HomeMy WebLinkAboutOgden Murphy email RE: In re TracFone Wireless, Inc. CAUTION: This email originated from outside the City of Renton. Do not click links, reply or open attachments unless you know the content is safe.
Good afternoon, Examiner Olbrechts:
This is in response to your e-mail of April 7, 2021. The Respondent City of Renton’s Motion for Partial Summary Judgment (MPSJ) did not focus on handset sales because the City’s assessment
does not include revenues derived from “handset only” sales consistent with the authorizing statute, RCW 35A.82.060(1) <https://gcc02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fapp.leg.wa.gov%2FRCW%2Fdefault.aspx%3Fcite%3D35A.82.060&data=04%7C01%7Ccmoya%40rentonwa.gov%7C03485d806f464b58c14108d8fed7b81e%7C71014141061148858e98cc96a05e1675%7C1%7C0%7C637539549748562988%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=IrdR9Judus%2F%2Bs0NoN1tF%2FoXUWnOyX1IHGaaZVqr%2FQ60%3D&reserved=0>
. To the extent handsets are sold with minutes preloaded in a bundled manner, then the handset should be unbundled from the service for purposes of imposing telephone utility tax on
revenues derived from services only. The sale can be split into the part subject to the utility tax and the part that is not. The measure of telephone utility tax will be addressed in
full at the open record hearing on the separate issue of the correctness of the City’s assessment. TracFone clearly provides its end user subscribers with prepaid wireless service, and
reasonable minds must agree that it is TracFone, not its retail distributors, who provides such service. The service is never sold to the retailers but is instead sold to TracFone’s
end user subscribers through the retailers. TracFone’s assertions to the contrary – claiming the retailers buy and then resell the prepaid wireless service – do not survive scrutiny
because it is never explained how TracFone, not the retailers, is the ultimate service provider who assigns telephone numbers, activate services, provides customer care, and retains
discretion to terminate service, all as explained in TracFone’s terms and conditions of service. Again, the retailers do not provide the service that is the subject of the telephone
utility tax at issue here.
The City provides the following citations to the record for your reconsideration.
1. Renton’s MPSJ
* “The airtime cards/codes have no value until activated by TracFone upon sale to the end user, which is a two-step process. Id. at ¶ 7. The TracFone-branded equipment is not capable
of providing NTS, including commercial mobile radio services and wireless service, until “activated” by TracFone and cannot be used to provide service through any wireless service provider
except TracFone. Id.” P. 3:19-22
* “The purchaser is not a wireless customer or end user until they contact TracFone via its website or toll-free number to finally activate the equipment.” P. 4:3-4,
2. Renton’s Reply ISO Its MPSJ
* “By providing its users network telephone service (“NTS”)[1], TracFone is conducting a telephone business, consistent with the definitions in RCW 82.16.010(7)(b)(ii) <https://gcc02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fapp.leg.wa.gov%2FRCW%2Fdefault.aspx%3Fcite%3D82.16.010&data=04%7C01%7Ccmoya%40rentonwa.gov%7C03485d806f464b58c14108d8fed7b81e%7C71014141061148858e98cc96a05e1675%7C1%7C0%7C637539549748572955%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=gmRM7HjqdHKrB4oQe9S%2Fh9p8v%2FZPo%2FMX0DdeAAiSO%2B8%3D&reserved=0>
and (iii) <https://gcc02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fapp.leg.wa.gov%2FRCW%2Fdefault.aspx%3Fcite%3D82.16.010&data=04%7C01%7Ccmoya%40rentonwa.gov%7C03485d806f464b58c14108d8fed7b81e%7C71014141061148858e98cc96a05e1675%7C1%7C0%7C637539549748572955%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=gmRM7HjqdHKrB4oQe9S%2Fh9p8v%2FZPo%2FMX0DdeAAiSO%2B8%3D&reserved=0>
, and thus, is subject to the City’s utility tax.” P. 1:19-21.
* “TracFone’s sales revenue from its retailers is properly attributed to TracFone and included in the tax base because it is TracFone, not the retailers, who provides its end user customers
with wireless service.” P. 5:16-18 (emphasis added).
* “Mr. Malone’s handset and airtime card purchased at retail from Fred Meyer were worthless for placing or receiving calls, text, and data until he took the crucial step of contacting
TracFone to redeem his airtime and sync his minutes with his handset; TracFone acquired Mr. Malone as a customer at this crucial step and also became liable for utility tax as a telephone
business.” P. 6:3-8 (Emphasis added).
3. Renton’s Opposition To Tracfone’s Summary Judgment Motion
* “Indeed, absent activation by TracFone, the TracFone branded handsets are worthless for anything other than a paperweight or doorstop.” PP. 7:26-8:1-2.
4. Declaration of Garth Ashpaugh ISO Renton’s MPSJ
* “The purchaser is not a wireless customer or End User until they contact TracFone via the website or toll-free number to finally activate the equipment. With this final step, TracFone
assigns the phone to a network carrier and sends a signal to the equipment making it available to send and receive wireless calls.” ¶12
* “Based on my knowledge of TracFone’s business activities combined with my over two decades of experience in the telecommunications industry, it is my expert opinion that TracFone’s
gross revenues are subject to Renton’s six percent (6%) utility tax because TracFone resells wireless service its End Users to access network telephone service…” ¶15 (Emphasis added).
5. Declaration of Nate Malone ISO Renton’s MPSJ
* “Specifically, TracFone provides prepaid mobile wireless service to its end users by purchasing commercial mobile radio service at wholesale from carriers and reselling that service
at retail to its end users.” ¶8
Respectfully submitted,
Kari L. Sand | Attorney
Ogden Murphy Wallace P.L.L.C.
901 Fifth Avenue, Suite 3500 Seattle, WA 98164
Direct: 206.447.2250 | Fax: 206.447.0215
ksand@omwlaw.com <mailto:ksand@omwlaw.com> | www.omwlaw.com <https://gcc02.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.omwlaw.com%2F&data=04%7C01%7Ccmoya%40rentonwa.gov%7C03485d806f464b58c14108d8fed7b81e%7C71014141061148858e98cc96a05e1675%7C1%7C0%7C637539549748582903%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=ufFTJHYdeT1c53ngp2IAp7NjL%2FJmSffv0aCFAjKJzmI%3D&reserved=0>
Take a look at Ogden Murphy Wallace’s new website <https://gcc02.safelinks.protection.outlook.com/?url=http%3A%2F%2Fomwlaw.com%2F&data=04%7C01%7Ccmoya%40rentonwa.gov%7C03485d806f464b58c14108d8fed7b81e%7C71014141061148858e98cc96a05e1675%7C1%7C0%7C637539549748582903%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=HkjAeX5Ri5oYd5XgFZnJtEXyjRuDK%2BNyXGTvOQCvLbI%3D&reserved=0>
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From: Phil Olbrechts <olbrechtslaw@gmail.com>
Sent: Wednesday, April 7, 2021 8:18 PM
To: Craig, Angela <CraigA@lanepowell.com>
Cc: CityClerk <CityClerk@rentonwa.gov>; Cynthia Moya <CMoya@rentonwa.gov>; Kari L. Sand <ksand@omwlaw.com>; Kenya C. Owens <kowens@omwlaw.com>; Edwards, Scott M. <EdwardsS@lanepowell.com>;
Degginger, Grant <DeggingerG@lanepowell.com>; Docketing <Docketing@lanepowell.com>; Tsuboi, Norma <TsuboiN@lanepowell.com>
Subject: Re: In re TracFone Wireless, Inc.
Supplementing my prior email, I neglected to mention that I didn't find Mr. Malone's Fred Meyer purchase very illuminating on the issue, since I understood him to be just adding airtime
to a handset that already had its own minutes. I don't believe there was anything from the description of that event that would preclude that understanding.
On Wed, Apr 7, 2021 at 8:06 PM Phil Olbrechts <olbrechtslaw@gmail.com <mailto:olbrechtslaw@gmail.com> > wrote:
Thank you for the reconsideration briefing. I will likely need at least a week to carefully go through the arguments presented by the parties. In the meantime, in lieu of oral argument,
I’m hoping we can resolve the ambiguities of the handset issue by email.
In clarifying the handset issue in my reconsideration decision, I would like to give the parties an opportunity to identify where in the administrative record it is established that
the handsets are sold and charged separately from airtime.
My understanding of the handsets sales was that Tracfone handsets include Tracfone airtime rights to the same extent as airtime cards, in a sense being “preloaded” with airtime in the
same fashion as airtime cards. In this scenario the phones simply serve as a more expensive and functional version of plastic airtime cards. It was also my understanding that the handsets
were sold to the consumer via one charge. This is why I found the Activate case pertinent. In its reconsideration request, Tracfone argued that the handset sales are not subject to
the utility tax because handset sales qualify as competitive telephone service. The Activate court held that sales of handsets do not qualify as competitive telephone service if they
are not charged separately from network telephone service.
The evidence presented by the City left a very strong impression that the handsets were “loaded” with airtime in the same fashion as the airtime cards. The most detailed rendition
of how handsets are sold and activated was in the 1/29/21 Ashpaugh declaration. Paragraph 10 of his declaration states that both airtime cards and handsets will be referenced as “equipment.”
Paragraph 12 states that when “equipment” (which includes handsets) is scanned for purchase by a consumer, Tracfone is notified electronically. Mr. Ashpaugh goes on to declare that
once the “equipment” (which includes handsets) is purchased, it (the handset, without an airtime card) doesn’t become activated until the consumer contacts TracFone via website or phone
number.
So from the Ashpaugh declaration, it was reasonable to conclude that a handset could be purchased without an airtime card and then activated for use. Under such a scenario there would
be no basis for concluding that any airtime “loaded” into the handset would be charged separately from the phone itself. Indeed, my one time experience with prepaid airtime was the
purchase of a disposable phone when I forgot to pack my cell phone on a business trip. As best as I can recall, there was only one charge for that phone.
The City’s request for summary judgment relief also made no distinction between airtime card sales and handset sales. In its Statement of Facts, the City identified that Tracfone sells
wireless services and handsets directly and to retail agents. The City then framed its second question presented as “Is TracFone’s gross income from its retail agents properly included
within the City’s tax base…” Nowhere in its summary judgment argument did the City distinguish between gross income generated from handset sales and that generated from airtime cards.
After being presented with the record and arguments described above, I’m now told that the City’s sj motion was only advocating for application of the utility tax to airtime card sales
and also that handsets are not “activated” in the fashion described in the Ashpaugh declaration. I am happy to accommodate the parties’ request on this issue since both parties are
in agreement. However, it would be helpful to be able to identify something in the record and/or briefing that clearly identifies that all handsets are sold separately from airtime
and also that the City had limited is sj request to gross sales of airtime. On the latter issue, simply stating that the City was only asking for utility tax on network telephone service
doesn’t resolve the situation, since handsets that serve as glorified airtime cards arguably qualify as network telephone service if the airtime is not separately charged.
If the parties have any references they’d like to make to the record to clarify the handset issue, please do so by email by next Tuesday. I’ll try to get my ruling out shortly thereafter.
On Wed, Apr 7, 2021 at 2:51 PM Craig, Angela <CraigA@lanepowell.com <mailto:CraigA@lanepowell.com> > wrote:
Good afternoon. Attached for filing in the above matter, please find the following:
* Reply in Support of TracFone’s Motion for Reconsideration
Please confirm receipt. Thank you.
<https://www.lanepowell.com/portalresource/LP_Logo_Bold_CMYK-105x55.png>
ANGELA CRAIG
Legal Assistant
craiga@lanepowell.com <mailto:craiga@lanepowell.com>
D 206.223.6138
LANEPOWELL.COM
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[1] TracFone admits that it is a reseller of prepaid wireless airtime that it purchases from network carriers. See TracFone’s Opposition to Renton’s Partial Summary Judgment Motion (“Opposition
Brief”) at 3:10-12; 4:5; & 11:2-4.