The City promptly acquiesced to both requests saying “I trust your
judgement as to best handled this.” Edwards Decl., Ex. 110.
TRS continued to recommend that the City delay issuing the assessment, later
changing its explanation to awaiting the result of litigation that TracFone was a party to in
Springfield, Missouri. Edwards Decl. Ex. 32. The Springfield case was completed in 2018.
As TRS reported to the City the Court held “that indirect sales (TracFone calling cards sold
by Walmart and other stores) would not be taxable.” Edwards Decl., Ex. 33. Following the
Springfield case would have reduced the not yet issued assessment by more than 80%, with a
commensurate decrease in TRS’s contingent fee.
Not surprisingly, TRS dismissed the Springfield decision as distinguishable and in
February 2019, finally recommended that the City authorize TRS to issue the assessment
TRS had completed in August 2017 without revision. Edwards Decl., Exs. 36 and 38.11 The
City again acquiesced in TRS’s recommendation. Edwards Decl., Ex. 39. TRS issued the
assessment in a letter dated February 14, 2019. Edwards Decl., Ex. 40. Following
TracFone’s request to correct the assessment, the City made its final determination that the
assessment was correct on October 17, 2019, requiring TracFone the pay the assessment on
November 6, 2019 before appealing the assessment to the Hearing Examiner. Edwards
Decl., Ex. 116.
Between TRS’s August 2017 completion of the assessment and the ultimate
November 6, 2019 due date of the assessment, an additional $38,346 of interest accrued that
TracFone was required to pay before appealing the assessment. T. Hilton Decl., para. 6 and
Ex. C, Schedule 1. Ironically, in November 2019, the City Council amended Renton’s utility
tax code, reducing assessment interest from 12% annually, to follow the state’s assessment
11 Emblematic of the sloppiness with which TRS operated throughout the audit, TRS first sent its recommendation on December 28, 2018, Ex. 36, and then on February 6, 2019, submitted a slightly different version saying “I also thought I sent you the recommendation for TracFone, but I can’t see where I sent it so I have included a copy with this email.” Ex. 38.
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 11 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
interest which ranged between 2% and 5% annually throughout the relevant period. Had
Renton waited another month, the interest charged against TracFone would have dropped by
$122,155 (more than 1/3 of the total amount assessed), materially reducing TRS’s contingent
fee. T. Hilton Decl., para. 7 and Ex. C, Schedule 2.
4. TRS Failed to Maintain a Separate, Segregated File on the TracFone Renton Audit.
As required by the Renton ordinance, TracFone paid the assessment and filed the
instant appeal. Following the initial status conference in February 2020, the City agreed to
produce the audit file without need for a specific discovery request. Respondent City of
Renton’s Proposed Discovery Plan at 2 (“The City expects to provide the audit file as soon as
possible.”).
However, very little of the audit file was actually in Renton’s possession, most of the
file, such as it is, was in TRS’s possession. Nearly a year later, following muliple extensions
of the case schedule, and well past the repeatedly extended discovery cut-off date, the
complete audit file still has not been produced.12 More troubling, some of the records that
have been produced have been altered, and documents that purport to set forth verbatim
quotes of other documents misquote or alter the allegedly quoted material. See Edwards
Decl, Ex. 102.
Inconsistent with the primary objective of evaluating whether TracFone is subject to
Renton utility tax, and if so, the amount of tax due, neither the Methodology nor the TRS
letter transmitting the assessment schedules either describes TracFone’s business activities or
even attempts to address how the controlling statutes apply to TracFone’s business activities.
Dillon Decl., Ex. B.
12 The issues with the production of the audit file and the altering of records are addressed in a separate motion to compel.
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 12 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
LEGAL ARGUMENT
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). With respect to telephone utility taxes, cites’ taxing authority is
expressly proscribed by statute. Id. There are two identically worded statutes controlling cities’
authority to impose telephone utility taxes. RCW 35.21.714 applies to charter cities, such as
Seattle, while RCW 35A.82.060 applies to code cities, such as Renton.
A. TracFone is not subject to Renton telephone utility tax because it is not engaged in the business of “providing network telephone services” as defined by statute.
RCW 35A.82.60(1) expressly limits the imposition of city telephone utility taxes to
persons engaged within the city in the “telephone business” as that term is defined by RCW
82.16.010. Telephone business is defined as “the business of providing network telephone
services.” RCW 82.16.010(7)(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)(ii). TracFone does not own, operate or manage any telecommunication
facilities and, therefore, cannot and does not provide transmission of any type whether for hire or
otherwise. C. Dillon Decl., para. 12.
Thus, TracFone can only be subject to City utility tax if it is engaged in the business of
“providing access to a telephone network.” The statute does not define the activity of providing
access to a telephone network, but basic principles of statutory construction confirm that the
activity of providing access to a telephone network is performed by companies that own, operate,
or manage, telephone network facilities to which access is being provided.
The goal in construing a statute is to determine and give effect to the Legislature's
intent. Dep't of Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 9–10, 43 P.3d 4 (2002).
If the statute's meaning is plain on its face, that plain meaning is the expression of what was
intended. Id. “The plain meaning of a statute may be discerned ‘from all that the Legislature
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 13 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
has said in the statute and related statutes which disclose legislative intent about the provision
in question.’” State v. J.P., 149 Wn.2d 444, 450, 69 P.3d 318 (2003) (quoting Campbell &
Gwinn, 146 Wn.2d at 11, 43 P.3d 4). One also looks to “ ‘the context of the statute in which
the provision is found, related provisions, and the statutory scheme as a whole.’ ” State v.
Engel, 166 Wn.2d 572, 578, 210 P.3d 1007 (2009).
In that regard, RCW 35A.82.060(1) 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). Considering the context and the statutory scheme as a
whole, the reference to “another” telecommunications company indicates that companies
engaged in the telephone business (providing network telephone service) are
telecommunications companies as defined in RCW 80.04.010. This construction is also
consistent with the maxim that “each word of a statute is to be accorded meaning.” State v.
Roggenkamp, 153 Wn.2d 614, 624, 106 P.3d 196 (2005).
RCW 80.04.010 defines a “telecommunications company” 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.” (emphasis added). Since it is undisputed that TracFone
does not own, operate, or manage any telecommunications facilities, TracFone is not a
telecommunications company as defined by RCW 80.04.010. Therefore, because under the
statute access to telephone networks is provided by the telecommunications companies that own,
operate, and manage those networks, and TracFone is not a telecommunications company,
TracFone is not engaged in the business of providing network telephone service as defined by
RCW 82.16.010(7)(ii). It then follows that, since TracFone is not engaged in the business of
providing network telephone services, Renton does not have statutory authority to impose city
telephone utility tax on TracFone.
It is anticipated that Renton may argue that the activity of providing access to a telephone
network should be broadly construed so that virtually any act by virtually anyone that allows a
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 14 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
person to make a phone call could be characterized as “providing access” to a telephone network.
Thus, Mr. Crisp testified at his deposition that he understands “providing access” to a telephone
network to encompass anything that provides “the ability to be able to communicate with
different people”. Edwards Decl., Ex. 101 (M. Crisp Dep. Tr., p. 100, lines 5-8). Applying that
broad of a standard would extend to such activities as lending someone your phone.
At most, any reasonable assertion of a broader interpretation of the statutory definition of
network telephone service, would result in the statute being recognized as ambiguous. A statute
is ambiguous if “susceptible to two or more reasonable interpretations,” but “a statute is not
ambiguous merely because different interpretations are conceivable.” State v. Hahn, 83 Wn.
App. 825, 831, 924 P.2d 392 (1996). Assuming for the sake of argument that Renton could
concoct a reasonable alternative interpretation of the statute, because the statute controls
Renton’s authority to impose tax, the resulting ambiguity “must 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 (2005) (quoting Ski Acres, Inc. v. Kittitas County, 118
Wn.2d 852, 857, 827 P.2d 1000 (1992).
B. Even if TracFone is deemed to be engaged in the business of providing network telephone service as defined by statute, the assessment substantially overstates the amount of tax due, by imposing tax on the estimated value of airtime purchased from third party retailers.
Under RCW 35A.82.060(1), the measure of local utility tax is limited to income “from
intrastate toll telephone service.” The statute also expressly prohibits taxation of “charges for
network telephone service that is purchased for resale.” Id.
With respect to TracFone’s retail sales into specified zip codes partially within Renton,
the assessment properly made adjustments to exclude income from interstate calls, international
calls, and internet service to reduce the retail sales income to income from intrastate telephone
calls. Once TRS’s population ratio error is corrected, to properly limit zip code sales to City
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 15 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
sales, the resulting tax for the entire audit period would be $26,113. T. Hilton Decl., para. 5, Ex.
B, Schedule 1.
However, less than 20% of the tax assessed is based on TracFone’s income from sales to
Renton buyers for intrastate telephone calls. More than 80% ($120,996 of the $147,109) tax
assessed, was based on a calculated figure that TRS labeled “non-direct sales,” a label created by
TRS with no basis in either the controlling statutes or Renton’s Municipal Code.
Even if TracFone is subject to Renton utility tax, it is not subject to tax on the calculated
figures that TRS labeled “non-direct sales” for two separate and independent reasons.
First, TracFone is not subject to tax on the figures that TRS labeled “non-direct sales”
because they are not TracFone’s income. As discussed above, the so-called “non-direct sales”
computed by TRS is the estimated income of third-party retailers who purchased airtime at
wholesale for the purpose of reselling it.
Second, to the extent that the figure TRS labeled “non-direct sales” is intended to
estimate TracFone’s sales of prepaid airtime to retailers and distributors, those sales are
wholesale sales; retailers and distributors purchase prepaid airtime from TracFone for the
purpose of resale. C. Dillon Decl., paras. 3-5, 8-11and Ex. A. With respect to TracFone’s sales
of prepaid airtime to retailers and distributors, RCW 35A.82.060 expressly prohibits cities from
imposing telephone utility tax on sales of “network telephone service that is purchased for the
purpose of resale.” RCW 35A.82.060(1). Because TracFone’s wholesale sales of prepaid
airtime are sales to wholesale buyers who are purchasing from TracFone “for the purpose of
resale,” Renton is expressly prohibited by statute from imposing utility tax on TracFone’s sales
of prepaid airtime to wholesale buyers. Consequently, regardless of whether the computed
figures that TRS labels “non-direct” sales are intended to reflect retail sales by retailers to Renton
buyers or wholesale sales by TracFone to retailers or distributors who purchase prepaid airtime
from TracFone for “the purpose of resale,” RCW 35A.82.060 prohibits Renton from imposing
utility tax on those amounts.
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 16 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
CONCLUSION
For the reasons set forth above, TracFone is not engaged the business of providing
network telephone service as defined by statute and, therefore, Renton is not authorized by
RCW 35A.82.060(1) to impose telephone utility tax on TracFone. Alternatively, even if
TracFone were engaged the business of providing network telephone service and, therefore,
subject to Renton’s telephone utility tax, the assessment overstated the amount of tax due by
over 80% by imposing tax on the estimated retail value of airtime purchased from third party
retailers, amounts that are not TracFone’s income (but the income of the retailer who resold
the airtime who purchased their airtime from TracFone for the purpose of resale), as well as
falling squarely within the statute’s express prohibition against taxing income from sales
“made for the purpose of resale.” TracFone requests entry of summary judgment cancelling
the assessment, or in the alternative ordering an adjustment of the assessment, limiting the
tax assessed to TracFone’s retail sales attributable to intrastate telephone service and ordering
a refund of amounts paid in excess of the tax properly due.
DATED: January 29, 2021.
LANE POWELL PC
By Scott M. Edwards, WSBA No. 26455 edwardss@lanepowell.com Grant S. Degginger, WSBA No. 15261 deggingerg@lanepowell.com Attorneys for TracFone Wireless, Inc.
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125110.0002/8342436.3
TRACFONE’S MOTION FOR SUMMARY
JUDGMENT - 17 LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
CERTIFICATE OF SERVICE
I hereby certify under penalty of perjury of the laws of the State of Washington and the
United States that, on the date listed below, I caused to be served a copy of the attached
document to the following persons via electronic mail:
Kari L. Sand Ogden Murphy Wallace P.L.L.C. 901 Fifth Avenue, Suite 3500 Seattle, WA 98164 ksand@omwlaw.com Cynthia Moya Renton City Clerk 1055 So. Grady Way Renton, WA 98057 cmoya@rentonwa.gov olbrechtslaw@gmail.com
Executed on the 29th day of January, 2021, at Seattle, Washington.
s/ Norma Tsuboi Norma Tsuboi, Legal Assistant