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HomeMy WebLinkAboutTracFone's Reply in Support of Summary Judgment1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 125110.0002/8365719.1 TRACFONE’S REPLY IN SUPPORT OF 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 REPLY IN SUPPORT OF SUMMARY JUDGMENT SUMMARY OF ARGUMENT To determine whether TracFone is subject to Renton telephone utility tax, it is necessary to identify the taxable “incident” of a city telephone utility tax under RCW 35A.82.060. In other words, what is the specific activity that subjects a person to tax under RCW 35A.82.060? TracFone has presented legal argument and analysis, with citations to authorities, in support of its interpretation of the statutes, which is that only network carriers—like T-Mobile and Qwest—“provide access” to the telephone networks that the carriers own and operate. TracFone MSJ at 12-14. Under this reading of the statutes, TracFone’s resale of wireless airtime does not constitute “providing access to a telephone network” within the meaning of RCW 35A.82.060 and RCW 82.16.010, because TracFone is not a network carrier. While the City disagrees with this legal conclusion, it does not dispute any part of TracFone’s analysis, nor does it present an alternative construction of the statutes, or even identify an alternative activity it contends would qualify as a taxable incident. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 125110.0002/8365719.1 TRACFONE’S REPLY IN SUPPORT OF 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 Instead, the City claims that TracFone should be deemed to be “providing access to a telephone network” simply because consumers of TracFone-branded prepaid wireless airtime are able to make and receive telephone calls. City Opp. at 4. In addition to lacking any statutory analysis identifying a taxable incident, the City’s theory ignores the fact that calls made by consumers are transmitted by the “underlying network carriers” over those carriers’ networks.1 Id. The City does not identify any activity that TracFone charges for–other than reselling airtime–that the City contends is a taxable incident under RCW 35A.82.060. The City’s position seems to be that the sale of prepaid wireless airtime by a person who is not a network carrier qualifies as providing “access to a telephone network,” and sales of prepaid wireless airtime therefore constitute “providing network telephone service.” If this were the only reasonable reading of the statutes (which it is not), then TracFone’s sale of prepaid wireless airtime would trigger imposition of tax under RCW 35A.82.060.2 But if this is the case, then (a) retailers’ sales of prepaid wireless airtime must also be sales of network telephone service subject to telephone utility tax; and (b) TracFone’s wholesale sales of airtime are excluded from the measure of telephone utility tax as “charges for network telephone service purchased for the purpose of resale.” RCW 35A.82.060. LEGAL ARGUMENT A. The City does not present an alternative construction regarding the incident of tax authorized by RCW 35A.82.060. The incident of a tax is the “activity that the legislature has designated as taxable.” 1B Wash. Prac. § 72.3 (1997). TracFone’s Summary Judgment Motion argues that basic principles 1 TracFone does not “provide” telephone “service” in the sense implied by the City. TracFone resells wireless airtime, and the “service” (transmission of calls) is provided by the network carriers whose airtime is resold by TracFone and retailers like Walmart or Fred Meyer. 2 If the City were to posit a reasonable construction, that would merely establish that the statute is ambiguous. A statute is ambiguous if “susceptible to two or more reasonable interpretations.” Agrilink Foods, Inc. v. Dep’t of Revenue, 153 Wn.2d 392, 396-97 (2005) (internal citations omitted). However, the Supreme Court instructs that the maxim that ambiguous tax statutes are “construed most strongly against the government and in favor of the taxpayer,” applies to construction of city taxing authority under RCWA.35.2.060 Qwest Corp. v. City of Bellevue, 161 Wn.2d 353 (2007) (internal citations omitted). In other words, if the City had presented a reasonable, competing construction, the resulting ambiguity must be resolved in TracFone’s favor under Qwest and Agrlilink. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 125110.0002/8365719.1 TRACFONE’S REPLY IN SUPPORT OF 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 of statutory construction establish that the incident of city utility tax under RCW 35A.82.060 is a network carriers’ provision of access to its telephone network, an activity that can only be performed by network carriers. TracFone MSJ at 12-14. In contrast, the TRS assessment at issue in this appellate review does not attempt to identify the incident of the tax, and consequently does not analyze whether TracFone’s activities are taxable under RCW 35A.82.060. Edwards Decl., Ex. 40. Moreover, neither of TRS’s principals, Michael and Tamara Crisp, were able to explain the basis for their conclusion that TracFone is subject to Renton telephone utility tax. M. Crisp Dep. Tr. pp. 100-103 (Edwards Dec. Ex. 101); T. Crisp Dep. Tr. p. 64, lines 1-7 (“It feels like you’re asking me how do you know water is wet … I can’t describe something … that’s obvious that you are providing access to a telephone network”) and p. 205, lines 19-20 (“it seems so obvious to me that I can’t understand how to answer your question”). At summary judgment, the City has abandoned the TRS assessment, and has now hired a non-lawyer “expert” witness, Garth Ashpaugh, to opine on the ultimate legal issues at stake. This is not a substitute for legal argument from counsel as to the proper interpretation of the statutes, and is inadequate to oppose TracFone’s motion for summary judgment regarding the the taxable incident authorized by RCW 35A.82.060. Fulton v. Dep’t of Social & Heath Services, 169 Wn. App. 137, 148 (2012) (to defeat summary judgment, a party “must do more than express an opinion or make conclusory statements.”); Analytic Methods, Inc. v. Dep’t of Revenue, 84 Wn. App. 236, 245 (1996) (declaration of “expert” witness expressing legal opinion not considered in resolving summary judgment motion). B. The City’s reading of Qwest is backwards; Qwest supports TracFone’s interpretation of RCW 35A.82.060. The closest the City comes to making a statutory construction argument follows the City’s suggestion that TracFone must be taxable because RCW 35A.82.060’s prohibition against measuring tax by “charges to another telecommunications company” is “not at issue 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 125110.0002/8365719.1 TRACFONE’S REPLY IN SUPPORT OF 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 here.” City SJ Opp. at 5. The City’s argument is both misplaced and wrong. It is misplaced because whether or not that particular clause applies to limit the measure of tax is unrelated to the foundational question of identifying the incident (taxable activity) that cities are authorized to tax under RCW 35A.82.060. Analysis of the measure of tax is premature until it has been determined that a taxable incident has triggered a tax liability in the first place.3 Following that irrelevant predicate, the City claims that in Qwest Corp. v. City of Bellevue, 161 Wn.2d 353, 166 P.3d 667 (2007), the Washington Supreme Court held that a different clause prohibiting measuring city utility tax by charges for interstate service “only applies to” the “proviso” regarding “charges to another telecommunications company.” City SJ Opp. at 6. In other words, the City contends that only interstate charges billed to a telecommunications company are excluded from the measure of tax, and consequently, tax is permitted to be measured by interstate charges to consumers. The City is simply wrong.4 In Qwest the Supreme Court expressly rejected the proposition the City attributes to it. In that case, Bellevue assessed tax against Qwest measured by certain FCC-tariffed charges, including “customer access line charges (CALCs) imposed pursuant to 47 C.F.R. pt. 69” and “frame relay charges.” 161 Wn.2d at 356. Qwest filed a declaratory judgment action in Superior Court challenging Bellevue’s authority to measure city utility tax by FCC-tariffed charges, on the grounds that FCC-tariffed charges are interstate charges excluded from tax under RCW 35A.82.060 as a matter of law. 161 Wn.2d at 358-59. Bellevue initially argued that whether a charge is “interstate” is a fact question based on the customer’s use of the service. 161 Wn.2d at 360. Thus, Bellevue claimed that charges for “certain of the dedicated lines the City purchased from Qwest (using frame relay technology) were used to connect City offices with each other and with other regional offices located entirely within 3 The argument actually made in TracFone’s motion (which argument is ignored by the City), is that the word “another” in that phrase demonstrates the Legislature’s intent to restrict imposition of tax to network carriers, the companies that operate and manage the telephone networks. TracFone MSJ at 13. 4 Ironically, the City’s argument on this point is also contrary to the TRS assessment it is trying to defend, TRS applied an adjustment to exclude interstate calling from its measure of TracFone’s retail sales. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 125110.0002/8365719.1 TRACFONE’S REPLY IN SUPPORT OF 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 the State of Washington” were intrastate charges, despite being tariffed by the FCC as charges for interstate service, based on Bellevue’s actual use of the frame relay service. Id. The Supreme Court rejected Bellevue’s argument, holding that “whether charges are charges for access to interstate (as opposed to intrastate) service is a question of law and the City’s contention that a court must conduct factual analysis to determine the interstate or intrastate nature of the charge is erroneous.” Id. at 361. The Court further held that “tariffs properly filed with the FCC … are necessarily interstate in nature.” Id. at 363. More relevant to Renton’s confusion here, after the Court of Appeals issued its decision in Community Telecable of Seattle, Inc. v. City of Seattle, 136 Wn. App. 169 (2006), Bellevue “abandon[ed] its initial reading of the statute,” and argued that “Community Telecable allows the City to assess the UOT on Qwest’s charges unless Qwest demonstrates such charges are to another communications company.” 161 Wn.2d at 365 (emphasis original). Contrary to Renton’s contention here, the Supreme Court expressly rejected Bellevue’s argument on this point, too, holding that “RCW 35A.82.060(1) precludes city taxation of charges for interstate service regardless of whether those charges are to another telecommunications company.” Id. at 368 (emphasis original). Moreover, the Supreme Court’s holding on this point was acknowledged by the Court of Appeals in the most recent case to address city telephone utility tax authority, City of Seattle v. T-Mobile West Corp.¸ 179 Wn. App. 79 (2017). In that case, Seattle had assessed utility tax against T-Mobile on “roaming charges” which the court described as “extra charges imposed by T-Mobile West on customers who used their cell phones while in a foreign country.” 179 Wn. App. at 81. T-Mobile appealed to the Seattle hearing examiner, who determined that Seattle was not authorized to measure utility tax on T-Mobile’s charges for international service. Id. Both the Superior Court and the Court of Appeals affirmed the hearing examiner’s decision. Citing Qwest, the Court of Appeals observed that the case presented a question of law regarding statutory construction. Id. at 82. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 125110.0002/8365719.1 TRACFONE’S REPLY IN SUPPORT OF 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 Seattle argued that the statutory language authorizing cities to measure telephone utility tax by “revenue derived from intrastate toll telephone service” does not contain the word “only,” and therefore “should not be interpreted to have that effect,” on the theory that “to give the first clause of the statute that construction makes the proviso superfluous.” Id. at 83. The Court rejected Seattle’s contention as a “strained argument,” explaining: A statutory proviso does not have to state an exception to the clause that precedes it. The most natural reading is that the proviso explains how the first clause operates in particular circumstances. For example, the proviso clarifies that a city may not tax charges for services that are part of an interstate communication network even when the actual use of the network is for communications within the state of Washington T-Mobile, 179 Wn. App. at 84, citing Qwest, 161 Wn.2d at 359-61. In short, Renton’s description of Qwest is wrong; both Qwest and T-Mobile are consistent with and support TracFone’s reading of RCW 35A.82.060 and also confirm that each clause in the proviso is an independent limitation on City taxing authority. C. Qwest confirms that any ambiguity regarding the scope of city taxing authority in RCW 35A.82.060 must be resolved against the City and in favor of TracFone. In its summary judgment motion, at p. 14, TracFone argued that if the City were to present a reasonable alternative construction of the statutes, the resulting ambiguity would need to be resolved in TracFone’s favor pursuant to the maxim that ambiguities in tax imposition statutes “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 (2005) (quoting Ski Acres, Inc. v. Kittitas County, 118 Wn.2d 852, 857 (1992). The City’s opposition brief does not address TracFone’s argument. The City does, though, cite a corollary principle that ambiguities in an exemption or deduction provision are “narrowly construed” once it has already been determined that a tax is imposed. City SJ Opp. at 7. That principle is not applicable here; the issue presented is a question of tax imposition, not of exemption or deduction. Agrilink involved a dispute as to which B&O tax classification applied to the taxpayer’s chili making: (1) the “manufacturing” classification, or (2) the “processing perishable meat 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 125110.0002/8365719.1 TRACFONE’S REPLY IN SUPPORT OF 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 products” classification. The Department of Revenue argued that because the classification claimed by the taxpayer had a lower tax rate, it should be treated as a deduction or exemption, so that any ambiguity would be resolved in favor of the Department. The Supreme Court rejected the Department’s argument, and held any ambiguity regarding which B&O tax classification applied was a tax imposition question, and Agrilink would therefore “be entitled to the general presumption that ambiguous tax statutes must be construed in favor of the taxpayer.” 133 Wn.2d at 399 n.1. Consistent with Agrilink, the Supreme Court expressly indicated in Qwest that any ambiguities in RCW 35A.82.060 “are construed ‘most strongly against the government and in favor of the taxpayer.’” 161 Wn. at 364 (quoting Estate of Hemphill v. Dep't of Revenue, 153 Wn.2d 544, 552 (2005)). D. If the sale of prepaid wireless airtime by non-carriers qualifies as “providing network telephone service,” then TRS’s assessment improperly measured the tax on “charges for network telephone service purchased for the purpose of resale” in violation of RCW 35A.82.060. Because RCW 35A.82.060 only authorizes the imposition of utility tax on network carriers, the assessment should be stricken in its entirety. If, however, the Hearing Examiner rules, as a matter of law, that the sale of prepaid wireless airtime non-carrier qualifies as “providing network telephone service” within the meaning of RCW 35A.82.060 and 82.16.010, then all retailers’ sales of prepaid wireless airtime are subject to city utility tax. Moreover, as a matter of law, the City would be prohibited from measuring TracFone’s tax liability on TracFone’s wholesale sales of prepaid wireless airtime, because wholesale buyers purchase prepaid wireless airtime for the purpose of resale. RCW 35A.82.060 expressly provides that “the city shall not impose the fee or tax on … charges for network telephone service that is purchased for the purpose of resale.” As established by Qwest and reaffirmed in T-Mobile, that clause is a standalone limitation on city taxing authority. The City’s opposition does not address the legal consequence of construing the sale of prepaid wireless airtime by a non-carrier as “providing network telephone service.” Instead, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 125110.0002/8365719.1 TRACFONE’S REPLY IN SUPPORT OF 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 it contends as a factual matter that TracFone’s wholesale sales of airtime are actually just sales of “worthless” pieces of plastic. City SJ Opp. at 8. The City does not submit any admissible evidence in support of this contention. In reality, as demonstrated in TracFone’s opposition to the City’s partial summary judgment motion, TracFone’s wholesale sales of airtime are sales of airtime. This is established by the testimony of Chesley Dillon and is consistent with the rulings of the trial and appellate courts in TracFone Wireless, Inc. v. City Springfield, 557 S.W.3d 439, 446 (Mo. Ct. of Appeals 2018). TracFone Opp. Br. at 3-5. It is also consistent with Washington tax statutes, which define the retailer as the “seller” of “prepaid wireless telecommunications service” in a “retail transaction.” RCW 82.14B.020(8)(12) & (13) and 82.14B.030. Thus, Fred Meyer charged Nate Malone both sales tax and E-911 tax when he made retail purchase of active TracFone-branded prepaid wireless airtime from Fred Meyer because Fred Meyer’s retail sale of prepaid wireless airtime to Malone was a retail sale of prepaid wireless telecommunications service, while Fred Meyer’s purchase of that airtime was a purchase for the purpose of resale. Moreover, even if the City were right that TracFone makes wholesale sales of plastic, and not airtime, it would not support the City’s desired outcome. If TracFone’s wholesale sales of prepaid wireless airtime are not charges for network telephone service, then they cannot be subjected to tax, because the statute only authorizes measuring tax by the “portion of network telephone service” charges that is “derived from intrastate toll telephone services.” RCW 35A.82.060.5 5 The City’s Opposition admits that the TRS assessment miscalculated both the city population to zip code population ration and applicable interest. City SJ Opp. at 11. The City does not dispute Mr. Hilton’s computation of either and does not submit any contrary evidence regarding either. Consequently, if the Hearing Examiner were to conclude that the sale of prepaid wireless airtime by persons who are not network carriers, the amount of tax due on TracFone’s retail sales is reflected in Hilton Ex. B ($26,113) and the applicable interest rates by tax year is reflected on the final pages of Hilton Ex. C 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 125110.0002/8365719.1 TRACFONE’S REPLY IN SUPPORT OF 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 CONCLUSION For the reasons set forth above, and in TracFone’s Motion for Summary Judgment, TracFone’s sale of prepaid wireless airtime is not a taxable incident the City is authorized to tax under RCW 35A.82.060 because the statute only authorizes taxation of network carriers’ provision of access to the carriers’ networks and TracFone is not a network carrier. If the Hearing Examiner concludes as a matter of law that the sale of prepaid wireless airtime by persons who are not network carriers is a taxable incident under RCW 35A.82.060, then the City is prohibited from measuring tax by TracFone’s income from wholesale sales of prepaid wireless airtime because, as a matter of law, the income is from “charges for network telephone service purchased for the purpose of resale.” DATED: February 19, 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. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 125110.0002/8365719.1 TRACFONE’S REPLY IN SUPPORT OF 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 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 19th day of February, 2021, at Seattle, Washington. s/ Barbara LaBelle Barbara LaBelle, Legal Assistant