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Home My WebLink AboutTracfone SJ Transcript Phil Olbrechts ... hearing examiner for the city of Renton. We are this morning dealing with some pre-hearing motions for Tracfones appeal of a utility tax assessment by the city of Renton. We have several items to address. I sent an order of how the motion should be addressed last night by email of the party, so that you would know what's... kind of in general, what the format would be for today. Let's start off just by introducing ourselves for everyone who's involved, Miss Sand, let's start with you. Kari Sand Good morning. My name is Kari Sand and I'm representing the respondent city of Renton. Phil Olbrechts Okay. Thank you. And I think it was Mr. Degginger here, are you here for Tracfone today? Grant Degginger Yes, I'm Grant Degginger, chair, along with my partner, Scott Edwards and we represent Tracfone in this matter, Mr. Olbrechts. Phil Olbrechts Okay. Great. Scott Edwards And this is Scott Edwards. Co-counsel with Mr. Degginger for Tracfone. Phil Olbrechts Okay, great. Thanks Mr. Edwards. And I see we have Ms. Clark and Mr. Malone from the city of Renton and Kari Roller, who are you with here today? Carrie Roller I'm with the city of Renton as well. I'm the interim administrative services administrator so... Phil Olbrechts Oh, perfect. Okay, great. All right. So, let's see if I got any... That's everyone I have on here, I believe. Let me look at my participant list, it looks like we have some people that aren't participating by video and that's fine. Well, let's jump to the motion to compel here and I think once suggested on this one deviate a little from the Standard argument format, which would be the presenter of the motion speaks first and there's a chance for response from the other side and then a final reply. Phil Olbrechts On this one in the Tracfones reply, they gave a list of three specific documents that they wanted. It seems to me maybe we could cut down the time on this one if we just had a Renton respond each of those three documents and then Tracfone provides the reply, will that be okay with everybody? I think that that reply document kind of really narrowed everything down to some very concrete documents that takes out sort of free ranging argument that we may otherwise engage in. Is that all right? Yeah. Okay. Scott Edwards That is okay. Yes. Phil Olbrechts Okay. Perfect. Kari Sand That's fine. Phil Olbrechts Ms. Sand, go ahead. Kari Sand Okay, just one second. I need to make sure I've got that at my fingertips, so I can refer to the [crosstalk 00:02:22] Phil Olbrechts Okay, I'll give you a minute to bring that up. Yeah, I think we're going to be spending a little bit of time printing out the documents here today. It's on the last page I believe of their reply. Kari Sand Great. One second. I'm having a glitchy computer monitor unfortunately this morning that is giving me a little bit of grief, I apologize but I'll be right there to address the three on the last page. Okay. So, the first request is for PDF images of all the emails contained in exhibit 63, redacting all the names of TRS clients other than the city of Renton. Kari Sand And with regard to that particular request, the emails have been produced previously. In fact, they were produced more than a month ago and while they were not PDF images of the emails, it was a copy paste from emails into a word document and so Tracfone has the substance of those emails. Furthermore, it's always been interesting from our perspective that they keep asking for these emails over after they've already been produced when Tracfone has them as well on their side. So, these are emails [inaudible 00:04:10] produce them, in fact we submit that they already have them. Kari Sand And in addition, Tracfone is asking that TRS identify any attachments to the emails produced, producing any attachment, not already produced. Ms. Crisp, Tamar Crisp of TRS already produced all the attachments, including a table, identifying the attachments. And then finally Tracfone asks in number three for each specific version of the assessment schedules provided to the city of Renton specifying when each of the different assessment schedule files produced was created, by actual date of creation when each was revised and the revisions made. Kari Sand And as explained in the city's opposition to this motion to compel, there are iterations of the schedules and TRS has produced the various iterations. Unfortunately, I believe they did save over some of them and the bottom line is that Tracfone does have all the iterations, but for purposes of the assessment that's being challenged here, only the final version of the schedules that was relied upon for the assessment is really material. Any prior iterative schedules that were created and then abandoned, again, as part of that iterative methodology process for the audit, we submit are just not relevant, only the final version is what's truly relevant because that's what's the subject of this challenge. Phil Olbrechts Okay. On the first document there, it does kind of raise the red flag for me a little bit is as a former city attorney, the way we usually handled request for production of public documents was to give PDF copies of the emails, so that the parties could be assured there was no revision to them. And a Tracfone is claiming that there were revisions made to these emails that the text was changed, that kind of thing. I mean, were these changes significant? Why were these revisions made? I know part of it was confidentiality, but there was some notation in one of the briefs that some words have been changed as well and I mean, why was that happening? Kari Sand Well, thank you Mr. Examiner, for the opportunity to answer that question. With regard to any changes, it's Ms. Crisp's testimony that there were brackets included for information that she deleted as confidential. And so, there were brackets, it's my understanding that Tracfone has gone through and compared them to the Tracfone versions obtained from their side and they have taken issue with the way that she produced the materials. Again, what's interesting about that is Tracfone has something to compare to, to even know and in that regard, they were in a better position than me to evaluate the completeness of the production of those records. So, they do, I submit have the complete production of all the emails. And they also haven't shown or demonstrated that the omissions where the changes are material. Phil Olbrechts Okay. And then on the issue of the assessment schedules. What Tracfone is requesting is that the schedules that were provided to the city of Renton. So, I was curious if you were to open those schedules on Renton's side, on the recipient side, would those documents change over time? Because I underSand the concept that they were using spreadsheets and that those things would be saved over each other, that kind of thing. But were these documents... I mean, if you were to access it then from the Renton's side, would that essentially be through the consultants' portal and you would continue to get all the changes or is that static and set in time from the point it's emailed to run? Kari Sand It's my understanding that when the documents were opened, the creation date was not changed. I believe that it remained static and was not changing on Renton side as they were opening and that's my understanding. It's also my understanding that TRS used a free software called Libra Office. So, it is quite different from Excel and that sometimes that it was difficult to open the file if the recipient did not have Libra Office because the recipient's computer was perhaps trying to open something created in Libra Office in Excel. And so, for example, when I would try to them, it was giving me an error message and it was sometimes opening in a corrupted fashion where the original text and formulas were corrupted somehow. Phil Olbrechts So, I mean, has every copy of the schedule that was provided to Renton been provided to Tracfone ultimately? Kari Sand Yes, that is our position that we've provided everything. Phil Olbrechts Okay. All right. Great. All right. Thank you. Anything else Ms. Sand on these issues? Kari Sand Nothing further. Thank you. Phil Olbrechts Okay. All right. Is it Mr. Edwards or Mr. Degginger? Scott Edwards Yeah. I'll be speaking to this one. Phil Olbrechts Okay. All right. Scott Edwards Thank you. I would like to take the issues in the same order that the city did. First of all, with respect to emails, you're exactly right, that the concern is about alteration. The document that Ms. Sand referred to in which all of the emails were allegedly already produced that she acknowledged was a word document is exhibit 63, to my declaration. In the second day of Ms. Crisp's deposition, I specifically deposed her about that document and there are a number of places where there was texts that was either deleted or changed that is not reflected in brackets. There are other aspects of the emails that... What was provided was a selective cut and paste, so part of the testimony was I didn't actually delete things, I just chose not to copy them. Scott Edwards There are over 120 different emails that are reflected in that document. We were able to compare against other things that the city of Renton had produced as the audit file. One of the difficulties we've faced here is that we've gotten probably six or seven different productions from the city and six or seven different productions from TRS. Some of those materials are duplicative of each other. The audit file was not maintained and any type of cohesive order at all. And so, we've been given things kind of piecemeal without an indication of where they fall within the scope of things. And part of the problem here is that TRS provided monthly updates to Renton about the audit, those monthly updates pretty much fell in the format of on date X, TRS sent an email to so-and-so that said, and then text that is purported to be a quote of that email. On day Y, TRS received an email from so-and-so that said, and what is allegedly supposed to be a quote of that email. Scott Edwards A number of those reports make reference to emails that have not been produced. Some of which TRS has admitted simply don't exist. That the report claiming to describe an email describes something that doesn't actually exist, that other parts of reports that purport to quote things misquote and what was said there. So, TRS has asserted that all of these omissions, changes, et cetera, are not material, but I think we are entitled to evaluate the materiality of the alterations that were made subsequent to the production of exhibit 63 in our effort to try to get the full record and explaining that we wanted actual PDF images merely redacted. Scott Edwards We ultimately got on January 22, I'm sorry, December 22 [inaudible 00:13:44]. Is it January? The length of time that's gone on for this has been just incredibly frustrating, but on January 22, we got another document that was 102 pages that was nearly a hundred other emails that had not been previously produced. And those emails were produced as PDF images with actual redactions. So, what we're asking for is to do the same thing for exhibit 63, that was done for the other emails that were produced o n January 22, so that we are able to evaluate the correctness of the reporting that TRS made to the city about TRS' conduct of the audit. Scott Edwards This is an appeal of an audit that was performed by TRS on behalf of the city. TRS did all of the work, reported to the city about its conduct. And understanding what TRS learned, how they learned it, where that information came from, is something that implicates both of the issues involved here. The first question from a substantive matter is, what is the statutory incident of tax that the city is authorized to tax under RCW 35A.82.060. Once that statutory incident is identified as a matter of law, there will become a factual question about whether or not Tracfone's activities met that statutory incident. Scott Edwards And similarly, the second issue in this case, if Tracfone did engage in an activity that fell within the statutory incident, is identifying the measure of tax that the city is permitted to calculate tax on, again under RCW 35A.82.060. And again, that there's both a legal question component to that and once the legal question has been resolved, a factual question... And the information contained in these emails potentially relates to the factual element of both of those. I think I've said everything that I need to on the email front. With respect to the audit schedules, which are the computation of tax, Ms. Sand identified one of the key problems here. There were multiple iterations of the schedules with multiple different naming conventions. And we've been provided with multiple copies of schedules with more than one version of each of several different naming conventions. Scott Edwards Every version that's been produced has a created on date that is after the filing of this appeal. We don't know which version of which of these was actually produced to the city. In thinking about it in advance of today's hearing and I think your question may go directly to the point, it's our understanding that the city was provided copies of these schedules by email. Ms. Sand has indicated the belief that the email, the copy that the city received has remained static and perhaps the simplest way for Tracfone to have confidence that they are receiving the same version received by the city at a particular time would be for TRS or the city to forward the actual email that transmits each version of the schedule to the city. And then we would know, hey, this is the document that was sent on thus and such a date. It is my expectation that there are at least five different transmissions to the city. And there might be more, but based on what we've gotten so far, we know there are at least five. Phil Olbrechts Okay, great. Thank you. Well, I think that there are two ways that I could approach this motion. One is, to go through all the documents that have been exchanged and try to figure out if indeed all of the documents requested by Tracfone have been given and whether any of the revisions made were significant or not, but that seems that would be a very daunting task given the volume of materials here. It also is concerning to me that exhibit 63 is in Word format, even if all the revisions were minor or were justified, I think Tracfone has a right to see exactly what those changes were and that the Standard way to do that is when you're submitting emails. And like I said, I'm more familiar with the Public Records Act is, you give a PDF version and you black out the portions that you redacted and it's real clear exactly what's been altered. Phil Olbrechts So I think the cleanest way to address this entire situation is to mainly grant the motion to allow to require exhibit 63 to be provided in PDF format. And by exhibit 63, I mean, all the emails in there have to be provided in a PDF format with any redactions just in black ink and then you copy that and send it over. As to three there, the assessment schedules. Yeah, I think Mr. Edwards was thinking along the same lines I was, is just produce copies of the attachments to the emails were provided, any assessment schedules that were provided to the city, just print those out and send them over. Or, I guess Mr. Edwards, do you want the electronic files [crosstalk 00:20:58] Scott Edwards Yeah. We do want the electronic file, the printouts of those files are illegible. They print out so small that you cannot read them and they're not necessarily formatted to print out, so. Simply, I think a forward of the email that transmitted it would verify that the attachment on that forwarded email is the document that was transmitted with that email. Phil Olbrechts All right. Yeah. So, we want the electronic files. Then is document two identifying any attachments to the emails produced? I guess, when you get the PDF format of all the emails, you'll know which emails had attachments to them and at that point Tracfone can... You can figure out if you haven't actually received one of those attachments, right? I mean, I think [crosstalk 00:21:47]. Scott Edwards We would be willing to do that. Yes. Phil Olbrechts Yeah. And if anything is missing, just let the city know and I would expect the city to provide that copy, so. Any questions on that ruling? Is that sufficiently clear? Kari Sand It's clear. Thank you. Phil Olbrechts Okay, great. All right. Let's move on to the next one then we'll return to the more Standard argument format, which is the presenter of the motion will argue in support then we'll give the respondent a chance to respond and then there's a chance for a reply argument. So, onto the motion to exclude exhibit [crosstalk 00:22:23] Mr. Edwards, is that yours as well? Scott Edwards No. Mr. Degginger is going to handle that. Grant Degginger Thank you very much. So, following onto our issues about discovery and exhibits, what we are focusing on here is whether the record needs to be limited to what was relied upon and making the assessment. This is an appeal of a tax assessment. So, what we want to look at here is what was considered and what was relevant at the time the assessment was made. We've identified a series of exhibits that were on the preliminary exhibit list that was provided by the city that we're not relied upon in issuing the assessment and they were produced later. And they were not also apparently deemed to be relevant in terms of reliance by the administrator and making the final determination in October of 2019, to say that the assessment was correct. So, what we've done is identify what those exhibits are. Grant Degginger One is a tax rule that was drafted but never adopted by the city. And I didn't see any opposition to that being not included in the record. It's the tax rule 2-42, since it was never adopted, it shouldn't be relied on here in this proceeding. The next group of them are some contracts between Tracfone and wireless providers and Tracfone and it's retail clients. Again, were sought and obtained after the assessment was issued. And bear in mind, this assessment went on for almost five years and during that period of time, the city through its agent, TRS requested quite a bit of documentation, that documentation was provided. So, there was a lot of opportunity to learn about Tracfone, to look at their information that the city wanted and thought was relevant. Grant Degginger And so, all of that was provided. This is significant because none of that record appears to be deemed to be relevant by the city in connection with these motions that we're dealing with. But by the fact that they were not relied upon in reaching the assessment and a ruling on the assessment, we believed they should be excluded. Then there's a third group of exhibits that are documents that were obtained again, after the assessment was filed and apparently after the appeal was filed, which includes some documents from the Tracfone website, some terms and conditions that were on the website, some documents regarding marketing materials that were obtained last year and a Tracfone card that was obtained last year. Again, all documents obtained well after the assessment was completed and well after the appeal was filed. Grant Degginger And for those reasons, we don't believe that they are appropriate to be included in the record. Where the appellant, we have to prove that the appeal was erroneous, but we also believe that the record should Sand, the record that the city had the opportunity to develop over five years should be the one that we are having to respond to in this appeal. That's the short version of what we're seeking in this motion, Mr. Olbrechts. Phil Olbrechts Okay. Thank you. All right. Ms Sand? Kari Sand Thank you. So, the various exhibits that Tracfone is seeking to exclude, they are in fact relevant and Tracfone's motion is not only frankly senseless, it defies common sense, but it's also not based on any sound legal authority. Tracfone is interpreting narrowly as it deems appropriate for self-serving reasons, what constitutes the audit file. Furthermore, their motion would render all of the discovery that the parties undertook completely useless, it would disregard the fundamental purpose of discovery. The city's administrative orders seeking the contracts between Tracfone and Karirs and Tracfone and retailers, those were sought in June and July of 2019, which precedes by months, the city's final determination, which was dated October 17th, 2019. Kari Sand So, sequentially the city did in fact, rely on those contracts as for Tracfone's terms and conditions with customers, their marketing materials, their basic phone card. These materials are all available in the public domain. Mr. Malone's declaration supports that these things were considered with regard to the assessment and nowhere is there any rule in the RMC or the RCW or in case law that says the city is not allowed to rely on any new evidence to support and defend a challenge to its assessment. In fact, RMC5- 26-18 sub B4, expressly allows the parties to introduce evidence that is relevant to the subject of the appeal. There is no express limitation that the evidence be limited to the audit file only. This is invented out of whole cloth by Tracfone, they're just frankly making this up. Kari Sand And the cases that they rely on, they're not instructive, they're certainly not controlling because they pertain to a review proceeding where new evidence isn't allowed on review, so that would be the proceeding after this proceeding. This is an indicatory proceeding that is actually creating the record. And so, we submit that the towel case and the nebular cases are not applicable they're distinguishable and do not support tractional motion to exclude. Their motion is based again, on the false premise that the taxing authority can offer no new information after the audit is completed to bolster and defend its position and that is just simply not true. Furthermore, their motion is premature. The city's final exhibit list, again, these are items that were disclosed to this preliminary list, which was submitted back in September, but the final list is not due until 10 business days after the examiner's decision on dispositive motions per the current case schedule. And so, again, we submit that this is premature. Kari Sand With regard to the rent in tax rule 2-42, I must concede that that was never adopted. But that said, that tax rule does explain the city's thinking and it's consistent with the city's code with regard to taxation of telephone businesses. So, we were going to perhaps offer it at the hearing for those purposes, but again, the Tracfone, all the other exhibits that Tracfone is challenging are all generated by Tracfone. And so, again, we don't underSand why we could not rely on those when they are helpful and they are relevant and again, they are appropriate for the city to rely on for purposes of its assessment and also challenging the appeal of its assessment. Phil Olbrechts Okay. Thank you, Mr. Degginger. Grant Degginger Yeah. Thank you. Let me try to walk through this in somewhere close to the order that these issues were raised. One, in terms of the scope of what this appeal is, this is a tax appeal. We need to underSand what the record is and as we've seen already this morning, it's been difficult to get the record of what it is and the record shouldn't be a shifting sand. You have authority under RMC-526-18 to determine what the scope of the hearing process will be. And it seems to me that if the city has had the opportunity over a five-year period to do an extensive amount of research and discovery of Tracfone, it seems to me that the scope of what they should be offering should be relevant to the decision that they made, not the decision that they're trying to support now later. Grant Degginger The other problem is, again, the documents that they're trying to supplement with respect to the contracts, the question then becomes, did they rely on the information that the city received after the assessment was issued and before the final order was issued to make any change. The person that made that determination was Jan Hahn, the administrative services director. She testified in her deposition and we provided it in this motion that she did not even review these documents. So, how could you argue that there's been reliance by the person who had ultimately made the final decision? So, in that regard, they can't be irrelevant and they certainly weren't relied upon. Grant Degginger Also with respect to the question about timing, your order set the timing for issue for bringing pre-hearing motions and we obliged and we followed them and we followed that order. The timing was early, so we brought the... This is exactly the time when these motions need to be heard. And it's appropriate, so that the parties can prepare for the hearing, knowing what is or isn't permitted to be included in the record, so the timing is completely appropriate. So, I think it's fair to require that the city's rely on the record it used in making the decision, so that Tracfone knows what it needs to appeal here. And it also shouldn't be relying on documents that were created and as they say, put it in the public domain, after the audit period occurred and after the audit assessment was issued. So, I think for those reasons, a limitation on the introduction of these particular exhibits is appropriate. Phil Olbrechts Okay, thank you, Mr. Degginger. And this one, I'm going to deny the motion. I mean, this is an open record hearing, it's not a closed record review. Tracfone has not submitted any case law that provides that the tax assessment process creates a binding administrative record and clearly it wasn't judicatory as Tracfone has said several times, they weren't involved in the process, they weren't consulted that kind of thing. It wasn't something that could be used to figure out the validity of the tax. So, yeah, I think any relevant evidence is still fair game at this point and that parties obviously until the final exhibit list is submitted, will have a chance to still object to those exhibits. Phil Olbrechts As to rule 2-42 specifically, I need more information on that. And then, we can flesh that out at the hearing if the city actually presents it. I think what would be relevant to me is if a rule 2-42 has been around in the city has applied it consistently because there is case law on... At least in the land use context. And I suspect that it would equally apply in the tax context as well, where if a city's interpretation of its regulations are applied consistently overtime that deference is due to that kind of interpretation and that principle seems to be a fair principle there that may apply in the tax context as well. So, I just need more history on rule 2-42 to see how the city has used it. Like I said, if the city even decides to present it during the case, so. Let's move on now to the motion to exclude... Oh, sorry. Mr. Degginger? Grant Degginger [crosstalk 00:34:36] It sounds as though you're saying you're denying these without prejudice, so that we could raise them at the time they're offered? Phil Olbrechts Well, at least I would say when the... Yeah. Let's be clear on that. As Ms. Sand said, there's still upcoming the final exhibit list, correct? So, I think I would expect objections to be raised within a couple days of when the final exhibit list comes in. As to relevance or anything like that. PART 1 OF 6 ENDS [35:04] Phil Olbrechts ... as to relevance or anything like that. And my ruling on some of those objections may essentially be, we'll need to flesh it out more during the hearing. That obviously could happen, like with rule 242, but I would expect preliminary objections to come in when the final exhibit lists are exchanged. Kari Sand Thank you. Phil Olbrechts So who's handling the [Ashbaugh 00:35:31] motion? Grant Degginger That would be me. Phil Olbrechts Okay. Grant Degginger It just, shift gears real quick, to go right. So the basis of this motion is that the city offered and identified in its witness list that Mr. Ashbaugh would be providing testimony in opinions specifically on some of the essential legal issues that are presented in this case. And that is the main focus of the motion, which is that in any case rulings, the evidentiary basis for any expert has to be that they have the requisite knowledge and skill that their testimony is relevant and that most importantly, that they are not opining on what the law is and or what the law should be and that's the problem here. We believe that Mr. Ashbaugh's witness identification in this case, identifies that he would be speaking as to the interpretation of several crucial statutes. He wants to testify that Tracfone is a telephone business as that term is used in 82-1601-O, that it provides network telephone service under the same statute, that it is a telephone company under RCW.80.O4.O1O and that Tracfone's contracts with its retailers are not wholesale sales and not prohibited from taxation under 35A-82-O6O. Grant Degginger Those are legal conclusions. So we have some serious concerns about that and a major focus of our briefing was that no expert is entitled to rule on the law on these issues. That is something that we're going to be asking your assistance in making these determinations. So for that reason, we brought this motion. We think that there are numerous legal conclusions that Mr. Ashbaugh is making that are inadmissible and must be stricken. He cannot opine on these various issues. Let's give some examples. More importantly, we also want to talk about his qualifications to provide any of the opinions here because we don't think there's been an adequate foundation for his opinions established in his testimony, in his multiple declarations. And we also don't believe that he has the, and he has admitted not to having the expertise necessary to provide relevant and meaningful opinions in the case. Grant Degginger Let me briefly walk through the legal opinions and conclusions on what he's mentioned in his declarations. He opines that about the contractual relationships between Tracfone and its retailers. He concludes that the retailers are simply agents of Tracfone. He claims that there's no retailer wholesaler relationship there. The problem is that the contracts themselves, belie those very statements. He rendered an opinion on the Circle K contract in his declaration and that Circle K contract several pages later clearly establishes that the relationship between the parties is one of independent contractor. Each and every one of those retailer contracts established that they are independent contracts. He discusses that Tracfone is a telephone business because Tracfone made a submission to the FCC. Grant Degginger What he doesn't say is that the submission of the FCC was an attempt by Tracfone to participate in a program that allowed us to provide service to low income communities and the reason that they had to seek an exemption was because they didn't own network telephone facilities, a fairly significant issue in this case. So the statements he makes are not well founded in they're inconsistent with even the evidence that he's offered in support of his opinions. Grant Degginger The [Phizon's 00:40:08] case is a very good example of the clear legal proposition that opinions on the ultimate issue, the ultimate legal issue before any court, were not properly considered on the guise of expert testimony. And I can hear already hear Mr. [inaudible 00:40:25] telling you, "Well, this is a before a hearing examiner and under the rules any testimony is liberally construed and available." What I would say is, "In a case like this, you have an important role as a gatekeeper just like a trial court in the state court or a trial court in the federal court would have to have the role of being a gatekeeper in evaluating the qualifications of the witness and the scope of the testimony and to be sure that the witness isn't rendering direct legal opinions on the ultimate issues in the case." Grant Degginger In that regard, let's take a look at Mr. Ashbaugh's qualifications. While he has a lot of years of experience providing expert testimony or expert work for cities on cable franchise regulation, he admitted a lack of expertise on some of the key issues that are relevant in this case. He hasn't performed any audits of Tracfone, he hasn't spoken with any one from Tracfone, he has some written about or spoken about the prepaid wireless service industry, he admitted he's not an expert on Washington tax law. He hasn't purchased, he's never had a business relationship with Tracfone and has [inaudible 00:41:50], his resume simply just doesn't provide any information that would be appropriate in identifying him as a qualified expert. He did say he he did two audits about a prepaid business that wasn't Tracfone in another state, but he hasn't done anything in the state of Washington. Grant Degginger In fact, he's never had expert testimony admitted in the state of Washington. So these are red flags about the qualifications of this expert to opine in this case. Importantly also is he fails to provide a foundation for any of his legal opinions, an adequate foundation to say the least. This is required, especially if someone is providing an expert opinion in support of a summary judgment motion and that's an issue in this case. He argues that Tracfone is a telecom business, as I said, because it's regulated by the FCC. That's not the case. He attempts to provide information that we provide network telephone services, but fails to demonstrate how this is accomplished without facilities and he has no personal knowledge from which to base that information on. He makes these claims that the sales to the retailers or that Tracfone sells to retailers like Fred Meyer or Walmart aren't wholesale sales, yet the contracts say the opposite. Grant Degginger Quite frankly, there's no other transactions that occurred afterwards that would support those conclusions. He attempts to recharacterize the transactions themselves, which is clever and somewhat interesting, but it's not accurate and there's no foundation for it. He hasn't provided a foundation for how he gets to his conclusions. You got to show your work when you're an expert and that just doesn't occur at any of these declarations and more importantly, his ability to, his insistence on rendering opinions on whether Tracfone is a telephone company, provides access to network telephone service are all things that relate to opining on the statutes themselves and those are the things that are subject to summary judgment motion and those are the issues that you will need to decide. So we believe that the city has really stretched the permissible boundaries, attempting to have this outsider who's never opined on it and it also bears mentioning that the city did not rely on Mr. Ashbaugh in any way in making the assessment or in determining that the assessment should be finalized. Grant Degginger So there's really no evidentiary basis or history with respect to the work at issue. In fact, it's ironic that they're not relying on the people that they hired to provide any of these baseline opinions. The fact of the matter is they believe that there's a concern about not having sufficient evidence in the record to support their decisions and so that this attempt here is to use an expert to fill those gaps. I believe we provided a great deal of legal authority that strongly supports the notion that here you can rely on, you do have a gatekeeper role, that you do have an obligation to rely on the rules of evidence as authority and we cited the APA for that purpose and here it's important because this is a real misuse of an expert in a case of this kind. So I will stop here. Phil Olbrechts Okay, thank you Mr. [Degginger 00:45:26], Ms. Sand? Kari Sand Thank you. So I want to start by of course stating the obvious. Mr. Ashbaugh is not a lawyer. We underSand that, you underSand that and of course Counsel for Tracfone underSands that. That said, the reason the city hired Mr. Ashbaugh for purposes of defending its assessment against the challenge by Tracfone is to provide helpful information regarding the telecommunications industry, particularly as it relates to providers of commercial, mobile radio service and providers who resell that service like Tracfone. So it is different from the usual land use cases that the examiner hears most often. And so we thought it would be helpful for the examiner, especially when Mr. Ashbaugh has been in the telecommunication industry for decades. He has an extensive record of testimony, both in federal and state courts, he has performed numerous audits of various utilities, including telecommunications companies, including other prepaid wireless companies that are Tracfone's competitors, namely Cricket and Nextel, which does business as Boost for Lincoln, Nebraska. Kari Sand So he does have relevant experience in the industry and the purpose of his testimony is to explain Tracfone's business model, the telecom industry and also the relationship between Tracfone and the Karirs as well as Tracfone and the retail distributors. So we do believe that his testimony would be helpful to the examiner and as Mr. Degginger predicted and I would be remiss if I did not say, that in fact the rules of evidence in an administrative proceeding are more relaxed. The key is relevance and reliability. And so we think Mr. Ashbaugh will be helpful and to the extent you think he's rendering a legal opinion, of course that can be disregarded, but we think he offers much more than legal opinions because he recognizes, as do all of us, that he's not an attorney. Phil Olbrechts Okay, thank you. Mr. Degginger? Grant Degginger So a couple of issues here, Mr. Ashbaugh's experience in the telecom industry has nothing to do with prepaid wireless service in terms of the issues that are here before you on application of the Washington utility tax. He's honestly testified at his deposition that he has no expertise there and so his knowledge and experience doesn't match up to what he's being asked to do in this case. No place in the record does it state that in Mr. Ashbaugh's declarations or in the city's submission, they talk about the basis of his knowledge to render the opinions he's making. As I said before, there's an obligation to show your work and not just to simply recite conclusions in a declaration. He doesn't explain why his experience on the Cricket wireless audit that he performed for a different city is relevant to the work here. Grant Degginger He doesn't explain whether the Cricket business model is the same as Tracfone's, probably because he doesn't really know much about Tracfone's business model. He doesn't know. So the fact that we don't have a foundation of his opinions is critical here. And at this point in the proceedings, if he doesn't have a basis for this now, we took his deposition, he had to be locked in at this point and he just doesn't have it. For these reasons, it's essential that his testimony not be permitted here because there's no basis for it. He didn't do the homework necessary to learn about it. He's not a recognized expert, certainly on Tracfone. He's not a recognized expert on the application of a wireless industry, he's never spoken about it, written about it. The [endicia 00:49:39] of expertise is not there on this aspect of his work. Grant Degginger He may be the greatest cable regulator in the world, but that's not the issue here. He may have knowledge regarding what say they used to charge for use of their right of way facilities in a franchise matter. That's not an issue here. In fact, the fact of the matter is it's undisputed, the Tracfone has no assets, no facilities in the right of way. So for these reasons, the basis for establishing the foundation for his opinions and the opinions themselves and clearly the conclusions that are legal conclusions need to be stricken and not introduced to this proceeding. Phil Olbrechts Okay, thank you sir. All right, I grant the motion in small part and that is to the extent that Mr. Ashbaugh is rendering legal conclusions about the primary issue of this case, which is of course whether the tax was validly assessed. So the business practices of telecommunications companies, how it applies specifically to the Tracfone's business model, I'll give way to the fact that the issues raised by Mr. Degginger there, and I'll look at that more closely as we go through the hearing. An example of how this works essentially is the declaration of Mr. Ashbaugh. I believe it was the one that was submitted by the city in conjunction with its motion for summary judgment. Phil Olbrechts Mr. Ashbaugh had several paragraphs where he talked about the business practices of Tracfone and relying to a great extent on contracts that he reviewed, that kind of thing. All that is I find useful and to qualify as expert testimony, he's using the contracts as evidence of what the business practices are of Tracfone. Obviously, if he's misconstruing the contract, that's something I can figure out with the assistance of Tracfone and the city as well. But then there's one paragraph in there where he says, "Mike, my opinion is that the tax is validly assessed." That I wouldn't give any weight to. There he is clearly giving a legal opinion on the primary issue of the case and if there were a motion to strike that paragraph I would, but everything else leading up to that, all the background information that Mr. Ashbaugh provides, his opinions on whether the objectives of the city's utility tax regulations are met by one interpretation or another based on his knowledge of business practices, those kinds of issues, that would all be admissible. Phil Olbrechts So as I said, the ultimate issue of if he's going to tell me what a statute, how it should be read, I'm not going to give much weight if any at all to that, but beyond that, his knowledge of business practices, which can be based upon his review of contracts, would be admissible, so. All right, based on these rulings today, does Tracfone need those documents before it wants to address its summary judgment motion or can we still handle that today? Because you have those exhibits you're still getting on the motion to compel and I don't know if that is necessary for the summary judgment stage or not. Scott Edwards We can present oral argument on the summary judgment motion today without needing to wait for our receipt of those documents. Phil Olbrechts Okay, all right. Let's move on to the next one. Do the parties want to take a break before we do that or just jump into it right now? Scott Edwards A five minute break would be helpful. Phil Olbrechts Let's take a recess until ten o'clock, we'll see you then. Scott Edwards Thank you. Phil Olbrechts Everyone's back. We're back on the record, 10:00 AM, February 23rd, 2021. We're in the Tracfone appeal of the city of [Renton 00:53:28] utility tax. We just finished going through a bunch of preliminary motions regarding evidence. We're now on to the motions for summary judgment. And the first motion we're going to hear from them today is from Tracfone And who's going to be presenting that one today? Scott Edwards I will be presenting that one. Phil Olbrechts All right, go ahead. Scott Edwards So Tracfone's motion for summary judgment presents two legal questions. The first regards the incident of the tax that cities are authorized to tax and the second relates to the measure of tax. And that second issue is only reached if the hearing examiner determines that sales of prepaid wireless airtime by persons who are not network Karirs qualify as network telephone service under RCW35A.82.O6O and RCW82.16.O1O. Tracfone's summary judgment motion argues that RCW35A.82.O6O only authorizes the imposition of city utility tax on network Karirs. That is companies that own and operate transmission facilities. Because Tracfone is not a network Karir, Renton is not authorized by RCW35A.82.O6O to impose utility tax on Tracfone. However, if the hearing examiner were to conclude as a matter of law that the sale of prepaid wireless airtime by a person who is not a network Karir qualifies as providing network telephone service under RCW35A.82.O6O and 82.16.O1O, then while Tracfone would be subject to tax, the assessment substantially overstates the measure of tax less than 20% of the amount calculated would be due. Scott Edwards And that is because if the sale of prepaid wireless airtime is network telephone service, then Tracfone's income from wholesale sales of prepaid wireless airtime are as a matter of law charges for network telephone service purchased for the purpose of resale. Amounts that are specifically excluded from the permissible measure of tax under RCW35A.82.O10. I thought it would be helpful to walk through the structure of the relevant statutory language. I've got a visual aid that I'd like to share if it's okay with the hearing examiner. Phil Olbrechts Oh yes, definitely. Scott Edwards Okay. Bear with me for just a moment here. It says "The host has disabled participant screen sharing." Phil Olbrechts Let's see, who's hosting right now? Speaker 1 I am. So I just made [inaudible 00:56:55]. Phil Olbrechts All right, you're set. Mr. [crosstalk 00:56:59]. Scott Edwards Hopefully can everybody now see on there, I've got a document that at the top is labeled "Incident of tax under RCW35A.82.O6O?" Phil Olbrechts It's visible. Scott Edwards So I wanted to walk through the statutory provisions. So if we start with RCW35A.82.O6O, subsection one, it authorizes cities to impose telephone utility tax and this is a direct quote from the statute "upon the business activity of engaging in the telephone business." It goes on to talk about the measure being income from interstate toll telephone service, but I want to focus first on the incident of the tax being the activity of engaging in the telephone business. In subsection three, the statute specifically says that the definitions in RCW82.16.O1O apply to this section. So 35A.82.O6O does not define telephone business, but 82.16. O1O1 does. So if we go to 8216.O1O, section seven, sub 3I, it defines telephone business as the business of providing network telephone service. Scott Edwards But that term is also itself a defined term and that's found in the prior subsection, subsection 7II, which defines network telephone service as, "providing by any person of access to a telephone network or the providing of telephonic video data or similar communication or transmission for hire." So structurally the definition of network telephone service basically has two components to it, separated by an or. The brackets highlighted in blue are my own insertion to help make this easier to read. Tracfone does not provide transmission and therefore certainly doesn't provide transmission for hire. Transmission is provided by the network Karirs who transmit calls over their networks. I don't underSand that the city to be arguing that Tracfone is engaged in the activity of transmission. Both of the summary judgment motions have focused on the other element of the definition of network telephone service and that is providing access to a telephone network. Scott Edwards Ultimately what that means is that Tracfone can only be engaged in the telephone business within the meaning of the statutes if Tracfone provides access to a telephone network. And as a consequence, the legal question that's in front of the hearing examiner on this motion is one of statutory interpretation. What does it mean to provide access to a telephone network? What are the activities that constitute providing access to a telephone network? And as a matter of statutory interpretation, in our brief we cited a number of cases addressing principles of statutory interpretation that instruct the interpreter to look to all of the language of the statute and related statutes and consider all of those words in context. And in looking at everything in context, there's a provision, a clause within 82.35A.O6O that prohibits taxation of charges to, and I I've emphasized the keyword here, another telecommunications company as defined in RCW80.04.O1O. Scott Edwards And I want to pause here to try to clarify a point that has gotten confused in some of the briefing. Tracfone is not arguing that this particular limitation is specifically applicable to the measure of tax with respect to a computation of liability if Tracfone is subject to tax. What Tracfone is focused on is understanding the context of the statute and when the statute talks about, makes reference to another telecommunication company as defined under a particular statute, the presence of the word "another" is an indicator that the legislature intended that all persons who are engaged in the telephone business are telecommunications companies as defined in RCW80.O4.O1O. So we pause it that the question that you then need to look to RCW80A.O4.O1O to underSand what the meaning of providing access to a telephone network is. Scott Edwards And when you look at 80.O4.O1O, in subsection 28, it defines telecommunications company as a person owning, operating or managing facilities used to provide telecommunications. And telecommunications is itself defined in the prior section, subsection 27 as "the transmission of information by," and the various types of means. So a telecommunications company is essentially a company that owns and operates the facilities that transmit telephone calls, I.E. a network Karir. And so looking at all of these statutory provisions in context is what results in recognizing and interpreting RCW35A.82.O6O to recognize that only network Karirs engage in the activity of providing access to a telephone network. Scott Edwards A telephone call is basically the transmission of a call, sometimes across just a single Karir's network, sometimes across multiple Karirs' networks, but it's those Karirs transmitting calls across their network and allowing other Karirs to pass calls from one network to another that are the activities of the telephone business. And under this construction of the statute, only network Karirs can engage in the activity of providing access to a telephone network. Since Tracfone is not a network Karir, then it, whatever it's doing, it doesn't constitute providing access to a telephone network within the meaning of the statute. Therefore it is not network telephone service and by extension not engaged in the telephone business. Scott Edwards As a result, Tracfone is not engaged in an activity that falls within the statutory incident of a tax that the city is authorized to impose tax on. Falling outside 8035A.82.O6O means the city simply is devoid of statutory authority to impose any tax at all in the first place and no part of the assessment is valid. The entire assessment needs to be refunded. I'm going to, actually I won't necessarily stop sharing because when I get to my second point I'll go down to the bottom of this, but that is the affirmative argument with respect to that first issue or maybe the first part of the affirmative argument with respect to that issue. The city in its opposition did not challenge any of the principles of statutory construction that were presented in Tracfone's motion. Nor did the city present an alternative interpretation of the statutory language. Instead, the city's opposition simply asserted the ultimate legal conclusion that Tracfone provides access to a telephone network without any explanation about what it is that Tracfone allegedly does that constitutes providing access to a telephone network. Scott Edwards Well, even if the city had provided an alternative interpretation of the statutory language, if that interpretation were a reasonable interpretation, it only would have established that the statute is ambiguous because there would then be more than one reasonable interpretation of the statute. And as an ambiguous tax imposition statute, it would have to be construed against the government here in the city of Renton and in favor of the taxpayer, here Tracfone. And we would get to the same result even if the city had proposed an alternative interpretation, Tracfone's interpretation would prevail and Tracfone's sale of prepaid wireless airtime does not constitute providing access to a telephone network within the meaning of RCW35A.82.O6O and RCW82.16.O1O. Scott Edwards The hearing examiner does not need to any know anything at all about Tracfone's so-called business model to be able to interpret these controlling statutes. The construction of those statutes is a pure question of law. And the hearing examiner is faced with the parties asserting two different conclusions about the scope of the statute. Tracfone is presented an analysis of the language establishing that only network Karirs provide access to telephone networks within the meaning of the statutes. While the city has asserted that the sale of prepaid wireless airtime by itself qualifies as providing network service, telephone service, regardless of whether the seller of the prepaid airtime is a network Karir. Scott Edwards And like I just mentioned, the city has not provided any argument explaining how the statutory language supports that conclusion, but even if they had, the resulting in ambiguity would be required to be resolved in Tracfone's favor. Nevertheless, assuming for the sake of argument and to present the argument with respect to the second issue, so if we assume that the hearing examiner agreed with Renton's contention, that the sale of prepaid wireless airtime qualifies as providing network telephone service under the statute then as a matter of law, the assessment overstates the measure of tax by more than 80%. In short, if the sale of prepaid wireless airtime is providing network telephone service then Tracfone's income from wholesale sales of prepaid wireless airtime are charges for network telephone service purchased for the purpose of resale and the statute explicitly prohibits cities from measuring utility tax on charges for network telephone- PART 2 OF 6 ENDS [01:10:04] Scott Edwards Utility tax on charges for network telephone service purchased for the purpose of resale. I'm going to kind of use Mr. Malone's purchase of a 60 minute basic airtime card from Fred Buyer, kind of as a illustration of the principles involved here and hopefully to create some clarity from the briefing. It is undisputed that... Oh, I guess maybe start off with the city is presented copy of the receipts that Mr. Malone received when he made that purchase of prepaid wireless airtime from Fred Meyer. The selling price was $19 and 99 cents. It's undisputed that TracFone, or excuse me, that Fred Meyer paid TracFone less than 19.99 for that airtime. And for illustrative purposes, I'm just going to arbitrarily refer to that wholesale sales price has being $17. What it actually is isn't critical, but I think it's helpful to put a number on it, to help walk through the facts and underSand what the party's respective arguments are. Scott Edwards It is unclear to TracFone whether when computing it's assessment against TracFone, TRS considered TracFone's income to be $17. The wholesale price that TracFone sold the airtime to Fred Meyer for, or whether TRS treated the TracFone's income as being $19 and 99 cents, the retail price that Fred Meyer sold the airtime to Mr. Malone for. If it's the latter, the 19.99 retail sales price, that's simply not TracFone's income at all. It's Fred Meyer's income. And so no part of the 19.99 retail selling price can be the measure of TracFone's tax liability, because it's simply not TracFone's income. It's Fred Meyer's income. And if it's the former, the $17 wholesale price that Fred Meyer paid TracFone when Fred Meyer purchased the airtime for the purpose of resale, then no part of that $17 can be the measure of TracFone's liability, because the $17 is a charge for network telephone service purchased for the purpose of resale. Scott Edwards The city is attempting to, and maybe let me briefly go back now to the bottom part of my visual aid that is labeled measure of tax under 35 A 82 0 6 0. Limits the measure of tax to the portion of network telephone service that represents quote gross revenue derived from interstate toll telephone service, and specifically prohibits measuring tax by the portion that represents quote charges for network telephone service that is purchased for the purpose of resale. Scott Edwards And so the city is in kind of a catch 22 here. On the one hand, they've made the allegation that TracFone's wholesale sales to Fred Meyer are not sales of network telephone service. Well, if it's not, then it simply can't be taxed because that's the starting point for the measure of tax. And if it is a wholesale sale of network telephone service, it still cannot be taxed, because it's a sale of network telephone service that is purchased for the purpose of resale. Scott Edwards And then I want to talk more specifically about those two arguments. With respect to the first argument that the sale to Fred Meyer is not a sale of network telephone service, the city posits that instead of being a sale of network telephone service, it is simply a sale of a piece of plastic. Well, income from selling a piece of plastic isn't subject to utility tax anymore than income from the sale of a handset is, and they're... Not withSanding the throwaway statement in the city's own motion that all of TracFone's gross income is subject to utility tax, that simply isn't true. Scott Edwards It's only gross income. That portion of gross income from network telephone service that is derived from intrastate toll telephone service. So you've got to first carve down total income to income from network telephone service. Sales of handsets and sales of pieces of plastic, catchable personal property, fall within a completely different statutory definition. That is a statutory definition of competitive telephone service, and competitive telephone service is simply not subject to utility tax. That is the reason why although there's a lot of talk about the fact that TracFone sells handsets both at wholesale and retail, no part of the assessment on TracFone's income from handsets. The only thing that can be taxed is income from network telephone service, and only a portion of that. So if the sale to Fred Meyer is a sale of a piece of plastic, it's not income from network telephone service. It's not taxable. Scott Edwards If it is a sale of network telephone service, Fred Meyer is reselling that and therefore it falls within this specific limitation prohibiting measuring the tax by the portion of income from network telephone service that is the charge for sales purchased for the purpose of resale. And with respect to that second piece, the city makes a somewhat different argument and to deny that TracFone is actually making any type of sale to Fred Meyer at all and essentially asserting that when Mr. Malone walked into Fred Meyer and purchased airtime from Fred Meyer, he was actually instead making a purchase from TracFone. And that simply is inconsistent with Washington's tax statutes and it's inconsistent with the receipts that were provided by Fred Meyer to Mr. Malone. In our, I guess, I think it's probably our response to the city's motion as I think about it, we discuss at some length the statutory framework of both sales tax and E-911 tax as it applies to sales of airtime, and both sales tax is applied to retail sales of airtime, E-911 tax is applied to retail sales of airtime and neither is applied to wholesale sales of airtime. Scott Edwards Mr. Dylan's declaration asserts and there is no contrary evidence, so it is undisputed, that TracFone does not collect either the E-911 or sales tax on its wholesale sales of airtime. So that is reflective of the fact that what TracFone is selling is a wholesale sale, not a retail tale. Mr. Dylan's declaration also undisputably asserts that it's wholesale sales are accounted for as sales of airtime. And then I think the key aspect is when we talk about the statutes, they both specifically apply to sales of airtime and when we then now look, and I'm going to change the document that I am sharing to be a copy of our opposition brief that depicts the receipts. Is that now showing on everybody scr- Phil Olbrechts Yeah. That's good. Scott Edwards Okay. So, and hopefully it's blown up large enough for people to be able to see. Phil Olbrechts Yes. Scott Edwards Okay. So when Mr. Malone walked into Fred Meyer, he purchased active airtime from Fred Meyer. That's reflected in the activation status receipt that he received. The airtime card that he purchased is identified up here as an airtime card ending with the number 9 7 0 7. If you look at the bigger receipt on the left- hand side, you'll see that same airtime card number ending in 9 7 0 7, and the retail selling price of $19 and 99 cents. Scott Edwards And there's a T off to the side, reflecting that it's subject to sales. Tax right below that you'll see a 95 cent charge for the E-911 tax. It appears that he also bought some white grapes at the same time for $3 and 19 cents. Sales of food at grocery stores is exempt from sales tax and the F here is reflecting the sales tax exempt nature of the purchase of the grapes and [inaudible 01:21:21] you have $2 of sales tax on the 19.99 cent charge for the wireless airtime. This receipt demonstrates consistent with the state statutes that we walked through in the briefs that Fred Meyer is the retail seller of prepaid wireless telecommunication services under both Washington's sales tax statutes, and Washington's E-911 tax statutes. The city is asking the hearing examiner, if it concludes that the sale of prepaid wireless airtime by a person who is not a Karir is qualifies as network telephone service subject to city utility tax, that it is nevertheless Fred Meyer is not making a retail sale of wireless airtime. Scott Edwards That's simply completely inconsistent with the sales tax statutes, with the E-911 statutes, with the receipts that Fred Meyer issued to Mr. Malone, with TracFone's own financial accounting records, which treat it as a sale of airtime. So as a matter of law, the amounts that are paid by TracFone's wholesale customers are simply not a permissible measure of city utility tax in the event that TracFone is determined to be subject to city utility tax, and that subject to turns on the resolution of a question of law. But if that question of law is resolved in the city's favor, the question of measure also starts as a question of law. And these amounts, whether you determine that TracFone is selling a piece of plastic or selling an airtime card, it's income from its wholesale customers, in either event, is not a proper measure of the tax. Thank you. Phil Olbrechts Okay. Just got some quick questions before we go to Ms. Sand. It seems like that the facts for the most part are pretty straight forward and the parties aren't debating them except on one key issue and that's when the point of activation occurs. I think the city is claiming the activation occurs after the purchase because the purchaser has to log on to TracFone's website to register their use and only at that point can they use the service, and TracFone is arguing that no it happens at the latest at the time of purchase when it's being registered. So I'm just curious, I mean, does TracFone disagree that online registration is required before the service can be used? Scott Edwards When you talk about the service and use and activation, I think the problem is that the city has read a sentence or two in a state case involving E-911 tax and has read a sentence or two on the back of the airtime card and in the TNCs, and has simply misunderstood what they're reading and conflating and confusing two different things that both use the term activation. Scott Edwards And that's the distinction between the activation of a handset, which is what TracFone would describe as activation of the quote, unquote, the service meaning that when you buy a handset, until the handset has been activated, meaning assigned a telephone number, it can not be used, but once the handset has been activated and assigned a telephone number, the handset is capable of being used. So that is the activation that is being discussed that the city appears to have misinterpreted and misunderstood as referring to activation of airtime. As Mr. Dylan explained in his deposition and as he testified in the Missouri City of Springfield case, the physical airtime cards that TracFone... That embody the airtime, come in basically two different flavors. One flavor is a card that is active at the time that it is shipped by TracFone. And the other flavor of airtime card is one that is referred to as a post point of sale activation card. Scott Edwards And those cards are inactive at the time of shipment. And quite frankly, the purpose of that is an antitheft deterrent device. The sale of a or the theft of an inactive airtime card is does not result in any loss because the card can't be used until the card is activated. And so it protects against loss between point of shipment and point of sale. But the point of sale, our POSA cards, are activated at the cash register at the time of sale, or actually immediately prior to the retail sale to the consumer. And that is what's reflected in that activation receipt that Fred Meyer activated the card at the register immediately prior to selling it to Mr. Malone. So the, yeah, that is what the undisputed facts in the record show. And I think that... I guess with... I'm going to stop there. Did that answer your question with respect to activation specifically? Phil Olbrechts Let me make sure I'm following you. So you were saying the online registration isn't necessary to activate... It's to essentially enable you to use your phone, to use that air time, but the air time has already been activated at that point, it's just kind of coupling that airtime with your device. Is that what the purpose of the registration is? Scott Edwards Well, when you say registration, I don't know what you're talking about. That's not, yeah, the- Phil Olbrechts Okay. Yeah. Murphy Wallace, in their briefing was... Or Ms. Sand was arguing that you can't use your airtime until you log on to TracFone's website and sign up or register. I don't know what to call it, but they said it wouldn't work until they had logged into your site, which was after- Scott Edwards You know, quite frankly, I'm confused as to what they are claiming and, and what they think the legal significance of what they are claiming are. So, you know, I don't know that I can, you know, what I'm able to do is to describe for you the facts that I know. I recognize that there is confusion that can be created by the fact that the term activation is used in two different contexts and I don't think there's any question that the specific items where the city has cited to something making reference to activation that what is being referred to is activation of a handset, which is a one-time event. It's the event that essentially assigns the telephone number that that handset is going to use. Scott Edwards That is something completely different from activation of an airtime card, and all airtime cards, including the card that Mr. Malone purchased, are active at the time that the consumer makes the retail purchase of the airtime card. They were either active from the time they were shipped from TracFone, or they were activated at the cash register by the retail seller immediately prior to the retail sale. But all sales of airtime are sales of active airtime. Phil Olbrechts Okay. Okay. Thanks. Now on to the issue of whether or not TracFone qualifies as a telecommunications company, your argument in your briefing was that TracFone doesn't manage, operate, own any facilities, but you look at the definition of facility in the statutes and it includes apparatus and devices. I've looked up the Webster definition of device and that it actually included smartphones. So I'm wondering doesn't then since TracFone does at some point in it's business model own these... I mean it's more of the, it's aircards and it's also, isn't it, what do they call it, burner phones or something? Is that part of what TracFone manages or not? Scott Edwards Yeah, I'm not sure that I know what you would mean by burner phones, but with respect to, I want to answer your question in two parts. If we go back to, because this has to do with the question of whether TracFone falls within the statutory definition of a telecommunications company under RCW 80 04 010. And hopefully I have reshared my screen with the statutory excerpts and you'll note the word facilities is... The statute doesn't stop there. It's only, you have to own operate or manage facilities used to provide telecommunications and telecommunications is its own definition and it's the transmission of information. So by these various means. Scott Edwards You have to use facilities that are used to provide transmission. The handsets at the time that a consumer makes a phone call, is not owned, operated, or managed by TracFone. It's been purchased, it's owned, being operated by the retail consumer who's placing the call. There is no evidence or even argument that TracFone owns, operates or manages any facilities that transmit information. The reference here is network facilities. The fact that TracFone made a wholesale sale or a retail sale of a handset in the past is not the same thing as owning, operating or managing facilities used to provide transmission. Phil Olbrechts What about the Ms. Sands argument that TracFone, through its terms of use, can shut off service if it doesn't follow the agreement. Would that qualify as managing the device? Scott Edwards I don't know what the mechanics are behind what is being described as the ability to shut anything off, or even how that actually happens. I suspect that the way that TracFone would shut anything down would be to send a message to the Karir, asking the Karir to not allow that phone to work on the Karirs network anymore and say, this is... I think there's a substantial problem here with the way both the audit was conducted, and the way this appeal has been conducted. The city acquiesced to TRS's a request to conduct an audit of TracFone after TRS identified TracFone as a potential target for it's contingent fee audit services by discovering something about TracFone on the internet. TRS then spent five years conducting its audit of TracFone, never made any effort to figure out how TracFone conducts its business activities, what its business activities are, what its revenue relates to, how it earns its income. Scott Edwards It simply came to the conclusion as essentially like the city, your marketing materials describe you as a provider of telecommunication services. Therefore, you must be a telephone company within the meaning of these statutes. Therefore, you must necessarily be subject to the tax. So all we care about is getting information about your revenue, and all of the questions from TRS throughout the entire time period were questions about revenue. TracFone repeatedly asked TRS to meet with it to be able discuss how it operates, how those activities relate to the statute. TRS repeatedly refused to meet with us, repeatedly asked the city and obtained permission from the city to agree to refuse to meet with us, and then issued an assessment that makes no reference to the statutes, that makes no argument about why TracFone is subject to tax. We had filed a request for a correction of the assessment. We met with the city. Scott Edwards They issued a statement that plea as a conclusory matter, asserts that the assessment is correct. We filed an appeal. By this point in time, things had been going on for well over five years. There was never any explanation from TRS to TracFone about their theory as to why the company was subject to tax. The closest that we could get was a document that TRS prepared called a methodology that described the method by which the tax amount asserted to be due was computed. But throughout that methodology, TRS described the tax as a utility users tax, emphasized and italicized the notion that the incident of tax was on the consumer's use of telephone service, and subsequently after learning indirectly outside of this audit in a manner where the city's auditor has refused to acknowledge how they learned it, other than to claim that they learned it from me, despite admitting that nobody from TRS had spoken to me for more than 10 years before I deposed their principals, that they corrected that error by simply omitting the references to use, not explaining at all what the theory of assessment is. Scott Edwards And now, after the fact, the city is scrambling to create a theory of assessment to retroactively justify the actions of its contract auditor that the city had previously allegedly reviewed, found to be sufficient to support the conclusion, had thought about it a second time and reaffirmed that conclusion, and now they want to ignore everything that happened before we filed our appeal and create a post-hoc justification that is simply a matter of pulling individual words out of statutes or documents and saying, "We're going to make the conclusion that these words support our desired end result." It's simply not a substitute for a meaningful analysis of what the statutes say, and then applying those principles to the underlying facts. And I apologize, I think I may have gone off on a little bit of a diatribe there. Phil Olbrechts That's fine. Understood, understood. Final couple questions. Central theme of the city's briefing was that these statutes, the utility tax statutes need to be broadly construed in order to ensure that no telephone business has a competitive advantage over another, by being able to avoid the utility tax by the way they structure their business model. And I know in your briefing, you had mentioned that that's based on legislative history, that's out of date at this point. I mean, do you disagree that, that the objective or one of the purposes of these statutes is to construe them in a manner that treats people engaged in the telephone business equally in terms of how they're assessed by the tax? Scott Edwards I don't agree with that at all. And, and I think that it conflates a number of different things. I'm going to start with a punchline and then move backwards. With respect to principles of statutory construction, the Washington Supreme Court has explicitly found that the principal construing any ambiguity in RCW 82 35 A 060 is to be construed against the taxing authority and in favor of the taxpayer. Backing up the the context of the statutory or the legislative history cited by the city to make their point has nothing whatsoever to do with the legislature's grant of city utility taxing authority to cities. It deals entirely and exclusively with the interplay between state utility tax and state sales tax, with respect to the telephone industry at a time that the telephone industry was going through a massive fundamental change. And that is in the early 1980s and we talk about this in our briefs. AT&T was the monopoly long distance telephone company, and at the local level there were only regulated local telephone companies. Scott Edwards After the AT&T monopoly was broken up and the industry ended up completely reshuffling, you had, this dichotomy of regulation that segregated between the state Washington Utilities and Transportation Commission, which imposed state utility tax on local telephone activity, and the Federal Communications Commission that regulated including price controls on interstate telephone calls, and a very complex set of regulations relating to the requirements for all these Karirs to be able to transmit their traffic across each other's networks and what they were and weren't allowed to charge for, and how much. Scott Edwards An element of that... Stopping imposing state utility tax on the telephone business and imposing state sales tax on the telephone business. And there were a variety of different telecommunication-specific definitions that came into play. But in the intervening decades since that, there have been a very significant number of statutory amendments to both The sales tax and the E-911 tax and even the imposition taxes and these definitions. So I think it is absolutely impossible to impute to a 1981 statement of legislative intent a overarching concept.... PART 3 OF 6 ENDS [01:45:04] Scott Edwards Yeah, a overarching concept that applies not to the taxes that were being discussed there, but to a grant of city utility tax authority. Scott Edwards The issue here is if the city is claiming ultimately that it's unfair if this were construed in a way to not allow them to impose the tax, because then something would be avoiding the tax. One of the things that they miss there is there's a provision that says anything that can't be taxed under 8235A 060 as utility tax can be subjected to B&O tax. So it's not really a matter of anything being not taxed at all. It'd be subject to a different tax, albeit a significantly lower tax rate, because the city B&O taxes are controlled by an entirely different statutory scheme that control maximum tax rates, classifications and a variety of other things. But ultimately the city's solution here, if they feel that the legislature has not granted them the authority that they'd like to have, is to go to the legislature and get the law changed. Scott Edwards If things are so much different than they used to be, that it's important to be able to tax businesses that are not network Karirs as utility companies, something well beyond the traditional understanding of utility company, the solution is not to ignore the language of the statute and rely on a legislative history. And quite frankly, their use of legislative history is putting the cart before the horse. You have to come up with an alternative construction that creates an ambiguity before you can even look at legislative history. If there's only one interpretation, and our position is at this point, there is only one interpretation, because only one interpretation of the statute has been presented. A claim for a different outcome is not an alternative interpretation. So not only is legislative history not appropriate, the legislative history they site doesn't support the conclusion that they're looking for. And ultimately the state Supreme Court has said, if there's ambiguity in this particular statute it gets resolved by construing it against the taxing authority and in favor of the taxpayer. Phil Olbrechts Well, I was kind of wondering, I mean, the city position could be, it seems construed in your favor, sort of from the bird's eye view perspective of the equal footing objective. It seems you are being subject to a double tax under the city's interpretation, because under their position, you pay the utility tax when you sell to Fred Meyer and then Fred Meyer on top of that charges the retail sales tax. So there's a double tax there. I mean, it sounds like if you sign up for Verizon wireless on the internet or something that's just subject to utility tax, isn't it? Or, I might not underSand the regulatory framework there. Scott Edwards I think you're understanding the regulatory framework. I think you've conflated two different things. There's difference between whether we are subject to tax, whether the sale of prepaid wireless by someone who is not a network Karir qualifies as selling network telephone service. But that doesn't mean that the tax gets measured by our sales to Fred Meyer. That's the second issue that we're discussing here. But the double taxation that would result from the position that they're taking, I think is reflective of the incorrectness of their position. Because, our sale to Fred Meyer is a... If it's a sale of network telephone service, it is clearly a sale of network telephone service that is purchased for the purpose of resale and is expressly prohibited from the measure of tax under 35A82 060. Scott Edwards The only way they get to asserting that our sale to Fred Meyer is part of the measure is to either say, when you're selling to Fred Meyer, you're selling something that's not network telephone service. That takes it out of the measure itself. Or to say, you're not actually selling anything at all to Fred Meyer, you're selling directly to Mr. Malone, and it's a fig leaf that Fred Meyer is a seller, and that part is just flatly contrary to law. So your questions are also reflecting, kind of go back to... The problem is we're just seeing these arguments for the first time in the city's motion for summary judgment, there are arguments that the city is creating after the fact, not based on any of the work done by TRS, but based on their effort to support the conclusions that TRS came to. Scott Edwards That when we deposed the TRS principles and asked them to explain how it is that they understood TracFone to be engaged in providing access to telephone network, we were basically told we were not capable of doing that. That's like trying to explain why we know that water's wet. We just know it. Scott Edwards And the statement that it was going to be up to Ms. Sand to explain why the assessment that they spent four years creating and then asking the city to wait for a decision of another court. And after that court makes a conclusion that is contrary to what they've done they say, "Well, ignore that. Their law is different." And the irony there is when you read that opinion, the resolution of finding the TracFone was subject to the tax, but it could not be measured by its wholesale sales, the exact same outcome of our second argument here. The court based that conclusion on the evidence received in a two day hearing that specifically dealt with the factual question. Are TracFone's sales actually wholesale sales, or are they instead consignment sales where TracFone is the retail seller, not the retailer? Scott Edwards And the court concluded, as a matter of fact, after a two day hearing, that they were true retail sales, and the court of appeals affirmed that. If you were to get deep enough in the legal analysis to reach that point, you certainly could not rule in the city's favor on a matter of summary judgment, because there would be a genuine issue of material fact at a minimum, but our view is the only actual evidence of the wholesale nature of the sales is the evidence submitted by TracFone. All you have on the city's side is a legal interpretation by their purported expert of what he thinks a handful of contracts mean and how he would interpret resale certificates. Neither of which are anything that he's given any indication he has any experience doing. And so we don't think that it is even enough to create an issue of fact. The city's contention is simply factually unsupported. Phil Olbrechts Thank you, Mr. Edwards, really appreciate your comments. Mrs. Sand, you ready to go, or do you need a break before you jumped into it? Kari Sand Well, I'm ready to go, but I wanted to have a time check. It is 11:00 and I am hoping I'm given approximately equal time as what Mr. Edwards was given. Phil Olbrechts Of course. Kari Sand I'm ready to launch and talk about confused and conflate. I'm ready to set the record straight. So, I also want to answer some of your questions and give clear, concise answers in contrast to what you just heard. So for example, one of your questions was processed with your commentary, that the facts seem pretty straightforward, except for at what point does activation, redemption, whatever technical term is given, whatever you want to call it. And it is post-sale, and that's what the evidence clearly shows. That post- sale, there's another step involved by the end user customer and that's clearly shown again on the back of the basic airtime card. Kari Sand It says, and this is exhibit three to Nate Malone's declaration in support of the city's partial motion for summary judgment. To activate your service, go to tracfone.com or call the 1-800 number listed. Going on to your next question about the definition of a telecommunications company and the definition of the term facilities, which is in RCW 80.04.010613, and is very broad to include to your point devices, which absolutely can mean a smartphone. Kari Sand They are often referred to as burner phones in common parlance, but the handheld device is in fact a facility. And most importantly, to that point, the 2010 Washington Supreme Court case in TracFone Wireless Inc versus Department of Revenue, 170 Washington, second, 273, that case squarely holds that TracFone is in fact a telecommunications company. And in our briefing, we talk about all the applicable definitions. In 80.04, you'll see in subsection 28 is the definition of a telecommunications company, and subsection 27, it refers to telecommunications as a transmission of information by among other things, radio or similar means. And TracFone is in fact a commercial radio service provider, reseller. Kari Sand They resell the network Karir's service, and so they are in fact, a telecommunications company as that 2010 Washington State Supreme Court case still held. Also, managing the device by shutting off service is another indicia of the fact that they are a telecommunications company, and they do have that power. However, technically they do it. You didn't ask about the mechanics of it. The mechanics of it are irrelevant by the terms and conditions between TracFone and its end-users, TracFone absolutely has that power and ability to terminate the service and manage the device to do so. Kari Sand Another question that you asked was about what seems like perhaps the double taxation of utility tax imposition as well, sales tax, there are two different tax schemes at issue here, and both of which are legitimate and valid. And so it's true that while TracFone as a telephone business, we submit is subject to telephone utility tax. We would submit that Fred Meyer as a retailer is also subject to sales tax. Kari Sand So those are different taxing scenes, and they can be taxed legitimately under the controlling statutes and controlling law. And I just want to give a counter punchline to the punchline given by Mr. Edwards, and that is taxation as the rule and exemption is the exception, and the burden is on the taxpayer to show a clear exemption applies, and there is no clear exemption here for TracFone. So I want to now back up having responded to your questions. And again, feel free at any point to interrupt and ask me a clarifying question, but I want to get back to the two primary tax liability questions that the city's motion for partial summary judgment centers on. First, that TracFone is liable for telephone utility tax as a telephone business, and I'd also like to ask Mr. Edwards to stop sharing his screen. Scott Edwards Oh, I'm sorry. I did not realize that I was still doing that. I apologize. Phil Olbrechts Ms. Sand, I guess to clarify where we are. We're going over TracFone's motion for summary judgment right now, and you're responding to it. But if you want to include your motion too, so then we do this all at once, that's fine. It seems that's probably more efficient. So I wasn't sure ... Because, you mentioned you started addressing your summary judgment motion. So are you essentially arguing your motion at the same time you're responding to theirs at this point, is that correct? Kari Sand Well, in the interest of efficiency, I was going to propose to do that, if that works for you. Phil Olbrechts Mr. Edwards, do you have any problem with that? You're muted. Scott Edwards I don't have any problem with that, but as the plaintiff with the burden of proof, I want to make sure that I get the last word. Phil Olbrechts Oh yeah, you'll get a reply. Yeah. Scott Edwards Okay. Phil Olbrechts All right, go ahead Ms. Sand. Kari Sand Thank you. So responding to TracFone's motion, I will note that based on your earlier ruling requiring the city NTRs to produce exhibit 63 emails and attachments there too, and the various iterations of the schedules, that it would be wholly inappropriate to grant them summary judgment with regard to the correctness of the assessment. Especially given that that information remains outSanding and we will be following up with our duty to supplement. But I just wanted to note that as kind of a technical point. And before launching into the merits of the city's motion for partial summary judgment, I want to address some foundational and disputed facts and legal principles. There is no dispute that the city assessed tax penalties and interest against TracFone for the audit period, January 1st, 2007, through May 31st, 2013. And that the city's final determination issued by the city of Renton administrative services department was dated October 17th, 2019. Kari Sand I brought that up earlier in my opposition to TracFone's motion to exclude certain exhibits because that sequencing is important. Mr. Malone, the city's tax and license program manager did in fact rely on the contracts between TracFone and Karirs and between TracFone and it's retailed distributors. And rendered his opinion about that to the Administrative Services administrator at the time, Jan Hahn. And she relied on that opinion. So they were in fact documents that were relied on by the city. There are material factual disputes regarding the correct amount of tax penalty and interest due that can only be resolved at a hearing to ascertain these amounts. That's why the city's motion is for partial summary judgment and only focuses on the two legal liabilities related to taxation, pursuant to Renton Municipal Code 5-26-18B5, I think we all agree. Kari Sand The appellant taxpayer has the burden of proving by preponderance of the evidence that the determination of the department is erroneous, and that placing of the burden on the taxpayer is well- established and consistent with state and national authorities. So with that as a foundation, I want to now center you, Mr. Examiner, on the two issues again, pertaining to TracFone's tax liability. So the first put simply is, is TracFone, in fact, subject to telephone utility tax as a telephone business. And of course, as you know, the city's position is that yes it is, because they provide rent and customers with network telephone service, and without TracFone, those customers have no ability to place and receive calls or data or texts, or basically their phones are useless. They're no more helpful than a doorstop or a paperweight. That's what we argued in our brief. Kari Sand And then the second issue, if you agree with the city that in fact TracFone is a telephone business, is whether their gross income from their retail distributors, which as Tracfone acknowledges, is the large bulk of their revenue stream. It's 80% of their revenue stream. Whether that's taxable. And of course the city submits that it is taxable and that no resale exemption applies. And I will explain the reasons for the city's position in that regarding, and that reasonable minds could not dispute that the evidence supports a legal conclusion that no resale exemption applies. As to the first issue, Renton submits that reasonable minds can not disagree that TracFone Wireless is in fact, a telephone business, as that term is defined in the applicable Renton Municipal Code, as well as the revised code of Washington, and many undisputed material facts support this. Kari Sand For example, TracFone repeatedly admits that it's a reseller of pre-paid wireless service. And some of these are just, again, common sense, which is why Ms. [Chris 02:03:58] said, it's hard to, you know, continually be forced to explain why TracFone is a telephone business, when it seems so obvious, like trying to explain why water is wet. And so TracFone Wireless obviously has phone and wireless in its name, all their marketing materials and advertising materials demonstrates that it's a wireless service provider, all their terms and conditions with their end user customers support this. And TracFone does control, as I stated in response to your question about what constitutes a device and managing a device, the device is the handset among other things. But TracFone controls customer access to local network telephone service, and they can terminate that at any time for any reason at their discretion. And that is so noted in the terms and conditions that bind TracFone and its customers. And that is very clear. Kari Sand So looking also at the contracts between TracFone and the major Karirs such as Verizon, T-Mobile, et cetera, these show that TracFone buys releases airtime from the major Karirs and resells it at retail. And TracFone makes a really technical argument that, technically it's the network Karirs that provide the wireless service, not TracFone, but consistent with the statutory definitions TracFone provides access to the local network telephone service. And it's the key access piece that is applicable here and shows that they are subject to telephone utility tax. The contracts between TracFone and the retailers such as Fred Meyer, Walmart, 7-Eleven, there's numerous retailers throughout the country and obviously in the city of Renton show that TracFone distributes handset units and airtime card units. These are the products and equipment through numerous retailers, including retailers in Renton. Kari Sand And if you look at the TracFone Wireless versus Department of Revenue case, decided in 2010 by the Washington State Supreme Court, that case is so important. We filed it as appendix C to our motion for partial summary judgment. And admittedly, it is highlighted probably more in yellow than non highlighted because it is such an important case. It is so instructive, helpful and controlling. And many of the same arguments that TracFone made and efforts to avoid imposition of E911 tax are similar arguments they're making to avoid imposition of telephone utility tax. And these arguments are making as to telephone utility tax are equally not compelling. Kari Sand So I would encourage you to spend time reading that case and carefully seeing how it is so helpful, instructive, and really does demonstrate that TracFone, based on their choice of business model, should not somehow avoid rightfully imposed tax. So whether prepaid or not, it doesn't matter whether they're a reseller or a Karir. These are distinctions that don't exist in the law. TracFone highlights them, because they want you to see it as making a difference. But cell phone service is what is involved in this case. That is actually a quote from the TracFone, Department of Revenue case decided in 2010, the telephone utility tax provisions in the Renton Municipal Code chapter 5-11 are consistent with the authorizing statutes, 35A82 060, which Mr. Edwards was sharing on his screen, as well as the definitions that that authorizing statute refers to in 8216 010 sub 7B ii & iii. Kari Sand So to avoid taxation, TracFone repeatedly cites without citation to legal authority that only network Karirs are labeled for telephone utility tax. If the controlling statutes are clear, make no such distinction, they're broader and they do not support this claimed exemption. And remember the punchline I mentioned, taxation is the rule, exemption is the exception. There is no clear exemption applicable for TracFone for being a non Karir and instead a reseller. So nowhere does the statute apply narrowly to network Karirs only. That's a strained legal arguments that TracFone is making to avoid taxation. Kari Sand The statute applies to all telephone businesses that provide network telephone service, including access to network telephone service, such as TracFone. Not surprisingly, TracFone is asking the examiner to rely on a non-controlling case from Springfield, Missouri, and mostly just disregards the analogous Washington State Supreme Court decision that by no coincidence involve TracFone wireless, it also asks the examiner to disregard certain post audit evidence. And we've already ruled on that, but we've already talked about why that evidence is the best evidence. Because, it is from TracFone on materials that were produced, not specifically for purposes of this tax challenge, but in their normal course of business. And so I believe they are the best evidence to show the normal way in which TracFone presents itself to the public for engaging in business. Kari Sand TracFone is a telephone business based on not only the applicable statutory definitions, but also on common sense. We must not leave common sense at the doorstep here. So the applicable Renton Municipal Code provision is 5-11-1 sub A2. And that defines a telephone business and 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 arch transmission for hire. That's exactly what TracFone does. And in addition, the RMC defines cellular telephone service. And that definition squarely describes the type of service that TracFone provides to a voice and data telephone telecommunications system, based and whole or substantially in part on wireless radio communications. This includes cellular mobile service. The definition of cellular mobile and service includes other wireless radio communications, such as specialized mobile radio, personal communication service, and any other evolving radio communications technology which accomplishes a purpose similar to cellular mobile service. Kari Sand So again, the city is simply trying to apply its plain definitions as written to TracFone, consistent with how they apply them to all other providers of telephone network telephone service. It is very important to have an equal playing field and an equal system of taxation. And the city is trying to do this. TracFone, meanwhile is trying to gain a 6% competitive advantage for itself. So I started with the Renton Municipal Code, because obviously that's the taxing authority here. But, I want to note that the city's taxing authorizing statute is absolutely consistent with the state authorizing statute in RCW35A 82060. I know we've already talked at length about that, but I think it bears repeating that the authorizing language is clear and plain. And because of that, it's not ambiguous, it doesn't require interpretation. We provided some legislative history for you just to, again, demonstrate that all taxpayers should be treated equally. Kari Sand And the point of the legislature was to provide a competitive level playing field for all the different telecommunications providers, but we really didn't need to rely on legislative history for purposes of applying this authorizing statute. It is clear on its face. And even though, as the secondary legal issue, which is no less important, but TracFone argues that the proviso for charges, for network telephone service that is purchased for the purpose of resale appliance, of course, as you know, the city's position is that it does not. And so I will get into that. But before leaving this authorizing statute, I also wanted to note that it's a red herring, the issues and argument given by TracFone regarding the quest versus Bellevue 2007 case, that deals with the proviso related to charges for interstate services. The TRS audit did not include any interstate revenue in the assessment, and so we really don't need to spend time focused on that because that was not included in the TRS assessment. And there's no dispute about that. Kari Sand TracFone does in support of its argument that only network Karirs are subject to this tax, tries to rely heavily on the proviso that references charges to another telecommunications company. Again, in our briefing, we point out that TracFone has already been found to be a telecommunications company. They are subject to FCC regulation. They make, again another fine point distinction that they're not licensed as a Karir. We didn't say we were licensed as a Karir, but they are in fact regulated by the FCC as a telecommunications company. The taxable incident is the privilege of conducting a telephone business within the city of Renton, and as TracFone admits, and it's plainly obvious, its entire business model is premised on providing its customers with access to telephone networks. Kari Sand And they try to argue again, that only network Karirs are subject to the tax, but the legislature has not chosen to make the distinction argued by TracFone. There is no distinction for prepaid wireless resellers like TracFone. And in fact, they are telecommunications company. Their chosen business model does not shield them from tax nor did the applicable statutes. And TracFone's arguments in this regard are also contradicted by their own marketing and advertising materials. Their terms and conditions with their customers and their binding contracts with network Karirs and retail distributors who provide a means of access between TracFone and its end user customers. So like our graphic showed, TracFone sells their service through their website, their toll free number and through retailers because ultimately those end user customers, they don't get their service from Fred Meyer. They don't get it from any of the retailers, they get it from TracFone. Kari Sand So additionally, to support our argument about the authorizing RCW being so clear, it's obvious, looking at other state laws, that the legislature has the ability to call out for different tax treatment sellers of prepaid wireless or resellers in general when they so choose, when they deem that appropriate to do so. Examples that we gave were RCW 8214B 030, 820406522. Those deal with the E011 and B&O taxes respectively. Obviously those are not an issue here, but as TracFone said, as actually Mr. Edwards said, he said that, "The city can go to the legislature and seek more clear language if it wants." Well, TracFone also can have that same remedy and go to the legislature and seek a more clear exemption, because here there is no clear exemption that applies to TracFone. In fact, they are subject to tax. Kari Sand So the language used by the legislature binds the courts, obviously binds the hearing examiner. And if the plain meaning of the text provides clear guidance to the court, the court is bound to follow that plane meeting as an expression of legislative intent. And for that we cite Department of Ecology versus Campbell and Gwyn, the citation is in our materials, but that was also cited in the question state 2010 case. And about that case, again, it's appendix C to our materials and can't emphasize enough how important that case is in that case, the court raced and dismissed every single one of TracFone's arguments regarding taxation, saying why they were not subject to e-memo in tax. Kari Sand And that was decided in 2010, which is within the audit period. And even though 11 years have passed since then, TracFone has not shown how their business model is in any way materially different today than it was in 2010. Again, the burden is on them to show that. So the bottom line with regard to TracFone being a telephone business, and then I'll move on to the resell exemption, is that TracFone must not be granted a tax loophole. When their business squarely falls within the definition of a telephone business, under the controlling Renton Municipal Code and authorizing RCW statutes, and of course the all- important State Supreme Court case and TracFone V Department of Revenue decided in 2010. So I need a sip of water, and then I'll move on to the resell proviso. Just one second, my throat's getting dry. Phil Olbrechts Good. Certainly. Go ahead. Kari Sand Okay. Thank you for the sip of water. So our next point that we ask to be decided, as a matter of law, because we submit that reasonable minds can not disagree when looking at the best evidence on this point, is that TracFone's gross revenue from its retail distributors is properly included within the tax space, and not exempt under the resale proviso in RCW35A.82.060 (1). So, the reason the city believes that this can be decided as a matter of law is because even though TracFone characterizes the sales to the various retail distributors as wholesale sales, there is again no retail wholesale distinction in the utility tax authorizing statute. In fact, those are terms that... PART 4 OF 6 ENDS [02:20:04] Kari Sand Distinction in the utility tax authorizing statute. In fact, those are terms that come from B&O tax, so there is no such distinction. Gross revenue is the measure of the tax. So, in the hypothetical example that Mr. Edwards discussed about the basic phone card sold for $19.99. If Fred Meyer pays tax on $17 for that, that's $17 of gross revenue to TracFone is subject to 6% telephone utility tax by City of Renton. So, again, we can talk more at hearing, or more before hearing, depending on the decisions that you make about our motion for partial summary judgment and TracFone's motion for summary judgment but the bottom line is that the amount or the correctness of the tax is, in the city's view, a separate issue. And TracFone, of course, tries to emphasize any errors in methodology or any various criticized ones that may have of TRS. And that, we believe, is an effort to take the spotlight off the fact that TracFone is still liable for telephone utility tax. So the correctness of the assessment is distinctly different from the primary issue of their liability for tax. Kari Sand So, I just want to point that out again because we think it's an important distinction. So, TracFone's retailers do not purchase network telephone service at wholesale for the purpose of reselling it like TracFone submits. Rather, the retailers purchase handset and card unit products, and the retailers do not ever own the airtime through agreements with TracFone or network Karirs. In fact, if we just think about, again, common sense should not be left at the doorstep, if we just think about what's going on here. When Nate Malone went to Fred Meyer, and he bought a basic airtime card for $19.99, his declaration, in support of the city's motion for partial summary judgment, explains that he still had to go to TracFone's website, and he still had to sync those minutes or redeem them and connect them with his TracFone branded handset. Kari Sand So, that is the crucial step to look at because that's the step at which Mr. Malone becomes a TracFone customer. It's also the step at which we submit, TracFone is engaging as a telephone business and, therefore, subject to telephone utility tax. So, the end users never become the wireless customers of Fred Meyer, or any other retail distributor, because those retail distributors never actually owned the airtime. It's TracFone selling, albeit it's through the retailers. And again, this is absolutely squarely acknowledged in the statement of facts in the 2010 Washington State Supreme Court, TracFone versus Department of Revenue decision. And again, even though that was decided in 2010, TracFone hasn't shown that anything has changed since then. I apologize. I think I went off screen. I keep having to decline the calls- Phil Olbrechts Yeah, just for a second. Okay, you're back. Kari Sand Sorry about that. So, the retailers they don't ever own the airtime. When an end-user such as Mr. Malone buys a TracFone airtime card from a retailer, no one is claiming that that retailer is a telephone business just as no one would claim that they're a restaurant, just because they sell a restaurant gift card. The customer who purchases the airtime card from the retailer must still contact TracFone to redeem the minutes and place and receive calls. And again, as the Washington State Supreme Court pointed out, and I'm now quoting from that 2010 decision at page 296, footnote 15, 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. Now TracFone I'm sure would say, "Oh no, we don't do that. The network Karirs do that." But it's TracFone through its contracts with the network Karirs that actually does that. In fact, customers of TracFone are not simultaneously customers of Verizon. I just want to make that point clear. Kari Sand If a TracFone end user has a problem with their service, they don't call the retailer. They don't call the underlying Karir. They call TracFone or go to their website or use their app. But TracFone is the ultimate service provider. The footnote 15 goes on to state, as a radio communications service company, again, that's a defined term in RCW 80.04.010, it's at subsection 24, which again, shows that TracFone is a telecommunications company. TracFone is responsible for activation and assignment of radio access lines to subscribers. If there are problems requiring service, TracFone not the retail store provides the service. Again, we should not leave common sense at the doorstep and we should look with the proper focus at the reality of what is happening here. Kari Sand So, based on the case law, the clear terms and conditions between TracFone and its end users, TracFone's contracts with the network Karirs and the retail agents, reasonable minds must agree that TracFone is a telephone business subject to rent and its telephone utility tax and that revenues from its retailers are not exempt because they are not for the purpose of resale because TracFone buys the airtime from the Karir and sells it to the end user through the retailer. The retailer is basically just a pass through. TracFone's reliance on the retail certificates is misplaced. Those pertain to sales and use tax, an entirely different taxing scheme, not utility tax. And also, again, their revenues from retailers is properly attributed to TracFone and included in its tax based because TracFone not the retailers provides the end user customers with the wireless service. And that really is the crux of this case. They're acting as a telephone business and they are the reseller, not the retailer. The retailer is providing access to TracFone for end user customers. Kari Sand So again, talking about Mr Malone's example. When he purchased that TracFone branded handset and airtime card from Fred Meyer in Renton, that device, that handset, it was worthless for placing or receiving calls, texts, 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 Karirs, from which it purchases airtime for resell. It already has created somewhat of a competitive advantage for itself. This is how resellers are able to be competitive. They don't have to build up the network. They basically piggyback on the networks of the major Karirs and they don't have to own a leads retail stores because they essentially piggyback on the retailers and that's their business model. Kari Sand Their business model works great for them, and it does not exempt them from telephone utility tax. So, I just want to say that another piece of evidence that you should look at that, well, actually, it's other precedent that you should look at Mr. Examiner, that is the Shrink Wrap cases. We cited to those in our opposition brief because those Shrink Wrap cases show that when it favors TracFone, they will, of course enforce the plain terms and conditions between them and their end user customers. We cited two Federal district court cases, one out of California, one out of Florida, and both basically support the city's in position of tax. The court case in Florida decided again in 2010, says, the outside retail packaging of TracFone's phones contains 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 form. Kari Sand And the language provides that in part by purchasing or opening this package, you are agreeing to these terms and conditions of service in the enclosed user guide. So an enforceable contract exists, and we believe that it directly contradicts what TracFone is saying, because if you listen to their argument and you try to follow what they're saying, they're saying that they sell airtime at wholesale to the retailers who then turn around and sell it to the end user. But again, that is contradicted because at what point does the end user then switch and become TracFone's customer? There is no switch from being the retailer's customer because they never acquire the airtime service from the retailers. The retail never owns that service. They don't have the agreements with the underlying network Karirs like TracFone has so TracFone is the reseller at retail and they do it both directly and indirectly through retail distributors. Kari Sand And in conclusion, again, looking at the best evidence here, reasonable minds can not disagree that TracFone is a telephone business and of course, the city also submits to the best evidence shows reasonable minds can not disagree that it is TracFone who's selling at retail, not the retailers who are actually providing wireless service. It's TracFone that the customer needs to call if they have any issues at all with their wireless service. The agreements clearly demonstrate that. So, with regard to the separate issue of the correctness of the assessment as to the amount of tax penalty and interest, the proper remedy is to make sure that those amounts are corrected. Kari Sand The city is already aware of two... Sorry. Now I'm getting a low battery notice. The city is already aware of two issues needing correction. One related to the amount of interest and the other related to the ratio used for purposes of estimating TracFone's revenues from their retail distributors. And so again, happy to deal with those because we do strive to have that assessment be correct. And so, we will be following up with regard to that, but we ask that you decide Mr. Examiner, that as a matter of law, TracFone is a telephone business and that its revenues from retailers are not exempt under the so-called resell proviso. Thank you. Phil Olbrechts Okay. One of the issues I'm wondering about is whether really arguing exemptions here, as opposed to whether the statute applies in the first place, whether following Mr. Edwards argument that it's ambiguous and therefore has to be construed in the taxpayer's favor. I mean, it sounds like the primary basis, you find them subject to the taxes, they regulate access to the telephone network and they're also own and managed facilities. Couldn't that argument also be applied to Fred Meyer? I mean, at the cash register, they regulate at least one of the steps for access. They own the burner phones. And so, it seems under the city's broad based definition of what companies with cell phone based businesses are subject to the tax, that they could qualify arguably. So what's, what's the difference there? And is that different so crystal clear that we avoid concluding that it's an ambiguous requirement. Kari Sand So in answer to what I understood your primary question to be, and that is, are we arguing about whether telephone utility tax applies in the first instance, or are we arguing about an exemption? It does apply in the first instance. We say that, in fact, it's clear under both the Rent and Municipal Code and the RCW that TracFone meets the definition of a telephone business under 82.16.010 sub (7)(b)(ii) and (iii) because they provide the network telephone service to their end users. And when they try to oppose that position and argue back, they make the technical distinction of no, we don't provide it. It's the Karir that provides it. And so then we say, "But look at the definitions. It also encompasses access to." And they provide access to. And the reason that the retailers such as Fred Meyer, for example, don't provide access to is because what they're providing is they're providing basically a means for TracFone to reach its retail customers. Kari Sand It's a very efficient means. Again, TracFone doesn't have to have stores. They don't have to own or lease stores. They don't have to have their own separate employees. These are employees of Fred Meyer that helped facilitate TracFone's retail sales of wireless airtime to the end users. And so, that's why Fred Meyer isn't subject to this. Again, the city is not claiming that any of these retailers are operating as a telephone business. It's clearly TracFone operating as a telephone business. Again, just like footnote 15 in the 2010 State Supreme Court decision notes, it's TracFone not the retailers that is providing the service and that is key. Phil Olbrechts Okay- Kari Sand I hope that answers- Phil Olbrechts [crosstalk 02:35:41]. Yes, it does. Yes. Thank you. How do you distinguish the Springfield case? I read it last night. I don't recall that it even quoted from the statute it was applying. It wasn't the clearest decision, I didn't think. So, I mean, can you tell me how to distinguish it? Obviously the city is taking that position. So what basis is that? Kari Sand So I find it interesting that TracFone doesn't even meaningfully try to compare or contrast the statute at issue in the Springfield case. They bear the burden. Again, to show by preponderance of the evidence that the city's assessment is incorrect. And by incorrect, it's not just the amount, it's also should the tax even be imposed, right? The threshold question, the legal issue we're asking you to decide. And so, we of course say the Springfield case, obviously it's not controlling, but even if you could read that decision and figure out the basis of it, we would, again, argue it's not controlling, but I couldn't figure out the real basis of it either. And because TracFone didn't try to explain it either, again, we just say the controlling or instructive at the very least case to look at is the TracFone Wireless v. Washington State Department of Revenue case decided by the Washington State Supreme Court. Kari Sand Again, there are so many parallels in that case where they were trying to avoid imposition of E991 tax, based on their choice of business model. Here, they're trying to say, "Oh, again, it's not us selling. It's the Karirs that are subject to tax, not us." And we say, "Well, you meet the definition because she provides the access. Even though it's through the Karirs, that's their chosen business model. It doesn't mean they're exempt from tax." We think the statutes are very clear in that regard. They don't require interpretation. And then when TracFone either tries to point to the Karirs or on the front end or the retailers on the backend, either way it's TracFone who is the telephone here for purposes of telephone utility tax, and it's TracFone who's making sales of airtime at retail to end user customers. Phil Olbrechts Okay. Thank you. Thank you. Very helpful. All right. Let's move on back to Mr. Edwards for the reply and you're finished Ms. Sand. Is that correct? Kari Sand I am. Yes, thank you. Phil Olbrechts Okay, yeah. It's already confirmed. All right. Mr. Edwards, ready for the reply? Scott Edwards Sorry. I need to unmute myself there. Yes, I am. I've got a lot of things I want to try to cover. I'm going to try to do it mostly in the sequence that my notes reflect. Ms. Sand brought things up. She started by identifying or going back to your question about factual disputes regarding activation and made the claim that activation indisputably occurs post-sale and cited the back of the airtime card that Mr. Malone purchased as evidence of that, because it it starts with the phrase, to activate your service. This goes directly to the confusion and ambiguity that I mentioned earlier. That statement relates to activation of a handset, has nothing whatsoever to do with activation of an airtime card, so that the facts that Ms. Sand purports to know absolutely just simply aren't so. The person who read that document and opined as to what they thought it meant, got it wrong. Scott Edwards So, with respect to activation and when it occurs to the extent that I think that I will stop there with respect to that. I think there is a another factual issue in dispute, which is reflective in a lot of Ms. Sand's argument as to whether TracFone's sales of airtime to resellers are actually sales at all. The city's argument clearly is not that it's a type of sale other than a wholesale sale. They're asserting that it's simply not a sale. That seems to be a factual dispute and this may be reflected in the two different graphics that the parties provided. The city's graphic, very acutely showing arrows that bend around the sales to directly connect TracFone with the so-called end user. By the way, a term that I would like to point out does not appear anywhere in any of the Washington statutes that we're talking about. So assigning that label to TracFone has zero legal significance. Scott Edwards It doesn't tell us anything about what the statutes mean or how they apply. But I think I want to focus first on the concept that definitions matter. That words mean when they're defined by the legislature, what the legislature says they mean, and the legislature here has adopted definitions for a lot of words that may sound similar to each other. And by one way of example, there's a definition of telephone service that is defined to include both network telephone service, and competitive telephone service. And there's a separate definition of telephone business that includes only network telephone service and not competitive telephone service. So, there's a lot of throwing around of words that have tele in them and a conclusion that that means TracFone must be subject to this statute under the definitions that the legislature adopted here and simply emphasizing the word fact, doesn't get away from the note that the necessity that we need to actually parse out the language of the statute and in the first instance, make a determination of what it means. Scott Edwards And in that regard, the suggestion that the E911 tax case is important and decided the critical elements of this case is reflective of the complete sloppiness with which TRS conducted this audit. Ms. Sand said that the case squarely holds that TracFone is a telecommunications company. That is the term defined in 80.04.010. That statement is flat out untrue. The phrase telecommunications company doesn't appear anywhere at all in that case. So the suggestion that Supreme Court made a determination about how a defined term applies to TracFone and whether TracFone falls within that definition is just not true. Similarly, that case doesn't talk at all about 35A.82.060 or even about its counterpart for charter cities. It doesn't have the phrase net... Of what that statutory predefined term means, or whether that statutorily defined term applies to TracFone. Doesn't have the phrase telephone business in there. Scott Edwards Another statutorily defined term. It has a bunch of other different terms that have different and separate definitions and so saying TracFone lost a case under a completely different set of statutes on 54 basis, under different arguments. The one thing that's similar is the city characterizing TracFone's arguments as trying to escape taxation because of its quote unquote, "Business model." City's putting words into TracFone's mouth that is not what's going on here. The question in the first instance with respect to any audit or assessment is to first determine out, identify what does the statute apply to? In the tax world, we talk about the incident of the tax. The activity that the statute identifies as subjecting somebody to tax. Being labeled a telephone business, and simply repeating that phrase over and over again, does not substitute for an analysis of what the incident of the tax is. The question is one of what do the statutory words mean? I think Ms. Sand's argument reflects that we agree that there's a dispute about what it means to provide access to a telephone network. Scott Edwards We have provided an analysis of the statute and interpretation to reflect that it means the provision of access by a Karir to the Karir's network. And it does not have a broader meaning than that. The city still has not identified their own meaning that they attribute to it, only their factual conclusion that whatever it is, TracFone must meet it. But Mr. Hearing Examiner, I think you were dead on, if having some role in the consumer obtaining access to a network telephone or a telephone network, and having a role with respect to having sold a handset, then, it is absolutely got to be the case if you don't need to be a network Karir that the retail sale by retailers also qualifies as providing access to a network and therefore the provision of network telephone service. And as we talked about before, if it doesn't, then the city's not going to be able to get where it wants to go with respect to any measure of tax in the first instance. I do want to talk a little bit more about what happened in the E911 case. Scott Edwards The E911 tax as it was structured at that time, imposed a certain number of cents per month fee on the consumer specifically, for the use of a radio access line. And the statute also imposed an obligation on the person who assigned the telephone number to that radio access line. The obligation to remit the tax and the statute had a provision that said it does not matter whether the person with the obligation to remit the tax to the State, collected the tax from the consumer on whom it was imposed. And TracFone argued that the statute should be construed in such a way to recognize that a sale of prepaid wireless by somebody who does not interact financially with the person on whom the tax is directly imposed, it should not be construed to create a payment obligation on such a person. The court did disagree 5-4, very narrowly with TracFone's analysis of the statute. Four Washington Supreme Court justices agreed with TracFone about its statutory interpretation of that particular statute. Scott Edwards Subsequently, the legislature amended the way that E911 applies to prepaid wireless, specifically creating a point of sale collection Standard and in doing so, in title 84 or 82.14B adopted a number of definitions, including seller, retail transaction, and prepaid wireless telecommunication service... Other than a sale for the purpose of resale. The same phrase used in 35A.82.060. The same phrase used in the definition of a retail sale in RCW 82.04.050 that where the distinction between a retail sale and I think part of where I'm going here is I heard part of the city's argument to be TracFone's emphasis of characterizing itS sales as wholesale sales is irrelevant because the word wholesale does not appear anywhere in 35A.82.060 but the wholesale is a shorthand for describing a sale for the purpose of resale. And the phrase for the purpose of resale does occur in 35A.82.060. It also occurs in the E911 statute. It also occurs in the sales tax statute. The suggestion that you should disregard those statutes and interpret 35A.82.060 in some different way, because it didn't happen to use the word wholesale just isn't appropriate or correct. Scott Edwards There was a reference in terms of sequencing, noting that the assessment was issued in February of 2019, but then affirmed in October of 2019. And I'm saying, well, that means that there was more things that were relied on after February of 2019. As Mr. Derringer pointed out, the person who made that decision specifically testified that she did not rely on the contracts that the city is now referencing and the decision that she made and it's part of one of the exhibits here, simply says, I confirm that the February, 2019 assessment was correct. But if we dive into those contracts briefly and here we're talking about the contracts with the Karirs, I think there are two aspects of the T-Mobile contract that have been ignored that are critically important here. One, is the beginning where as clause specifically says, T-Mobile provides access to its network. That description is completely consistent with TracFone's construction of the statutory language of 35A.82.060 and 82.16.010. Scott Edwards There is no reference anywhere of TracFone providing access to T-Mobile's network. That's what T-Mobile says that T-Mobile does exclusively in its contract with TracFone. And then with respect to the resale notion. The agreement also specifically talks about TracFone reselling the airtime that it purchased from T-Mobile to sub-dealers for their further resale confirming that this is a recognition that the airtime is sold in sequence through a number of different people only one of which is the network Karir that provides access to that Karir's network. There was a reference to, and there's been no discussion of what the alleged legal significance of, but there's been an assertion that the retailer does not own the airtime that it purchases. Scott Edwards Well, there also hasn't been an assertion that anybody else owns the airtime or what ownership of airtime means or how it's been transferred. So, throwing out a word like ownership and making a conclusory assertion about who does or doesn't own something, simply doesn't have any role or bearing in an analysis of the statutes that we are talking about. I think the reference that the burden is on TracFone as the taxpayer to establish that the assessment is erroneous makes it important that the alleged grounds for the issuance of the assessment doesn't keep changing. That TracFone knocks down one rationale, and it simply gets replaced by a different rationale that hadn't previously been asserted. There are a number of- PART 5 OF 6 ENDS [02:55:04] Scott Edwards There are a number of reasons that were asserted as the reason why, in fact, TracFone is subject to tax as a telephone business. One being that TracFone admits that it resells prepaid wireless airtime. Well, that fact in and of itself isn't enough, unless you hear an examiner make a decision as a matter of law that that is all that is necessary. But if that's the case, then Fred Meyer is also subject to utility tax because it also resells a prepaid wireless airtime. There was an assertion that TracFone is subject to the tax because it has the word phone in the name, TracFone and has the word wireless and it's name, TracFone wireless. It's not a matter of credibility. They don't even pass the smell test. That's not the Standard. Scott Edwards What your company is named does not determine whether or not you're subject to tax. The marketing brochures use words describing TracFone as providing service. There's no explanation about what that means in the context of the brochure or what the city thinks that means in the context of the language. Providing service is not the key phrase. It's providing access to a network and what does that mean? It gets back to this question of, what is meant by access? Next point quickly, there's an inaccurate reference to say, in 80% of all of TracFone's income comes from its wholesale sales. I want to be clear. Well, the only part of TracFone's income we're talking about is it's airtime income. TracFone also has income from sales of handsets. Scott Edwards That's not any part of the numbers that we're looking at. So it's not 80% of total income. It's 80% of airtime income that is being looked at. There was an assertion about a very casual reference to the FCC and making the assertion as a factual matter, that TracFone is regulated by the FCC. And that is just factually not true. Licensed Karirs are regulated by the FCC. TracFone is not licensed with the FCC. Is not regulated by the FCC. TracFone sought and obtained an exemption to participate in a program where the FCC or where the federal government subsidizes the cost of airtime to low income people in remote areas. But the reason that TracFone was required to ask for an exemption to be able to participate is because the FCC definition of a Karir like the state definition is limited to network Karirs, and TracFone is not one. Scott Edwards But again, they've got both the wrong fact, and even if that fact were true, it's simply isn't relevant to the analysis and application of the controlling statute here. Again, it gets back to the point that the actual words of specific statutes matter, and we can't just throw a row concepts and treat them all as interchangeable. And in that regard, when we go to the legislative history, one of the things talked about in our brief is the fact that since 1981 the definitions of telephone business and network telephone service have moved back and forth a few times between chapter 82.16 and 82.04.056. And most recently when they were moved back, the legislature enacted a whole bunch of other telecom related definitions. They didn't amend these definitions. They didn't replace these definitions in the utility tax authorization statute. Scott Edwards So the suggestion that because in '81 there was some hint of treating the industry in some generic sense on equal footing. We have to look at the language actually used. Legislature has defined very specific terms with specific language and other terms with different language. They're not interchangeable, they're not synonyms. There's another assertion that people who purchase from Fred Meyer are not "wireless customers" of Fred Meyer. And that's again, using language that has no part in the controlling statute. And ironically it's directly contrary to Mr. Malone's own deposition testimony, where he admitted that he was a customer of Fred Meyer when he made these purchases. Scott Edwards Finally, I want to object to what I view as Ms. Sand attempting to testify about the alleged competitiv e advantage and this notion of not having to build up a network or piggybacking. None of those statements relate to any facts that are in evidence. She's certainly not in a position to be testifying about how the industry works and how TracFone works in particular. Then very quickly, the Shrink-Wrap cases that were referenced. A couple of items, the defendants in those cases were not "end-user customers" of TracFone. In fact, the basic fact pattern was, TracFone sells handsets less than its cost. Basically as a loss leader to incentivize the purchase of airtime, which is where it makes up those losses. Scott Edwards The defendants in those cases were buying TracFone branded handsets at retail, from places like Fred Meyer, never activating the phones. But wiping the software off those phones so that they could be sold as unlocked phones, because they were able to buy them at retail at less than the cost of those phones. Those cases, again, don't [inaudible 03:02:49] today with respect to these cross motions, which get back to what is the meaning of access to a network within the context of the language of 35.82.060, 82.16.010 and 80.040.010. We have, I think covered that in more than sufficient detail. And I would like to end with getting back to the resale provision. I'll have to admit after hearing Ms. Sand, I'm not sure at all what the argument is for why the "proviso" doesn't apply, but I'm going to share my screen and put up the statute. Scott Edwards This is just a direct verbatim quote of the statute. The only thing I've done is put in some paragraph breaks to make it a little bit easier to see. Before we were talking about the business activity of engaging in the telephone business and the limitation to interstate toll telephone service. But then the proviso is not a single proviso, although the word provided only occurs once. The city shall not impose the tax on that portion of network telephone service, which represents. And then there are four different things. The significance of the quest decision is that the quest determination said, with respect to the interpretation of this statute, that each of these provisos Sands on its own. I tried to clear up the significance of the word another in this first proviso. TracFone is not. Scott Edwards Arguing that this proviso, the exclusion of the measure from charges to another telecommunications company is the proviso that relates to its wholesale sales. So that's where the red herring is if it's anywhere. The relevant proviso is down here. Charges for network telephone service that is purchased for the purpose of resale. Purchased for the purpose of resale. Again, if the resale of prepaid wireless by somebody who is not the owner operator of a network, constitutes network telephone service, then TracFone's sale of that airtime to Fred Meyer is a sale for the purpose of resale. Fred Meyer does fact resell that airtime. So this provision on its own, by its plain language, if what TracFone does, is network telephone service when it's reselling airtime, when it resells that airtime to wholesale customers, they are purchasing that airtime for the purpose of resale. Scott Edwards That revenue, the $17 falls directly within the plain language of the statute. That's not a factual matter. That's a legal question. As a matter of law, TracFone requests that the hearing examiner conclude that under the language of 35.82.060 and 82.16.010, the telephone business means providing access by a network Karir, that TracFone is not in the telephone business, because it is not a network Karir. In the alternative, if the hearing examiner concludes as a matter of law, that the sale of prepaid wireless airtime is network telephone service, then we ask that the hearing examiner to rule as a matter of law, that the city is prohibited by 35.82.060 from measuring the tax by charges for network telephone service that is purchased for the purpose of resale. I want to get back. End probably with the question that you had started with. Is the interpretation of this an interpretation of an imposition or an exemption provision? Scott Edwards And inquest, looking at this particular provision, the access for charges to interstate service. The court explicitly said in interpreting 35.82.060, if there's an ambiguity, the principle that applies is that ambiguities are construed against the taxing authority and in favor of the taxpayer. So I think the court's decision has mooted any argument about whether it is an imposition or an exemption. But structurally you underSand why the court got there. When it also explained cities do not have inherent taxing authority. They only have whatever authority has been granted to them by the legislature. And this statute is the statute that authorizes cities to be able to tax. And so the scope of what it allows is a question of imposition in the first instance. Scott Edwards I'm going to end very briefly with the factual question about measure that the city has asked to kick to the hearing. The city admits that its contingent fee auditor made a factual error in computing the ratio of city population to zip code population. There's no dispute about that. TracFone as a result of the errors had to go out and hire an accountant to do those computations. Has provided those computations. The city has had them for weeks. They do not dispute the computations that have been submitted. They haven't presented alternative computations. They've just said, "We've asked the same person who messed up the computations in the first instance to present a new computations sometime in the future." That's not a sufficient showing to overcome or create a question of fact about the computations performed by Mr. Hilton. Scott Edwards So if the hearing examiner were to determine as a matter of law, that the sale of prepaid wireless by a non Karir is a taxable incident, and consequently that TracFones wholesale sales are excluded from the measure of tax. The schedule prepared by Mr. Hilton has uncontroverted evidence about the actual amount of tax that should have been properly assessed. You can enter an order commanding the adjustment of the assessment to that amount. There's not a need to have a hearing to make that determination. You're also capable of ruling as a matter of law as to the correct interest rate regime to be applied. The computation of that is purely mathematical. Is not something that requires a hearing. Scott Edwards So TracFone believes that you can resolve this case in TracFone's favor both or either with respect to a ruling that would require a refund of the entire amount assessed or establishing what the correct amount is limited to retail sales with the corrected population ratio as computed by Mr. Hilton. Thank you. Phil Olbrechts Thank you, Mr. Edwards. Well, this has been a time really well spent. I usually don't get legal argument transcribed, but I think I will in this case because there's a lot of information points of view to consider there. So it's going to take me, I think, a lot of time to put all this together, though. My schedule is pretty packed for the next two weeks. Kari Sand Mr. Examiner, excuse me. Phil Olbrechts Yeah. Kari Sand I was hoping that first of all, Mr. Edwards could stop sharing his screen. Scott Edwards Absolutely. Kari Sand And then also, if I could just have five minutes to respond to the last 30 minutes of argument by Mr. Edwards, it's just so disproportionate the amount of time that he's consumed. Scott Edwards I don't have any objection to Ms. Sand having more time. But again, as the plaintiff, we are entitled to the last word and I am going to want the opportunity to respond to whatever she says. Phil Olbrechts Yeah, yeah. Exactly. Yeah. That's what I was going to offer. Ms. Sandy, you can. But Mr. Edwards could then still respond to that. Kari Sand I will do my best to be brief. I do want to invite you, Mr. Examiner to take a deep dive into the precise language of the relevant statutes, as well as the various exhibits, that the city relies on to support its legal position in this case. If you look specifically at the definitions in RCW 82.16.010 Sub 7B two and three. This is a small numeral two and three. Three defines telephone business. Means, the business of providing network telephone service. And I want to emphasize the word service. This is why the retailers are not a telephone business. They do not provide this service. TracFone does. Also, if you look at the definition of network telephone service, it talks about providing by any person access to a telephone network. Again, that's what TracFone does, and they do it for hire. This is what they do. Kari Sand And then if you look at Mr. Malone's declaration in support of the city's motion at exhibit four. This is TracFone's terms and conditions. And I'd ask you to please look at all of the terms and conditions, T&Cs. But also specifically for purposes of responding to some of the comments made by Mr. Edward just now, on page two of 16, it says very clearly, the wireless telecommunication networks used to transmit the voice, text, and data services that support the service, capital S, offered by TracFone are owned and operated by licensed commercial mobile radio services providers. That is important because these terms and conditions between TracFone and their end user customers show that the service that TracFone is providing is the telecommunications networks used to transmit voice, text, and data services. Kari Sand So they are providing access to the network Karirs. Access too meets the applicable definition for purposes of telephone utility text. Again, if you look at the statutes very carefully, look at these particular provisions, you'll see again, that it is TracFone providing the service. It goes on, on the same page two of 16 to state, we may, we being TracFone at any time and without prior notice to you modify, cancel, and or deactivate service, undertake other corrective action for any reason in our sole discretion, including your violation of these terms and conditions of service. They are a service provider, not the retailers. That is so key here. So again, we invite you to take that deep dive. Also, we greed with your offhand comment to refer to these devices that TracFone sells, the TracFone branded handsets. And of course they have this bring your own phone programs. So people can use the phone they already own as well. Kari Sand But we referred to those as burner phones. But I don't want to minimize the phones as being low end phones because many of them are high-end phones. They're iPhones, Samsung galaxy and other high end phones. They aren't just throwaway devices. So I wanted to point that out, because some people just choose TracFone for the fact that they can maybe obtain credit through a postpaid provider. But in any event, whatever reason people choose TracFone, I just want to underscore that their business model does not shield them from tax, simply because they're not a network Karir and obviously they do sell through retailers. So again, we invite you to take a very close look at the precise language of the controlling statutes, and then also a very close look at the department of Revenue 2010 case. Phil Olbrechts Okay. Kari Sand Thank you. Phil Olbrechts Ms. Sand, you provided some testimony about the fact that the devices are not temporary phones. Is that in the declarations that have been provided, or is that your personal observation? Kari Sand I don't know what you mean about temporary phones. I'm not sure what you... Phil Olbrechts Well, you mentioned somewhere iPhones as opposed to throw away phones. That's what I mean by temporary phone. Kari Sand Oh, I was referring to your comment about burner phones. Phil Olbrechts Right? I'm just trying to figure out if your response to that is based on the declarations or any exhibits or rather that's testimony outside the record. Just wanted to clarify that in my mind. Kari Sand I would say that no, it's not specifically addressed what different types of phones that TracFone sells under its own brand. Phil Olbrechts All right. Kari Sand But they also, and it's mentioned in the terms and conditions have a bring your own phone program. Phil Olbrechts Oh, I see. All right. Good, good. I just wanted to underSand where that information came from. Great. Thank you. All right. Mr. Edwards, final words. Scott Edwards And I'm going to take Ms. Sand up on her suggestion, in terms of asking you to look carefully at the statutory language. She made reference to 82.16010 seven sub two, or three telephone business says... well, network telephone service and she emphasized the word service as if it was something separate and Sandalone. And it's not. Network telephone service is the defined term. So it's not clear to me what she means to refer to service separately and emphasize that. It boils down to exactly what I think both of us have said a number of times, the interpretation of what it means to provide access to a network. We continue to be at the location where we have tied our interpretation of what it means to the actual language of the statutes used. And Ms. Sand simply keeps on asserting as a conclusionary matter. That's what TracFone does. They provide service. They create access. Scott Edwards There's been no description of specifically what activity that TracFone charges for, for hire that provides the access. The only thing that could possibly be that is the sale of prepaid wireless airtime. That is the same thing that the retailers do. The retailers also sell prepaid wireless airtime. And I see Ms. Sand shaking her head, but that is exactly what we've been arguing as a matter of law that the Washington statutes as reflected by the receipts that Mr. Malone got from Fred Meyer show that Fred Meyer made a retail sale of prepaid wireless airtime to Mr. Malone. That is a matter of law. We are happy to have you look in detail at the statutes. Now that you have indicated that the contracts are admissible. We're also happy to have you look at those because as both Mr. Dagan and I have pointed out, they simply don't say what the city has asserted. Scott Edwards They say they don't support the conclusions that Mr. Ashbaugh has gratuitously attributed to them from selective citation to phrases. They do talk about the Karir providing access, and they specifically talk about the resale of airtime to sub-dealers. So they are fully consistent with what we have been saying. We purchase from Karirs, we resell, and we resell at both wholesale and retail. Our buyers purchase from us for the purpose of resale and getting back to the same conclusion. If you agree with us as to the proper interpretation of the incident, the entire assessment, it must be refunded. If you determine that the resale of prepaid wireless by somebody who is not a Karir is an incident. Then as a matter of law the tax can only be measured by retail sales and the adjusted retail sale amount is reflected in the schedule submitted by Mr. Hilton with no dispute from the city as to his computations. Phil Olbrechts Great. Thanks, Mr. Edwards. I certainly appreciate that this is going to require fairly... Sorry. I'm just losing my voice here. Precise reading of the terminologies and statutes. I already have basically a cheat sheet that has all the pertinent definitions there so that I could follow your arguments. So that's definitely going to be my focus, as well. As I was saying before, it's going to take me some time to get through this. My schedule is pretty packed the next couple of weeks. I'm hoping that we have time for my decision to come out in three weeks. But if not, I can probably make something work. In terms of scheduling, I guess the first thing to address is when the city can produce the documents I've ordered to compel. How much time Ms. Sand does the city need for that? Kari Sand Well, obviously I would need to check with my clients and also with TRS. But I would say that 10 business days seems like a reasonable time and completely doable. But again, I'm just throwing that out without having conferred with my clients in advance. Phil Olbrechts Well, I guess we can hash this out by email, Mr. Edwards, do you want to do it that way in terms of setting the deadlines for production and my decision, that kind of thing? Scott Edwards We can do that. I guess my inclination with respect to that deadline is that, let's tentatively set it at 10 days subject to Ms. Sand coming back and providing an indication and explanation for why it would take longer than that. Phil Olbrechts Okay. Because you had requested three days. So I thought- Scott Edwards We had. And of course we requested that three plus weeks ago. So at this point if your hearing is still three weeks to a month out, I don't know that that 10 days ends up being meaningful. If it ends up going longer than that, I think that becomes more problematic. But maybe also emblematic of the condition in which the record was maintained. Phil Olbrechts I mean, the pre-hearing order has the hearing scheduled for the week of April 26th. So that seems to be, which is- Kari Sand [inaudible 03:24:52] is April 12th. Phil Olbrechts Oh. Both the copy I have, which was written in your office says up to three days during the week of April 26, 2021. Scott Edwards My calendar doesn't have either of those docketed here. So makes it difficult for me to indicate what our understanding is on that. Phil Olbrechts Yeah. I have, this was the proposed order dated December 22nd, 2020. Is that the most recent one Ms. Sand? Maybe I'm- Scott Edwards I recollection, your honor, is that your order ended up with a date different than the one that was proposed. Phil Olbrechts Oh, okay. So I don't have the...So let me pull that up. Let's see. Scott Edwards Grant, do you happen to have the- Kari Sand It does have a different date in your proposed order. It says April 12th. We had proposed the 26th, but then you ordered during the week of April 12th. And that's dated the 27th of December. Phil Olbrechts All right. Okay. Well, I guess, we need more time to go back to the 26th. And does that work for people? Scott Edwards Whatever date you had sent. I know that we had spoken to Mr. Dillon about making sure that he was available during that time. Speaker 2 And Mr. Hilton. So we would have to go back and check with them. Phil Olbrechts Let's stick to that then. Let me see about when I... Let me see here. Kari Sand So the last page of your proposed order, which is page three, indicates the hearing to be the week of April 12th. It was not changed on page two in the table, which is why it's probably confusing. Phil Olbrechts That's the problem. All right. So we got it the week of the April 12th, and you're going to come up with your documents on March 9th. Let's see. If I come out with my decision on March 12th, does that give enough time for everybody to get everything ready for the week of April 12th? Kari Sand The city can be ready. Scott Edwards I think TracFone can be ready. Phil Olbrechts All right. Good. I will shoot for the 12th then. I may even get it out earlier. So that'll be my deadline now. Anything else to be resolved today? I don't think so. Scott Edwards I don't believe so. Kari Sand Thank you for your time. Phil Olbrechts Thank you. Like I said, it's been very helpful argument today. I have a lot of work in front of me. But we're adjourned for this afternoon. Thank you. Good bye. Scott Edwards Thank you. Speaker 2 Thank you. Kari Sand Thank you. PART 6 OF 6 ENDS [03:27:38]