HomeMy WebLinkAboutRespondent City of Renton's Reply in Support of Its Motion for Partial Summary Judgment1
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DEFENDANT CITY OF RENTON’S REPLY IN SUPPORT
OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT - 1
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
BEFORE THE HEARING EXAMINER OF THE CITY OF RENTON RE:
TracFone Wireless, Inc.
Administrative Appeal
RESPONDENT CITY OF RENTON’S REPLY IN SUPPORT OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT
I. ARGUMENT & LEGAL AUTHORITY
Whether prepaid or not, cell phone service is what is involved in this case.
See, TracFone Wireless, Inc. v. Washington Dep't of Revenue, 170 Wn.2d 273, 283, 242 P.3d 810, 815
(2010). The telephone utility tax provisions in Renton Municipal Code (“RMC”) chapter 5-11,
consistent with the statutory provisions of RCW 35A.82.055 and .060, state that the gross revenue of a
telephone business is taxable at a rate of six percent (6%). By providing its users network telephone
service (“NTS”)1, TracFone is conducting a telephone business, consistent with the definitions in RCW
82.16.010(7)(b)(ii) and (iii), and thus, is subject to the City’s utility tax. To avoid taxation, TracFone
claims without citation to legal authority that only network carriers are liable for telephone utility tax 2,
1 TracFone admits that it is a reseller of prepaid wireless airtime that it purchases from network carriers. See TracFone’s
Opposition to Renton’s Partial Summary Judgment Motion (“Opposition Brief”) at 3:10-12; 4:5; & 11:2-4.
2 See TracFone’s Opposition Brief at pp. 9-10 & 22.
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RESPONDENT CITY OF RENTON’S REPLY IN SUPPORT
OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT - 2
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
yet the controlling statutes are broader, make no such distinction, and do not support this claimed
exemption for wireless providers like TracFone. Not surprisingly, TracFone asks the Examiner to rely
on a non-controlling case from Springfield, Missouri and disregards the analogous Washington state
supreme court decision in TracFone Wireless, Inc. v. Washington Dep't of Revenue, 170 Wn.2d 273,
283, 242 P.3d 810, 815 (2010). It also asks the Examiner to disregard certain post-audit evidence the
City intends to offer if this case proceeds to hearing, again without authority. Both sides engaged in
discovery, yet its arguments suggest that no discovery should have been undertaken; the City was
entitled to take positive steps, including discovery and other post-audit activities, to defend against
TracFone’s challenge to its assessment. Finally, TracFone asks the Examiner to exclude or limit the
admissibility of the Malone and Ashpaugh declarations to the extent their declarations contain opinions
on the ultimate legal issues. For the reasons more fully explained in the City’s Opposition to TracFone’s
Motion to Preclude Testimony of Garth T. Ashpaugh, TracFone’s request disregards the more relaxed
rules of evidence in administrative proceedings and Mr. Ashpaugh’s relevant expertise, as well as Mr.
Malone’s expertise as the City’s Tax & License Program Manager who oversees administration of the
City’s utility tax code and who also has personal knowledge of the TracFone customer experience.
A. TracFone Is a “Telephone Business” Subject to Renton’s Telephone Utility Tax, Chapter 5-11 RMC, Because It provides NTS to Its Customers.
Per the statutory definitions and common sense, TracFone is a telephone business. RMC 5-11-
1(A)(2) defines “Telephone Business” in relevant part as:
The providing by any person of access to the local telephone network ... cellular
telephone service, … or the providing of telephonic, video, data or similar
communication or transmission for hire, via a local telephone network, toll line or
channel, cable, microwave, or similar communication or transmission system.
RMC 5-11-1(A)(2) (Emphasis added). As TracFone admits, and as is plainly obvious, its entire business
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RESPONDENT CITY OF RENTON’S REPLY IN SUPPORT
OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT - 3
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
model is premised on providing its customers access to telephone networks. Despite this, TracFone
attempts to argue that it is not engaged in the “telephone business” because only network carriers
“provide ‘access to’ a telephone network within the meaning of RCW 82.16.010.”3 The legislature has
chosen not to make the distinction argued by TracFone, that prepaid wireless resellers are not liable for
telephone utility tax in the same way as other telephone businesses, such as network carriers. TracFone’s
chosen business model does not shield it from tax, nor do the applicable statutes, which do not support
TracFone’s argument that only network carriers are subject to tax. TracFone’s arguments in this regard
are supported by its conclusory assertions, as well as belied by its marketing and advertising materials,
its terms and conditions with its customers, and its binding contracts with network carriers and retail
distributors who provide a means of access between TracFone and its end user customers.
As illustrated by RCW 82.14B.030, which defines “seller” as “a person who sells prepaid wireless
telecommunications service to another person,” the legislature can differentiate between different
telephone business models when inclined to do so 4. Here, the authorizing statutes are much broader,
encompassing “(t)he providing by any person of access to the local telephone network.” RMC 5-11-
1(A)(2) and RCW 82.16.010(7)(b)(ii) and (iii). TracFone’s position that it does not provide its customers
access to a telephone network strains credulity. The language used by the legislature binds the courts,
and if the plain meaning of the text provides clear guidance to the court, the court is bound to follow
that plain meaning “as an expression of legislative intent.” Dep't of Ecology v. Campbell & Gwinn,
L.L.C., 43 P.3d 4, 9 (Wash. 2002). While it certainly had the opportunity, the legislature chose broad
encompassing language and did not delineate between network carriers and resellers, such as TracFone,
or any other telephone business models for purposes of telephone utility tax for code cities like Renton.
3 Id.
4 See also RCW 82.04.065(22) (defining the term “prepaid wireless calling service” for the state B&O tax).
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RESPONDENT CITY OF RENTON’S REPLY IN SUPPORT
OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT - 4
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
Because “taxation is the rule and exemption is the exception, and where there is an exception, the
intention to make one should be expressed in unambiguous terms,” TracFone must not be granted the
tax loophole it seeks because its business model falls squarely within the statutory definition of telephone
business. Columbia Irrig. Dist. v. Benton County, 149 Wash. 234, 240, 270 P. 813 (1928).
B. TracFone’s Gross Revenue from Its Retail Distributor Is Properly Included within the City’s Tax Base and Not Exempt under the “Resale Proviso” in RCW 35A.82.060(1).
The City has the taxing authority to impose a 6% utility tax on telephone businesses, and here,
the resale proviso does not exempt TracFone’s revenues from its retail distributors. TracFone asserts
that even if TracFone were engaged in the telephone business, and therefore generally subject to local
utility taxation, the City’s authority is limited to taxing TracFone for its revenue received from direct
sales to end users (which TracFone refers to as its “retail” sales) and that its revenue received through
its retailers (which Tracfone refers to as its “wholesale” sales) is exempt. This position is not supported
by the plain language of the statute, the legislative history of RCW 35.21.714,5 by any controlling case
law, nor by any credible evidence, such as TracFone’s terms and conditions with its end user customers
and its contracts with network carriers and retailers.
TracFone’s retailers do not purchase “network telephone service” at wholesale for the purpose
of reselling it. Rather, the retailers purchase handset and card units, and the retailers do not ever “own
the airtime” through agreements with TracFone or the network carriers. When an end user customer
buys a TracFone airtime card from Walmart, no one is claiming that Walmart is a telephone business,
just as no one would claim Walmart is a restaurant when it sells a restaurant gift card. The customer
who purchased the airtime card from Walmart must still contact TracFone via its website or toll-free
5 RCW 35.21.714 and RCW 35A.82.060 are identical except that the latter pertains to code cities.
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RESPONDENT CITY OF RENTON’S REPLY IN SUPPORT
OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT - 5
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
number to redeem the minutes and place and receive calls. Indeed, the Washington Supreme Court
pointed out:
. . . while TracFone distributes handsets and airtime cards through numerous
mass market retail stores, TracFone itself provides the use of radio access lines
to the subscribers of TracFone's wireless service. As a radio communications
service company, TracFone is responsible for activation and assignment of
radio access lines to the subscribers. If there are problems requiring
service, TracFone, not the retail store, provides the service.
TracFone Wireless, Inc. v. Washington Dep't of Revenue, 170 Wn.2d 273, 296 n.15, 242 P.3d 810, 822
(2010) (emphasis added). Based on this case law, TracFone’s terms and conditions, and TracFone’s
contractual terms with network carriers and its retail agents, reasonable minds must agree that TracFone
is a telephone business subject to utility tax, and that revenues from its retailers are not exempt and
properly included within the tax base.
TracFone’s reliance on the resale certificates is misplaced, as those pertain to sales and use tax,
not utility tax, for wireless phone, accessories and the airtime cards, not wireless service. See Ex. 4 to
Ashpaugh Decl. in Support of City’s Partial Summary Judgment Motion. TracFone’s sales revenue from
its retailers is properly attributed to TracFone and included in the tax base because it is TracFone, not
the retailers, who provides its end user customers with wireless service. This is the crux of this case. It
is further consistent with the Washington state supreme court’s holding in TracFone Wireless, Inc. v.
Washington Dep't of Revenue, 170 Wn.2d 273, 296 n.15, 242 P.3d 810, 822 (2010). The City is not
arguing alternative theories in support of its position that TracFone’s revenues from retailers is properly
included in the tax base and not exempt, as TracFone suggests in its Opposition Brief6, and instead
argues a single, unified theory, that is: TracFone, not the retailers, provides network telephone service,
6 See TracFone’s Opposition Brief at pp. 15-19.
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RESPONDENT CITY OF RENTON’S REPLY IN SUPPORT
OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT - 6
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
and thus, TracFone’s revenues from those retailers is subject to telephone utility tax. TracFone’s self-
serving arguments to avoid taxation do not survive scrutiny.
The reality is TracFone, not the retailers, is the reseller of wireless service. Mr. Malone’s handset
and airtime card purchased at retail from Fred Meyer were worthless for placing or receiving calls, text,
and data until he took the crucial step of contacting TracFone to redeem his airtime and sync his minutes
with his handset; TracFone acquired Mr. Malone as a customer at this crucial step and also became liable
for utility tax as a telephone business. TracFone competes in the wireless industry with the same network
carriers from which it purchases airtime for resale; it also competes with other wireless resellers. The
network carriers are exempt from telephone utility tax when they sell wireless service at wholesale to
TracFone; however, TracFone is liable for telephone utility tax when it makes sales at retail both directly
and through its numerous retail distributors. The applicable RMCs and RCWs make no distinction
between these revenue streams, as both constitute gross revenue to TracFone for utility tax purposes.
II. CONCLUSION
Based on the foregoing, reasonable minds cannot disagree that TracFone is a telephone business,
and the Examiner should grant the City’s motion for partial summary judgment and decide as a matter
of law that TracFone is liable for telephone utility tax and its intrastate revenues from all sources,
including from its retail distributors, is properly included in the tax base.
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RESPONDENT CITY OF RENTON’S REPLY IN SUPPORT
OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT - 7
OGDEN MURPHY WALLACE, PLLC
901 5th Ave, Suite 3500
Seattle, WA 98164
Tel: 206-447-7000/Fax: 206-447-0215
DATED this 19th 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 REPLY IN SUPPORT
OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT - 8
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 Reply in Support of Its Motion for Partial 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 19th day of February, 2021.
/s/Kenya Owens
Kenya Owens
Legal Assistant