HomeMy WebLinkAbout4a. Declaration of Nate Malone in Support of City of Renton's Opposition to Tracfone's MSJ1
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{KCO2366644.DOCX;1/07851.000003/ }
MALONE DECLARATION IN SUPPORT OF RENTON’S OPPOSITION
TO TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 1
OGDEN MURPHY WALLACE, P.L.L.C.
1601 Fifth Avenue, Suite 2100
Seattle, Washington 98101-1686
Tel: 206.447.7000/Fax: 206.447.0215
BEFORE THE HEARING EXAMINER OF THE CITY OF RENTON RE: TracFone Wireless, Inc. Administrative Appeal
DECLARATION OF NATE MALONE IN SUPPORT OF RESPONDENT CITY OF RENTON’S OPPOSITION TO TRACFONE’S MOTION FOR SUMMARY JUDGMENT
I, Nate Malone, declare under penalty of perjury under the laws of the State of Washington that
the following is true and correct:
1. I am over the age of eighteen, and I am competent to testify in court as to the matters set
forth herein and make this declaration based upon my personal knowledge.
2. I have worked for the Respondent City of Renton (“the City”) since March of 2017. I
was first hired as a Tax Auditor and have been in my current role as the Tax and License Manager since
January of 2019. Prior to my employment with the City, I was a Tax Auditor for the City of Tacoma
from May of 2014 until March of 2017; prior to my employment with Tacoma, I was a Field Auditor
for the Washington State Department of Labor and Industries.
3. As part of my duties as the City’s Tax and License Manager, I oversee application and
administration of the City’s tax codes. Also, I am responsible to develop and maintain the City’s
business tax and licensing ordinances, rules, policies and procedures, render written decisions and
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MALONE DECLARATION IN SUPPORT OF RENTON’S OPPOSITION
TO TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 2
OGDEN MURPHY WALLACE, P.L.L.C.
1601 Fifth Avenue, Suite 2100
Seattle, Washington 98101-1686
Tel: 206.447.7000/Fax: 206.447.0215
determinations for complex tax issues, and conduct audits in accordance with state, local and federal
laws.
4. In my experience working as a Tax Auditor for the City of Tacoma and for the
Washington State Department of Labor and Industries, conducting an audit is often an iterative process
that involves adjusting assumptions and calculations based on new information learned during the
course of the audit. It is my understanding that Tax Recovery Services, LLC (“TRS”), the company
hired by the City to conduct the audit of TracFone Wireless, Inc. (“TracFone”), initially relied on
consumer use as the measure of telephone utility tax. TRS realized the error and corrected it to instead
rely on the proper tax measure for telephone utility tax, which is gross income consistent with RCW
35A.82.060(1). TracFone’s emphasis on this error is immaterial, however, because it was corrected
before TRS sent TracFone the February 14, 2019 assessment of telephone utility tax, penalty, and
interest, which was confirmed by the City’s Final Determination on October 17, 2019. See Declaration
of Nate Malone in Support of the City of Renton’s Motion for Partial Summary Judgment at ¶ 7 & Ex.
1 (Renton Final Determination of Tax Assessment).
5. Based on information readily available in the public domain, such as advertising
materials and TracFone’s website, TracFone provides prepaid wireless service to its end user
customers. And based on revenue data from TracFone, the City and TRS knew that TracFone received
revenue from its direct sales to Renton end users through TracFone’s website and toll-free phone
number. The City and TRS also understood that TracFone received revenue from its retail distributor
partners that carry TracFone-branded handsets, phone cards and accessories for sale in Renton.
TracFone did not provide detailed revenue data from third party retail distributors in Renton, so TRS
prepared an estimate to account for this revenue stream. Based on RMC 5-26-18(B)(5), the burden is
on TracFone as the taxpayer to provide additional information if it considers the estimate to be incorrect
(“The appellant taxpayer shall have the burden of proving by a preponderance of the evidence that the
determination of the Department is erroneous.”). TracFone claims the so-called “resale proviso” in
RCW 35A.82.060(1) exempts all gross revenue that TracFone receives from its retail distributor
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MALONE DECLARATION IN SUPPORT OF RENTON’S OPPOSITION
TO TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 3
OGDEN MURPHY WALLACE, P.L.L.C.
1601 Fifth Avenue, Suite 2100
Seattle, Washington 98101-1686
Tel: 206.447.7000/Fax: 206.447.0215
partners, so it claims to owe zero tax on its revenue stream from retailers. Based on my review of the
sample Retail Distribution Agreements between TracFone and its retail partners, such as Rent-A-Center
and Circle K, the retailers never own the network telephone service and are only selling tangible objects,
such as handsets, accessories, and plastic phone cards, which require activation/redemption by
TracFone to be used by the end user customers to obtain access to the local telephone network to place
and receive calls, texts and data. See Declaration of Nate Malone in Support of City of Renton’s Motion
for Partial Summary Judgment at ¶¶ 8-12 & Exs. 2-6. Based on these facts, the so-called “resale
proviso” does not exempt TracFone’s revenue stream from its retail partners from the telephone utility
tax base. Stated differently, the revenue stream from TracFone’s retail partners is properly included in
the measure of tax, and TRS reasonably prepared an estimate of the value of this revenue stream for
the audit period based on the revenue data provided by TracFone.
6. I only learned that TRS miscalculated the zip code population to City population ratio
by excluding the zip code population for 98178 from its calculation during the discovery phase of this
administrative appeal proceeding. I have asked Tamara Crisp of TRS to prepare a new schedule to
correct this miscalculation. The need for this correction does not change TracFone’s liability for
telephone utility tax as a telephone business.
7. Similarly, as to the rate of interest applied, I only learned recently that TRS applied the
wrong interest rate during the discovery phase of this administrative appeal proceeding. The reason the
wrong interest rate was applied for a portion of the period at issue is because the Renton City Council
passed an ordinance in 2016 with a lower interest rate consistent with state law. The amount of tax and
interest due should be corrected and will be, which is why the City’s motion for partial summary
judgment instead focuses on the two primary issues impacting TracFone’s tax liability, specifically: (1)
whether TracFone is liable for telephone utility tax as a telephone business providing network telephone
service and (2) whether TracFone’s gross revenue from its retail partners should be included in the tax
measure. In my role at the City’s Tax & License Program Manager and based on my knowledge of the
applicable RMCs, RCWs, and my knowledge of TracFone’s business activities, I believe that TracFone
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{KCO2366644.DOCX;1/07851.000003/ }
MALONE DECLARATION IN SUPPORT OF RENTON’S OPPOSITION
TO TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 4
OGDEN MURPHY WALLACE, P.L.L.C.
1601 Fifth Avenue, Suite 2100
Seattle, Washington 98101-1686
Tel: 206.447.7000/Fax: 206.447.0215
is a telephone business and owes six percent telephone utility tax without exemption for its revenues
from its retail partners.
SIGNED this 12th day of February, 2021 at Renton, Washington.
By /s/Nate Malone
Nate Malone
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{KCO2366644.DOCX;1/07851.000003/ }
MALONE DECLARATION IN SUPPORT OF RENTON’S OPPOSITION
TO TRACFONE’S MOTION FOR SUMMARY JUDGMENT - 5
OGDEN MURPHY WALLACE, P.L.L.C.
1601 Fifth Avenue, Suite 2100
Seattle, Washington 98101-1686
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 Declaration of Nate Malone in support of City of Renton’s Opposition to
TracFone’s Motion for Summary Judgment 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