HomeMy WebLinkAbout3-26-2921 -TracFone Wireless, Inc.'s Motion for Reconsideration1
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125110.0002/8394085.3
ORDER GRANTING 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
MOTION FOR RECONSIDERATION OF HEARING EXAMINER’S FINDINGS OF FACT, CONCLUSIONS OF LAW, AND RULING ON TRACFONE AND CITY MOTIONS FOR SUMMARY JUDGMENT
INTRODUCTION
TracFone Wireless, Inc. (“TracFone”) respectfully moves the Hearing Examiner to
reconsider its Ruling on the TracFone and City of Renton (“City”) Motions for Summary
Judgment (the “Ruling”). The Ruling erred in holding that cities are statutorily authorized to
impose utility tax on sales of handsets and airtime cards on the grounds that handsets and
airtime cards are “equipment”1 whose sale constitutes “network telephone service.”2 The
Ruling also erred by inconsistently holding that sales of handsets and airtime cards are not
“network telephone service” for the purpose of the statutory prohibition against imposing
utility tax on “charges for network telephone service that is purchased for the purpose of
resale”, RCW 35A.82.060(1).3 Moreover, the Ruling erred in deciding material factual
1 Ruling at 2, FOF No. 3 (“handsets and plastic airtime cards (collectively called ‘equipment’).”).
2 Ruling at 4, COL No. 3 (“TracFone provides “network telephone service” to consumers by the sale of both
airtime cards and handsets.).”
3 Ruling at 8, COL No. 8 (“TracFone’s sale of equipment to its retailers does not qualify as a sale of network
telephone service.”).
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125110.0002/8394085.3
ORDER GRANTING 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
disputes on summary judgment. The purpose of summary judgment is not to resolve material
factual disputes among the parties, but rather to identify whether any such disputes exist—in
which case summary judgment must be denied.
TracFone also requests that current hearing date be continued and that, after deciding
this motion for reconsideration, a pre-hearing conference be scheduled to clarify the scope of
the hearing in light of the decision on reconsideration, which will materially impact the amount
of time needed for the hearing as well as the witnesses and exhibits both sides would present
at the hearing.
STATEMENT OF RELEVANT FACTS AND PROCEDURE
TracFone and the City each filed motions for summary judgment. The background facts
pertaining to this dispute and the present motion are detailed in those motions and supporting
declarations. It is undisputed that TracFone purchases wireless airtime from network carriers.
See First Declaration of C. Dillon ¶ 3. It is also undisputed that TracFone resells wireless
airtime at retail to consumers. See, e.g., First Declaration of G. Ashpaugh ¶ 11. TracFone
submitted evidence that TracFone also resells wireless airtime at wholesale to retailers and
distributors. First Declaration of C. Dillon ¶ 3-5, 8-10. The City disputes that TracFone’s sales
to retailers and distributors are sales of wireless airtime, asserting that TracFone’s sales to
retailers are instead sales of plastic cards, which Renton’s expert witness characterized as sales
of “equipment.” First Declaration of G. Ashpaugh ¶ 10. TracFone contends that the sales of
prepaid wireless airtime to third-party retailers consist of the same wireless airtime that
TracFone purchases from network carriers. First Declaration of C. Dillon ¶¶ 3, 8.
TracFone also contends that that it does not provide access to network carriers’
telephone networks, and that the carriers are the only ones that provide access to their networks.
See, e.g., Declaration of N. Malone, Ex. 5 (TracFone contract with T-Mobile stating that “T-
Mobile has the ability to provide access to cellular radio service” and “TracFone desires to
purchase and then distribute cellular radio service”). Further, TracFone provided evidence that
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125110.0002/8394085.3
ORDER GRANTING 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
prepaid wireless airtime is active at the time of retail sale by the retail seller (Second Dillon
Declaration, ¶ 11), and that there is no second “step” in the activation process for sales of
prepaid wireless airtime (Id. ¶ 16). Renton disputes TracFone’s contention, asserting that
TracFone provides access to the carriers’ networks because TracFone is responsible for risks,
liabilities, and customer service associated with Tracfone’s customers (First Ashpaugh
Declaration ¶ 8) and TracFone ultimately “activates” end users’ airtime (First Ashpaugh
Declaration ¶ 12).
The Ruling granted the City’s motion and denied TracFone’s motion. However, the
Ruling contained five errors. First, it erred by mis-applying the relevant legal standard as to
the portion of income subject to city utility tax. Second, it erred by improperly making
determinations of fact when there were genuine disputes as to those material facts. Third, it
erred by relying on expert opinions as to legal issues, rather than factual matters. Fourth, it
erred by improperly applying determinations of fact in its conclusions of law. Finally, it erred
by interpreting the statutorily authorized measure of city utility tax as a tax exemption.
The Ruling included the following findings of fact:
• “Tracfone provides wireless services by purchasing it at wholesale from wireless network carriers and reselling it to consumers both directly via its website and toll free number and indirectly via retailers such as Walmart and 7-Eleven.” FOF 3.
• “Tracfone sells the access it has purchased from these network carriers to consumers via handsets and plastic airtime cards (collectively called “equipment”). Id.
• “TracFone sells the equipment to retailers such as Walgreens and 7-Eleven, who resell the equipment to the consumer.” Id.
• “Tracfone also sells the equipment and wireless services directly to consumers via its website and its customer care toll free number.” Id.
• “A significant point of disagreement between the City and Tracfone for transactions involving third-party retailers is whether it is the retailer or Tracfone who “activates” consumer access to network carrier service and thereby provides final network access to the consumer…The City’s expert on utility taxation, Garth Ashpaugh, asserts that “activation” of network access is a two step process. The first step involves the activities identified in the Chelsey declaration, supra. The second step involves clearance through Tracfone. … Whatever definition the parties have in mind for “activation” is immaterial to the issue of whether Tracfone controls consumer access to wireless network carriers. More
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125110.0002/8394085.3
ORDER GRANTING 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
significant is the City’s evidence and assertion that consumers are not able to use their equipment until Tracfone grants network access through its website or phone line. Tracfone does not dispute this fact, so it is taken as a verity.” FOF 4.
The Ruling included the following conclusions of law:
• “Tracfone Provides Network Telephone Service….As identified in FOF No. 4, Tracfone in turn maintains final control over consumer access to the network by granting access in the second step of what the City terms the two step activation process. Under the business model described in FOF No. 4, consumers do not gain access to telephone networks until they contact Tracfone via Tracfone website or toll-free number. In this regard Tracfone is construed as providing access to a telephone network as contemplated in RCW 82.16.010(7)(b)(iii).” COL 2.
• “Tracfone Transaction Not Exempt as Resale. The sale of Tracfone’s handsets and airtime cards to retailers is not exempt as a sale of telephone service for purposes of resale. RCW 35A.92.060 exempts ‘charges for network telephone service that is purchased for the purpose of resale.’ Tracfone asserts that its sales of handsets and airtime cards to retailers such as Walmart and Walgreens is exempt from the utility tax under this provision. The City asserts that the provision does not apply because the retailer is only purchasing the equipment from Tracfone, not network telephone service… The applicability of the exemption is not as easily resolved as either party asserts. The sales transaction between Tracfone and its retailers has the characteristics of both just an equipment sale as well as a sale of telephone service….The retailer (and at times distributor) may never actually be purchasing telephone service, but the price it’s paying is the right to that service from Tracfone, which is ultimately resold to the consumer. In the terminology of RCW 35A.82.060, Tracfone sells the entitlement to its telephone service to its retailers ‘for the purpose of resale.’” COL 6.
• “The conclusion that Tracfone is not selling cell phone service is moderately supported by a case heavily referenced by the City, Tracfone Wireless v. the Dept. of Revenue, 170 Wn. 2d 273 (2010)…. Tracfone presents its own case supporting its position on the resale exemption, specifically Tracfone Wireless, Inc. v. City of Springfield, 557 S.W.3d 439 (Mo. Ct. App. 2018)…. The conflicting interpretations and case law above confirm that the resale exemption is ambiguous.” Id.
• “The handsets and air cards sold by Tracfone are the modern day equivalents of the poles and telephone lines several decades ago. They are the infrastructure used to provide network telephone service, but they do not qualify as the service itself.” Id.
The Ruling concluded that “Tracfone has been engaging in the telephone business in
the City of Renton and that its gross income/receipts from that activity is subject to the City’s
utility tax. The gross income subject to tax includes that derived from sales to retail sellers of
Tracfone’s handsets and airtime cards.”
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125110.0002/8394085.3
ORDER GRANTING 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
LEGAL STANDARD
A motion for reconsideration is allowed when “the decision was based on erroneous
procedure, error of law or fact, or error in judgment.” RMC 4-8-100. Summary judgment is
only appropriate where “there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” CR 56(c). “A material fact is one that affects
the outcome of the litigation.” Owen v. Burlington N. Santa Fe R.R., 153 Wn.2d 780, 789
(2005). “An issue of material fact is genuine if the evidence is sufficient for a reasonable jury
to return a verdict for the nonmoving party.” Keck v. Collins, 184 Wn. 2d 358, 370 (2015)
(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). Genuine “questions of fact
are not appropriately determined on summary judgment unless but one reasonable conclusion
is possible.” Hartley v. State, 103 Wn. 2d 768, 778 (1985). To meet this burden, the moving
party “may not rely on mere allegations, denials, opinions, or conclusory statements but, rather
must set forth specifics.” Allen v. Asbestos Corp., Ltd., 138 Wn. App. 564, 570 (2007) (quoting
Int’l Ultimate, Inc. v. St. Paul Fire & Marine Ins. Co., 122 Wn. App. 736, 744 (2004)). Thus,
an expert opinion “that is only a conclusion or that is based on assumptions does not satisfy
the summary judgment standard.” Blum v. Our Lady of Lourdes Hosp. at Pasco, 176 Wn. App.
1012 (2013) (citing John Doe v. Puget Sound Blood Ctr., 117 Wn.2d 772, 787 (1991)). Legal
conclusions contained in an expert opinion are inadmissible and should be disregarded, even
if the expert opinion also contains factual findings. Orion Corp. v. State, 103 Wn. 2d 441, 461-
62 (1985).
Reconsideration should be granted where the moving party can establish that genuine
disputes of material facts should have precluded summary judgment. See, e.g., Keck v. Collins,
181 Wn. App. 67, 93-94 (Wash. Ct. App. 2014).
QUESTIONS PRESENTED
1. Whether the Hearing Examiner mis-applied relevant law regarding sales of
telephone equipment in reaching its conclusions of law?
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125110.0002/8394085.3
ORDER GRANTING 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. Whether the Hearing Examiner disregarded genuine disputes of material fact?
3. Whether the Hearing Examiner erred by improperly relying on expert opinions
as to legal issues in determining findings of fact?
4. Whether the Hearing Examiner’s conclusions of law disregard findings of fact?
5. Whether the Hearing Examiner erred by determining that the “Resale Proviso”
was an exemption rather than a statement of the scope of city statutory taxing activity?
ARGUMENT
TracFone requests reconsideration of five categories of issues it identified in the
Ruling. Individually and in total, proper consideration of these issues requires the Hearing
Examiner to deny the City’s motion for summary judgment and proceed to a full hearing for
determination of genuinely disputed material facts and rulings of law. At minimum, the
Ruling’s improper application of the municipal utility tax to TracFone’s sales of handsets
requires a revision of the Ruling as to the portions of retail sales attributable to handset
equipment, rather than access to telephone networks.
A. The Ruling Erred by Applying Utility Tax to Sales of Handsets and Airtime Cards.
The Ruling concluded that “[t]he gross income subject to tax includes that derived from
sales to retail sellers of Tracfone’s handsets and airtime cards.” Ruling at 8. But this conclusion
disregards clear law on what constitutes Network Telephone Services subject to utility tax and
the Ruling’s own findings that TracFone’s sales to retailers include both handsets and airtime
cards. FOF No. 3.
The Washington legislature has authorized cities to impose city utility tax on
companies engaged in the “telephone business” measured by the portion of the company’s
gross income from “network telephone service” derived from “intrastate toll telephone
service.” RCW 35A.82.060. The sale of “telecommunications equipment,” including handsets,
is defined by statute as “competitive telephone service.” RCW 82.06.065; see also W.
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125110.0002/8394085.3
ORDER GRANTING 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
Telepage, Inc. v. City of Tacoma, 95 Wash. App. 140, 144 n. 5 (1999), aff’d sub nom. W.
Telepage, Inc. v. City of Tacoma Dep’t of Fin., 140 Wn. 2d 599 (2000) (“‘Competitive
Telephone Service’ refers to the sale, lease, and servicing of equipment.” (Citing to RCW
82.04.065(1)).
Critically, “telephone service” is defined as “competitive telephone service or network
telephone service or both” RCW 82.16.010(7)(b)(iv), while “telephone business” is limited to
Network Telephone Service. RCW 82.16.010(7)(b)(iii). Because city utility tax may only be
applied to “telephone business”—which is to say, “Network Telephone Service”—the City
cannot as a matter of law impose such a tax on TracFone’s handset sales. This is reflected in
the Renton Municipal Code, which only provides for utility tax on Telephone Business, and
excludes Competitive Telephone Service, including the sale of equipment. See RMC Title V,
Ch. 11. Thus, the TRS assessment does not claim TracFone is obligated to pay utility tax on
either its retail or wholesale sales of handsets. The Ruling that TracFone’s gross income
“derived from sales to retail sellers of TracFone’s handsets” (Ruling at 8) is subject to utility
tax goes far beyond the assessment, as well as beyond the City’s summary judgment
arguments. Thus, the Ruling errs when it concludes that TracFone’s sales of handsets
constitutes Network Telephone Service under RCW 82.16.010(7)(b)(ii). Ruling at 4
(“TracFone provides ‘network telephone service’ … by the sale of … handsets.”).
For the same reason, the Ruling’s conclusion that TracFone’s sales of wireless airtime
to retailers and distributors are not, in fact, sales of wireless airtime but are instead merely sales
of plastic cards, which along with handsets, are subject to utility tax as sales of “equipment”
is also wrong. If TracFone’s sales to retailers and distributors of wireless airtime are not sales
of airtime, but are instead sales of “equipment”, those sales would be Competitive Telephone
Service and outside Renton’s statutory authority to tax Network Telephone Service.
As discussed further below, if TracFone’s sales of wireless airtime to retailers and
distributors are sales of Network Telephone Service then TracFone’s charges to the retailers
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125110.0002/8394085.3
ORDER GRANTING 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
and distributors are “charges for network telephone service that is purchased for the purpose
of resale” which amounts the City is prohibited from subjecting to utility tax by statute. In any
event, the Ruling cannot have it both ways.
B. The Ruling Disregarded Genuine Disputes of Material Fact.
The Ruling also made numerous factual findings that were improper given the parties’
factual disputes. The parties vigorously contested factual issues on which the Hearing
Examiner made factual findings despite genuine issues of material fact precluding such
findings. Indeed, as to one such factual dispute, the Hearing Examiner explicitly noted the
parties’ “significant point of disagreement.” But as noted above, such genuine disputes of
material issues of fact should preclude summary judgment. Where summary judgment is based
on competing evidence sufficient to create a genuine dispute of material fact, summary
judgment is not appropriate. See, e.g., Versuslaw, Inc. v. Stoel Rives, LLP, 127 Wn. App. 309
(2005).
Whether TracFone or third-party retailers sell handsets and airtime to
consumers. TracFone and the City disputed what retailers and distributors purchase from
TracFone. See, e.g., TracFone MSJ at 14-15; City MSJ at 15-17. The Ruling found that “[t]he
sales transaction between Tracfone and its retailers has the characteristics of both just an
equipment sale as well as a sale of telephone service” and that “[t]he retailer (and at times
distributor) may never actually be purchasing telephone service, but the price it’s paying is the
right to that service from Tracfone, which is ultimately resold to the consumer.” COL 6. It
further found that third-party retailers “never at any point have purchased that service from
Tracfone.” Id. The Ruling cites no support for these factual findings. But the parties’ briefing
and supporting evidence shows that these factual findings were genuinely disputed, and
TracFone submitted evidence in support of a contrary finding. See, e.g., First Declaration of
C. Dillon ¶¶ 8-10 (“TracFone’s wholesale sales of prepaid wireless airtime are made to
retailers…who purchase the prepaid wireless airtime for the purpose reselling it at retail to end-
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125110.0002/8394085.3
ORDER GRANTING 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
users…TracFone does not control the price at which retailers and distributors resell prepaid
wireless airtime. 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.”).
The Ruling noted that the “applicability of the exemption is not as easily resolved as
either party asserts.” COL 6. There is no dispute that TracFone makes sales of a product to
third-party retailers, who then make sales of that same product to consumers who then use that
product for telecommunications. But there is a genuine dispute between the parties as to what
the product sold through this distribution chain is—"network telephone service,” or
“equipment.” Rather than determining that the process of TracFone’s sales to third-party
retailers and distributors was a disputed issue of fact, as it should have, the Ruling proceeded
to weigh the parties’ competing evidence and make findings of fact as to whether TracFone’s
sales to third-party retailers and distributors were sales of “network telephone service” or were
“just” sales of “equipment.” The Ruling erred by ruling on this disputed factual matter. And
as discussed further below, to the extent that the product sold by TracFone to third-party
retailers, then resold to end users, is properly characterized as “equipment” rather than
“network telephone service,” then TracFone’s gross revenues from these transactions cannot
be subjected to utility tax.4
Whether third-party retailers or TracFone activate wireless airtime cards. The
Ruling expressly found that whether Tracfone or third-party retailers activate wireless airtime
cards was “a significant point of disagreement” between TracFone and the City. TracFone
submitted evidence that wireless airtime was active at the time of purchase from third-party
retailers, and no second step occurred to “activate” the airtime. Second Declaration of C.
Dillon, ¶¶ 11, 16. Nevertheless, the Ruling adopted the City’s argument that TracFone
4 Sales of competitive telephone service and other sales of tangible personal property are instead within cities’
authority to impose business and occupation (“B&O”) tax. See Ch. 35.102 RCW.
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125110.0002/8394085.3
ORDER GRANTING 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
activated consumers’ airtime. FOF 4. This factual issue was not only hotly contested between
the parties, but it was an issue of material fact. The Ruling relied on this fact for its findings of
law that TracFone provides Network Telephone Service (COL 2) and that TracFone’s activity
is not outside city utility tax authority because TracFone does not operate network facilities
(COL 5). It was also a key foundation of the Ruling’s finding that sales of handsets and airtime
cards to third parties were not sales for “resale.” See COL 6 (“As outlined in FOF No. 4, as
between Tracfone and its retailers/distributors, it is only Tracfone that has a contractual
relationship with the network carriers, only Tracfone that gives consumers final authorization
to connect to the carrier networks, only Tracfone that imposes terms of use, and only Tracfone
that can terminate service for violating those terms of use.”) (emphasis added). This, too,
constitutes a genuine dispute of material fact that is improper for summary judgment.
Whether TracFone controls final consumer access to network carrier facilities.
The Ruling found that “Tracfone controls final consumer access to network carrier facilities,
imposes terms of usage for the wireless service, is responsible for customer service and has the
authority to terminate the wireless service.” FOF 4. The Ruling cites no support for this finding.
The Ruling found this fact material to its conclusion that TracFone provides Network
Telephone Service. COL 2. But TracFone does not own, maintain, or operate any
telecommunications facilities in Renton or anywhere—it thus cannot “control” consumer
access to network carrier facilities. See First Declaration of C. Dillon at ¶ 12.
Although TracFone can purchase airtime and resell that airtime, see, e.g., TracFone
Opp. to City MSJ at 3, the carriers from whom TracFone purchases airtime control their own
facilities and thus control final consumer access to those facilities, for their own direct
customers and for TracFone customers.
Ironically, this is confirmed by the Terms and Conditions the City submitted through
the Declaration of Nate Malone:
The wireless telecommunications networks used to transmit the voice,
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125110.0002/8394085.3
ORDER GRANTING 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
text, and data services that support the Service offered by Tracfone are owned and operated by licensed commercial mobile radio service providers (“Carriers”), and not Tracfone. Some Carriers differentiate the wireless service they sell by prioritizing the data traffic of their customers over the data traffic of customers on a non-Carrier brand at times and at locations where there are competing customer demands for network resources. Where the network is lightly loaded, a Tracfone customer will notice little, if any, effect from having lower priority. This will be the case in the vast majority of times and locations. At times and at locations where the network is heavily loaded in relation to available capacity, however, a Tracfone customer will experience increased latency during a data session, particularly, if the customer is engaged in a data-intensive activity.
Malone Decl. Ex. 4 (emphasis added). TracFone also provided evidence that prepaid
wireless airtime is active at the time of retail sale by the retail seller, and that there is no second
“step” in the activation process for sales of prepaid wireless airtime. Second Declaration of C.
Dillon, ¶¶ 11, 16.
The above genuine disputes as to material facts should have precluded summary
judgment. The Ruling explicitly noted the existence of disputes as to whether TracFone or
third-party retailers activate end users’ wireless airtime. The Ruling also makes clear that
genuine disputes exist as to whether third-party retailers’ sales to end users are of handsets and
airtime cards, but not Network Telephone Services; and also as to whether TracFone controls
end users’ access to network carrier facilities. Given the evidence submitted by TracFone that
contradicts the Ruling’s findings of fact and conclusions of law, summary judgment was not
appropriate.
C. The Ruling’s Conclusions of Law Disregarded Material Facts.
In addition to disregarding genuine disputes of material fact in reaching its conclusions,
the Ruling also disregarded its own factual findings. Most importantly, the Ruling explicitly
found that third-party retailers resell wireless airtime to consumers. See FOF 3 (“TracFone
sells the equipment to retailers such as Walgreens and 7-Eleven, who resell the equipment to
the consumer.”). Despite this factual finding, the Ruling then later concludes that “Tracfone’s
retailers and distributors aren’t engaged in the ‘resale’ of network telephone service because
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125110.0002/8394085.3
ORDER GRANTING 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
they never at any point have purchased that service from Tracfone.” COL 6.
The conclusion of law thus explicitly disregards the plain factual finding. To the extent
that the “equipment” sold to third-party retailers and distributors is not Network Telephone
Service, the City is not authorized to impose utility tax on TracFone’s gross income from the
sale of the equipment because it is not gross income from Network Telephone Service. To the
extent that the “equipment” sold to third party retailers and distributors is Network Telephone
Service, then TracFone is subject to utility tax on its retail sales,5 but its gross income from
sales to retailers and distributors are charges for network telephone service purchased for the
purpose of resale, which the Legislature has expressly provided cities are not authorized to tax.
RCW 35A.82.060. It is impossible to square the Ruling’s contradictory conclusions that the
sale of “equipment” is a sale of “network telephone service” for the purpose of imposing tax,
but not for the purpose of the statutory prohibition against measuring tax by charges for
network telephone service purchased for the purpose of resale, both of which are part of the
same statute, RCW 35A.82.060(1).
D. The Ruling Relied on Expert Opinions on Ultimate Issues of Law.
It is black letter law that an expert should not opine on ultimate issues of law. Orion,
103 Wn.2d at 461-62. An expert opinion cannot create an issue of material fact when it contains
legal conclusions. Stenger v. State, 104 Wn. App. 393, 409 (2001). Here, the City’s expert
opined, and the Ruling relied on, legal conclusions rather than analysis of the facts of the
dispute. It thus is not an appropriate basis for the findings and conclusions on which the Ruling
relied at summary judgment.
The Ruling relied on the interpretation of TracFone’s contracts with network carriers
done by the City’s expert, Garth Ashpaugh. See FOF 4. Specifically, the Ruling relied on Mr.
Ashpaugh’s interpretation of Tracfone’s contracts with two network carriers in which Mr.
Ashpaugh “found that Tracfone is contractually responsible, not its retailers, for ensuring that
5 On the portion of the gross income attributable to “intrastate toll telephone service.” RCW 35A.82.060.
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125110.0002/8394085.3
ORDER GRANTING 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
the retailers abide by the terms of the agreement between network carriers and Tracfone.
Ashpaugh Decl. par. 7. The contracts also provide that Tracfone is responsible for all risks,
expenses and liabilities incurred in connection with its sale of cellular radio service including
consumer claims. Ashpaugh Decl. par. 8.” But contract interpretation is a matter of law, and
“expert opinion on contract interpretation is usually inadmissible.” Waddoups v. Nationwide
Life Ins. Co., 192 Wn. App. 1078 (2016).
E. The Ruling Erroneously Interpreted the Utility Tax Scope as an Exemption.
Finally, the Ruling erred as a matter of law when it cited the “the judicial rule that if
ambiguity exists in an exception or deduction provision, courts strictly construe the provision
against the taxpayer.” COL 6 (citing Lowe’s Home Centers, LLC v. Dep’t of Revenue, 195
Wn.2d 27, 33 (2020)). First, there is no ambiguity here. RCW 35A.82.060(1) by its plain
language prohibits cities from imposing utility tax on “charges for network telephone service
that are purchased for the purpose of resale.” The Ruling does not identify competing
reasonable interpretations of that plain language, a necessary prerequisite to statutory
ambiguity. Agrilink Foods, Inc. v. Dep’t of Revenue, 153 Wn.2d 392, 396 (2005). In any event,
the so-called “resale proviso” is not a tax exemption; it is part of the Legislature’s grant of
utility tax authority to cities, which do not have inherent taxing power but only such tax
authority as is granted by the Legislature. Qwest Corp. v. City of Bellevue, 161 Wn.2d 353
(2007). RCW 35A.82.060 is the statute granting cities the authority to impose telephone utility
tax. Id. Renton’s authority is constrained by the scope of that grant. Thus, the Washington
Supreme Court has confirmed that any ambiguity in RCW 35A82.060 must be “construed most
strongly against the government and in favor of the taxpayer.” Id. at 364 (quoting Estate of
Hemphill v. Dep't of Revenue, 153 Wn.2d 544, 552 (2005)). To the extent that the Ruling
hinged on construing any ambiguity in RCW 35A.82.060’s grant of utility tax authority to
cities, it did so in error.
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125110.0002/8394085.3
ORDER GRANTING 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
CONCLUSION
For the foregoing reasons, TracFone respectfully requests the Hearing Examiner
reconsider its Ruling, deny the City’s Motion for Summary Judgment, find that there are
material issues of fact that preclude ruling as a matter of law on the application of city utility
tax to TracFone’s wholesale sales of wireless airtime, continue the current hearing date and
schedule a pre-hearing conference clarify the scope of the hearing.
Presented by: LANE POWELL PC By Scott M. Edwards, WSBA No. 26455 Grant S. Degginger, WSBA No. 15261 Attorneys for Plaintiff TracFone Wireless Inc.
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125110.0002/8394085.3
ORDER GRANTING 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
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 Phil Olbrechts Renton Hearing Examiner 1055 So. Grady Way Renton, WA 98057 olbrechtslaw@gmail.com
Executed on the 26th day of March, 2021, at Seattle, Washington.
s/ Barbara LaBelle Barbara LaBelle, Legal Assistant