HomeMy WebLinkAbout4. City of Renton's Opposition to Tracfone's Motion for Summary Judgment1
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 1
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
1BEFORE THE HEARING EXAMINER OF THE CITY OF RENTON RE:
TracFone Wireless, Inc.
Administrative Appeal
RESPONDENT CITY OF RENTON’S OPPOSITION TO TRACFONE’S SUMMARY JUDGMENT MOTION
I. INTRODUCTION
The City of Renton (“the City”) opposes TracFone Wireless Inc.’s (“TracFone”) Motion for
Summary Judgment (“Motion”), which focuses more on the fact-intensive work of the tax audit that was
conducted by the City’s contracted auditors, Tax Recovery Services, LLC (“TRS”), than on the
applicable Renton Municipal Codes (“RMC”) and Revised Codes of Washington (“RCW”) establishing
TracFone’s utility tax liability as a telephone business. As a matter of law, TracFone is engaging in a
telephone business and providing network telephone service (“network telephone service” or “NTS”) to
consumers within the City. Under the telephone utility tax provisions in chapter 5-11 RMC, which are
consistent with the statutory provisions of RCW 35A.82.060, the gross income of a telephone business
is taxable at a rate of six percent (6%), including without exemption gross income from its retail
distributors, such as Walmart, Fred Meyer and Target.
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 2
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
II. COUNTERSTATEMENT OF FACTS
A. TracFone Is Liable for Renton Utility Tax Based on Its Telephone Business
Activities.
The City incorporates by reference the factual assertions set forth in its pending Motion for
Partial Summary Judgment, on file herein.
B. Disputes of Material Fact Remain Regarding the TRS Audit of TracFone for the
2007-2013 Audit Period.
Contrary to TracFone’s argument, which is unsupported by legal authority, summary judgment
canceling the City’s assessment is inappropriate. There are material factual disputes regarding the
correct amount of tax, penalty, and interest due, which can only be resolved at a hearing to ascertain
these amounts. Further, the City and TRS learned during discovery of the need for certain corrections,
and the City intends to address these corrections prior to, and during, the hearing in this case.
III. EVIDENCE RELIED UPON
The City incorporates by reference the evidence relied upon in its pending Motion for Partial
Summary Judgment. The City further relies upon the Declarations of Nate Malone, Garth Ashpaugh,
and Tamara Crisp, and all exhibits thereto, filed herewith.
IV. LEGAL ARGUMENT & AUTHORITIES
A. Summary Judgment Is Not Appropriate for Issues on which There Are Genuine
Disputes of Material Fact.
Summary judgment is appropriate only when the pleadings, admissions, affidavits, and all
reasonable inferences therefrom show that there is no genuine issue as to any material fact. Olympic
Fish Prods., Inc. v. Lloyd, 93 Wn.2d 596, 611 P.2d 737 (1980).
There are two categories of issues in this tax appeal: (1) to what extent, if any, do TracFone’s
business activities during the audit period make it subject to Renton’s telephone utility tax and (2) to the
extent that TracFone is subject to Renton’s tax, what is the correct assessment amount for the audit
period. There are no genuine disputes of material fact on the first category of issues (tax liability); the
record is replete with factual disputes on the second category of issues (assessment amount).
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 3
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
1. There are no genuine disputes of material fact as to the issue of TracFone’s tax
liability.
As the City addressed in its pending Motion for Partial Summary Judgment and in response to
TracFone’s motion here, reasonable minds cannot disagree regarding the material facts of TracFone’s
business activities as a provider of prepaid wireless service. It is obvious from a review of TracFone’s
advertising and marketing materials, its contracts with carriers and retailers, its terms and conditions
with its end user customers, and established case precedent that TracFone, not its retail partners, provides
network telephone service and conducts telephone business in Renton. Thus, the Hearing Examiner may
decide on summary judgment the legal questions of TracFone’s tax liability, such as whether TracFone
is a “telephone business” and whether the RCW 35A.82.060(1) “purchased for the purpose of resale”
proviso applies to exempt from taxation TracFone’s revenue stream from its retail partners.
2. There are numerous conflicting material facts about the correct amount of the tax
assessment during the audit period.
In contrast to the tax liability issue, the parties’ views significantly differ regarding how the audit
was conducted and the correctness of the assessment amount for the 2007-2013 audit period. For
example, TracFone highlights immaterial facts, such as TRS’s initial focus on usage rather than gross
income as the tax measure, which was corrected before issuance of the assessment and is therefore
irrelevant. Also, TracFone argues that TRS did not inquire extensively enough, or adequately consider,
TracFone’s business activities, which TRS most certainly did. TracFone’s arguments in this regard
completely ignore the vast quantity of information about its business activities that is readily available
in the public domain and in published case law. Most importantly, insofar as it impacts the larger portion
(80%) of TracFone’s revenue stream, TracFone disregards the plain languages of its retail distribution
agreements and completely mischaracterizes its retailers as reselling network telephone service to claim
the so-called “resale proviso” exempts those revenues from taxation; it also ignores the binding terms
and conditions with its end users in claiming the resale exemption, as those terms and conditions clearly
show that it is TracFone, not the retailers, who provides wireless service.
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 4
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
B. TracFone Is Liable for Renton Utility Tax as a Telephone Business under RMC 5-
11-1(A), RCW 35A.82.060, and the Definitions in RCW 82.16.010(7)(b).
First, TracFone argues that it is not engaged in the business of providing “network
telephone service” as defined by RCW 82.16.010(7)(b)(ii). TracFone argues that it does not provide
access to a telephone network and instead network carriers provide such access. TracFone’s argument
ignores the fact that its end user customers have no direct relationship with network carriers and instead
obtain “access to a telephone network” only through TracFone. Stated differently, if a TracFone end
user customer has a problem with the wireless service that TracFone provides, the end user customer
calls TracFone, not the underlying network carrier. The definition of “telephone business” incorporates
the defined term “network telephone service,” which is defined at RCW 82.16.010(7)(b)(ii) in pertinent
part as:
“Network telephone service” means the providing by any person of access to a
telephone network . . . or the providing of telephonic, video, data, or similar
communication or transmission for hire, via a telephone network, toll line or
channel, cable, microwave, or similar communication or transmission system. . . .
RCW 82.16.010(7)(b)(ii) (emphasis added).
TracFone’s position that it does not provide its customers access to a telephone network strains
credulity. TracFone clearly engages in telephone business when it provides its end users “access to a
telephone network,” thereby enabling telephonic communication. TracFone’s position further disregards
that in a strikingly similar case as here, the Washington state supreme court held that TracFone is liable
for E-911 tax: “[C]ell phone service is what is involved in this case. The plain language of the
controlling statutes requires payment of the state E-911 excise tax on TracFone’s prepaid wireless
service. We do not find compelling any of TracFone’s arguments to the contrary.” TracFone Wireless,
Inc. v. Dep’t of Revenue, 170 Wn.2d at 283 (emphasis added).
Second, TracFone argues that it is not a “telecommunications company,” as defined by RCW
80.04.010, because it wishes to distinguish itself from the major carriers such as T-Mobile. TracFone
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 5
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
argues that the inclusion of the word “another” in the proviso must mean that TracFone can only be
subject to utility tax if it itself is a “telecommunications company,” and TracFone argues that it is not.
TracFone is wrong on both counts.
Indeed, the Federal Communications Commission (“FCC”) recognizes TracFone as a
telecommunications company, and TracFone is subject to FCC regulation as such. See Declaration of Garth
T. Ashpaugh in Support of Respondent City of Renton’s Motion for Partial Summary Judgment at ¶ 14 &
Ex. 5. Moreover, RCW 80.04.010(28) defines a “telecommunications company” in pertinent part to include
“every corporation, company, . . . owning, operating or managing any facilities used to provide
telecommunications for hire, sale, or resale to the general public within this state.” (Emphasis added.)
RCW 80.04.010(27) further defines “telecommunications” as “the transmission of information by wire,
radio, optical cable, electromagnetic, or other similar means.” (Emphasis added.) RCW 80.04.010(24)
defines a “radio communications service company” to include in pertinent part: “every corporation,
company, … making available facilities to provide radio communications service, radio paging, or
cellular communications service for hire, sale, or resale.” RCW 80.04.010(24). Thus, a radio
communications service company is a type (subset) of telecommunications company based on the
applicable definitions.
The proviso’s exemption cited by TracFone is not at issue here and applies to charges imposed
by one telecommunications company on another. For example, the exemption applies to sales by the
wireless network carriers (e.g., Verizon, AT&T and T-Mobile) of excess airtime to TracFone for access
to their networks. Yet, the exemption is not relevant here, where TracFone’s gross income from direct
retail sales to its customers and through retailers in Renton – who are not “another telecommunications
company” – are well within the scope of the telephone utility tax and properly included within the tax
base. Accordingly, the exemption relied on by TracFone does not restrict the application of the telephone
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 6
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
utility tax to TracFone, which is conducting a “telephone business” when it provides its Renton customers
“access to a local telephone network.” RMC 5-11-1(A)(2). TracFone’s business activities clearly fall
within the definition of a “telecommunications company.” Merely lending someone your phone is
nowhere near analogous, as TracFone incorrectly suggests, and again strains credulity.
With respect to RCW 35A.82.060(1), Tracfone is reading the statute wrong based on the court’s
ruling in Qwest Corp. v. City of Bellevue, 161 Wn.2d 353, 166 P.3d 667 (2007). The authorizing statute
provides in pertinent part as follows:
(1) Any code city which imposes a license fee or tax upon the business activity
of engaging in the telephone business which is measured by gross receipts or gross
income may impose the fee or tax, if it desires, on one hundred percent of the total
gross revenue derived from intrastate toll telephone services subject to the fee or tax:
PROVIDED, That the city shall not impose the fee or tax on that portion of network
telephone service which represents charges to another telecommunications
company, as defined in RCW 80.04.010, for connecting fees, switching charges,
or carrier access charges relating to intrastate toll telephone services, or for
access to, or charges for, interstate services, or charges for network telephone service
that is purchased for the purpose of resale, or charges for mobile telecommunications
services provided to customers whose place of primary use is not within the city.
RCW 35A.82.060(1) (emphasis added).
The Comcast decision came down from the court of appeals during Qwest. And the parties in
Qwest then argued that the phrase “charges to another telecommunications company” applied to the
whole rest of the sentence and had the effect of allowing the city to tax interstate charges that were not
between two telecommunications companies. Qwest, 161 Wn.2d at 363-67. Yet, the supreme court in
Qwest said that was wrong and ruled that the “access to, or charges for, interstate services” that is grey
highlighted in the quote above, stood alone and was not part of the exemption for charges to another
telecommunications company. Id. at 367-68. This means that the “another telecommunications
company” exemption only applies to the bolded language in the statute above. Id.
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 7
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
In addition, Tracfone’s argument based on RCW 35A.82.060(1) is an effort to take advantage of
an exemption, but Washington courts have repeatedly held that exemptions are narrowly construed
against the taxpayer:
If ambiguity exists in an exception or deduction provision, courts strictly construe the
provision against the taxpayer. Avnet, 187 Wash.2d at 50, 384 P.3d 571
(citing Simpson Inv. Co. v. Dep’t of Revenue, 141 Wash.2d 139, 149-50, 3 P.3d 741
(2000)).
Lowe's Home Centers, LLC v. Dep't of Revenue, 195 Wn.2d 27, 33, 455 P.3d 659, 662 (2020); Gen.
Motors Corp. v. Washington, 377 U.S. 436, 441, 84 S.Ct. 1564, 12 L.Ed.2d 430 (1964) (“ ‘a taxpayer
claiming immunity from a tax has the burden of establishing his exemption.’ ” (quoting Norton Co. v.
Dep't of Revenue, 340 U.S. 534, 537, 71 S.Ct. 377, 95 L.Ed. 517 (1951))), overruled on different
grounds by Tyler Pipe Indus., Inc. v. Wash. State Dep't of Revenue, 483 U.S. 232, 107 S.Ct. 2810, 97
L.Ed.2d 199 (1987).
C. TracFone’s Reliance on the “Purchased for the Purpose Resale” Proviso Is a Red
Herring and Inapplicable; the City’s Tax Measure Properly Includes TracFone’s
Estimated Gross Income from Retailers.
In an attempt to lower its tax bill by approximately 80%, TracFone argues that its gross income
from retailers should be excluded from the measure of the City’s telephone utility tax, claiming the
retailers purchase airtime at wholesale for the purpose of reselling airtime at retail. This assertion is
blatantly incorrect as demonstrated by TracFone’s agreements with carriers and retailers and by the
retailers’ resale certificates, which pertain to “products” (equipment), not airtime. The retailers never
“own the airtime,” and thus, TracFone’s revenues 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). Reasonable minds must agree that 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. Indeed, absent activation by
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 8
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
TracFone, the TracFone branded handsets are worthless for anything other than a paperweight or
doorstop. TracFone’s claim that retailers are providing network telephone service and engaging in
telephone business is simply not credible when the retailers have no agreements with network carriers
to provide wireless service and instead TracFone has such agreements. See Declaration of Garth T.
Ashpaugh in Support of Respondent City of Renton’s Opposition to TracFone’s Motion for Summary
Judgment (“Second Ashpaugh Decl.”) at ¶ 3. Further, the resale certificates from the retailers make it
clear that such is not the case. See Declaration of Garth T. Ashpaugh in Support of the City of Renton’s
Motion for Partial Summary Judgment at ¶ 13 & Ex. 4. The retailers buy TracFone-branded handsets
and TracFone-branded airtime cards, not network telephone service. Id. It is TracFone, not the retailers,
who provides access to telephone networks for its end user customers. The Chesley Dillon Declaration
misstates TracFone’s relationship with its retailers. See Second Ashpaugh Decl. at ¶ 3. The TracFone
airtime cards are like gift cards. For example, when an end user customer buys a TracFone airtime card
from Walmart, no one is claiming that Walmart is a telephone business. The customer who purchased
the airtime card must still contact TracFone via its website or toll-free number to load the minutes and
place and receive calls. See Declaration of Nate Malone in Support of City’s Motion for Partial Summary
Judgment at ¶ 9 & Ex. 3 (TracFone 60-minute Basic Phone Card). Similarly, when a person buys an
Applebee’s restaurant gift card from Walmart, no one is claiming that Walmart is a restaurant. Instead,
one must patronize an Applebee’s restaurant to redeem the Applebee’s gift card. The same is true for a
TracFone airtime Basic Phone Card, that is, the crucial step of activation with TracFone – either through
its website or its toll free number – is required to redeem the airtime minutes and become a TracFone
end user, at which point the end user is bound to TracFone’s terms and conditions, not those of Walmart,
for wireless service. Based on the agreements between TracFone and its retail distributors and TracFone
and its end users, TracFone is providing NTS through TracFone’s agreements with network carriers, not
the retailer. To hold otherwise would create an implicit exemption where none is intended. No credible
evidence supports TracFone’s argument that the retailers are purchasing NTS (for example, airtime) for
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 9
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
resale. Further, no credible evidence supports TracFone’s argument that a retailer, not TracFone,
provides wireless service to TracFone’s end users.
Finally, TracFone’s argument that the retailers buy airtime at wholesale for resale at retail and
therefore the “resale proviso” exemption applies is directly contradicted by its position in other “shrink
wrap” contract cases across the country, in which cases TracFone highlights and enforces its direct
contractual relationship with its end users. For example, a federal district court in Florida found that:
The outside retail packaging of TracFone's Phones contain conspicuous language
restricting the use of the Phones for TracFone Prepaid Wireless service and prohibits
the consumer from tampering or altering the software or hardware in the phone. The
language provides in part “[b]y purchasing or opening this package, you are agreeing
to these terms and the terms and conditions of service in the enclosed user guide.”
(Amended Complaint ¶ 44) Accordingly, an enforceable contract exists between the
parties as to Defendants' use of the Phones and Defendants have breached the parties'
contract by, inter alia, purchasing TracFone Prepaid Phones with the specific intent
to reflash or unlock the phones and ship the phones outside of the United States. Id.
TracFone Wireless, Inc. v. Anadisk LLC, 685 F. Supp. 2d 1304, 1315 (S.D. Fla. 2010).
Also, a federal district court in California similarly observed that:
TracFone notes that various federal courts have previously concluded that
TracFone's terms of service are binding on consumers, and those terms of service
include the arbitration provision asserted in these actions. See, e.g., TracFone
Wireless, Inc. v. Anadisk LLC, 685 F.Supp.2d 1304, 1315 (S.D.Fla.2010) (holding
that TracFone shrinkwrap agreement, with similar language to agreement at issue
here, was enforceable contract against phone purchasers); TracFone Wireless, Inc. v.
Bequator Corp, Ltd., No. 10–cv–21462 (WMH), 2011 WL 1427635, at *8 (S.D.Fla.
Apr. 13, 2011) (same).
In re TracFone Unlimited Serv. Plan Litig., 112 F. Supp. 3d 993, 999 (N.D. Cal. 2015) (emphasis added).
These cases illustrate how Tracfone aggressively enforces its terms of service as a binding contract on
its end user customers when it is in Tracfone’s favor to do so. When TracFone attempts to avoid taxes,
however, it rejects the relationship with its end users in its entirety and instead emphasizes the sales to
the retailer. TracFone cannot have it both ways, and the best evidence here – the contracts between
TracFone and network carriers, retail distributors and end users – reflect that it is TracFone, not the
retailers, who provides network telephone service to its end user customers.
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 10
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
D. Issues Regarding the Correctness of the City’s Assessment Are Separate from the
Threshold Legal Issues Regarding TracFone’s Telephone Utility Tax Liability.
TracFone’s Motion includes numerous complaints about TRS, the audit company owned by
Michael and Tamara Crisp that Renton hired to conduct the TracFone audit. Any audit file deficiencies
TracFone alleges exist has no impact on its tax liability. TracFone attempts to undermine the audit and
TracFone’s liability for Renton’s telephone utility tax by criticizing TRS for not meeting with TracFone
or inquiring about TracFone’s business activities as they related to Renton’s telephone utility tax. There
was no need for TRS to conduct such a meeting or make such inquiries because TRS was familiar with
TracFone’s business as a prepaid wireless provider prior to starting the Renton audit in February 2014
based on information about TracFone that is widely available in the public domain, such as TracFone’s
website, advertisements, and marketing materials, which clearly depict TracFone as offering prepaid
wireless services for sale to the general public, as well as published case law. See Declaration of Tamara
Crisp in Support of the City of Renton’s Opposition to TracFone’s Motion for Summary Judgment at ¶¶
3 & 4. Also, TracFone staunchly claimed throughout the entire audit process that it was not liable for
local telephone utility tax. Id. at ¶¶ 5-7. Thus, TRS questioned whether it would be a productive use of
time to argue with TracFone on the issue of tax liability, especially given tax liability is legal issue. Id.
Further, TRS knew that TracFone would have its legal counsel present, and TRS did not want to be
disadvantaged due to not having their own legal counsel at any proposed in-person meeting with
TracFone representatives. Id. For these reasons, TRS focused on the revenue data needed to complete
the audit, understanding that the issues regarding tax liability would be the subject of a future legal
proceeding, as it is now. Id.
TracFone also criticizes several aspects of the TRS audit methodology, and each of these
criticisms is addressed in turn.1 First, TRS’s initial reliance on consumer use is immaterial because TRS
corrected its methodology to include the proper tax measure, which is gross income based on RCW
35A.82.055 and .060, and TRS made this correction well before issuing the February 14, 2019
1 TracFone’s assertions regarding production of the audit file are addressed separately in the City’s opposition to
TracFone’s motion to compel.
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 11
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
assessment to TracFone on behalf of the City. See Declaration of Nate Malone in Support of the City of
Renton’s Opposition to TracFone’s Motion for Summary Judgment at ¶ 4. Second, TRS did not confuse
the estimated income from retailers as TracFone’s income; rather, TRS was forced to prepare an estimate
of TracFone’s revenue stream from retailers located in Renton after TracFone was not forthcoming with
its actual revenue stream data from Renton retailers. Id. at ¶ 5. TRS relied on revenue data from TracFone
and used a multiplier to estimate the amount of TracFone’s revenue from sales through retailers. Id.
TracFone’s hypothetical example 2 demonstrates what TRS reasonably estimated, that is, TracFone
receives income from its retailer partners for selling TracFone’s handsets, equipment and plastic airtime
cards (note in TracFone’s hypothetical, TracFone’s income is $24, and the retailers’ income is $5 or $6,
depending on whether the airtime card sold for $29 or $30, respectively).3 Id. Third, TRS miscalculated
the zip code population to City population ratio by excluding the zip code population for 98178 from its
calculation, thereby overstating TracFone’s Renton sales by approximately 14%. Id. at ¶ 6. After
TracFone, the City and TRS learned of this error during the discovery phase of this proceeding, Mr.
Malone, the City’s Tax & License Program Manager, asked TRS to correct its tax assessment calculation
to account for any errors in computing the zip code population to city population ratio. Id. The correction
is warranted and will be made; however, the need for such correction in no way undermines TracFone’s
liability for Renton’s telephone utility tax. Finally, TracFone implies that TRS intentionally delayed
issuance of the TracFone assessment to increase the amount of interest due, as well as the amount of
TRS’s contingency fee; both claims are speculative, seeking to cast aspersions on TRS. The interest
error applies to only a portion of the audit period, and Mr. Malone has asked TRS to correct the interest
amount. Id. at ¶ 7. Interest reflects the time value of money, and here, the money in dispute is taxes owed
that TracFone never paid. Any delay in issuance of the assessment was not willful, and TracFone could
have asked the City to issue the assessment sooner, yet it did not. Again, the amount of interest due is a
secondary issue and has no bearing on the primary issue of whether TracFone is liable for Renton’s
telephone utility tax.
2 See TracFone’s Motion for Summary Judgment at 7:10-19.
3 Id.
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 12
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
If there were errors in the audit, as TracFone asserts, then the remedy is to determine the correct
amount of tax, interest and penalty owed. The remedy is not to cancel the entire assessment, as TracFone
incorrectly suggests. An example of this occurred in the case of Avanade, Inc. v. City of Seattle, 151
Wn. App. 290, 211 P.3d 476 (2009). In the Avanade case, the appellate court held that the City of Seattle
wrongly calculated cost apportionment and remanded the case for a correct calculation. The Avanade
court articulated this standard at the beginning of its analysis: “Likewise, the proper construction of a
city taxation ordinance is a legal question that is reviewed de novo on appeal, but the “ ‘burden is on the
taxpayer to prove that a tax paid by him or her is incorrect.’ ” Group Health Co-op. v. City of Seattle, 146
Wn. App. 80, 88, 189 P.3d 216 (2008) (quoting Ford Motor Co. v. City of Seattle, 160 Wn.2d 32, 41,
156 P.3d 185 (2007)). Avanade, Inc. v. City of Seattle, 151 Wn. App. 290, 297, 211 P.3d 476, 479 (2009).
Thus, if Renton’s auditor made a mistake, the remedy is to determine the correct tax due, not cancel the
assessment. Likewise, this was result in another tax case where the amount of tax due was disputed:
The superior court remanded with instructions for the City to produce substantial
evidence that its taxes were based on intrastate usage of Vonage's VoIP service. And
afterwards, the burden would fall on Vonage to establish the correct tax amount. The
superior court did not impose on the City the burden to establish the correct tax
amount.
Vonage Am., Inc. v. City of Seattle, 152 Wn. App. 12, 29, 216 P.3d 1029, 1038 (2009). Prior to reaching the
above conclusion, the Vonage court did acknowledge a provision in the SMC that has a similar counterpart
in RMC 5-26-6(H), that is: “SMC 5.55.140(B): “The Director's assessment or refund denial shall be regarded
as prima facie correct, and the person shall have the burden to prove that the tax assessed or paid by him is
incorrect, either in whole or in part, and to establish the correct amount of tax.” Vonage, 152 Wn. App. at
28; see also, RMC 5-26-6(H)4 & RMC 5-26-18(B)(5) (“The appellant taxpayer shall have the burden of
proving by a preponderance of the evidence that the determination of the Department is erroneous.”).
4 RMC 5-26-6(H) provides in part:
If any taxpayer fails, neglects or refuses to make a return as and when required in this chapter, the
Administrator is authorized to determine the amount of the tax or fees payable by obtaining facts and
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 13
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
V. CONCLUSION
TracFone engages in telephone business when it provides its end users “access to a telephone
network,” thereby enabling telephonic communication. TracFone’s position, that it is somehow not a
telephone business because of its chosen business model, is unsupported by law and common sense.
Moreover, the resale certificates from the retailers make clear that it is TracFone, not the retailers, who
provide access to telephone networks for its end user customers. As such, under the telephone utility tax
provisions in chapter 5-11 RMC, which are consistent with the statutory provisions of RCW 35A.82.060,
the gross income of a telephone business is taxable at a rate of six percent (6%), including without
exemption gross income from its retail distributors.
The separate issue of the correctness of the final amounts due to the City of Renton is a matter
suitable only for hearing where the full evidence can be evaluated, including witness credibility.
//
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information upon which to base the Administrator’s estimate of the tax or fees due. Such assessment
shall be deemed prima facie correct and shall be the amount of tax owed to the City by the taxpayer.
(Emphasis added).
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 14
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
DATED this 12th day of February 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
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RESPONDENT CITY OF RENTON’S OPPOSITION TO
TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 15
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
CERTIFICATE 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 Opposition to Tracfone’s Motion for Summary
Judgment together with the Declarations of Nate Malone, Garth Ashpaugh, and Tamara Crisp 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
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 12th day of February, 2021.
/s/Kenya Owens
Kenya Owens
Legal Assistant