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HomeMy WebLinkAboutAdmin Appeal -- Utiltiy Tax -- Tracfone -- Reconsideration FinalSJ UPON RECONSIDERATION - 1 BEFORE THE HEARING EXAMINER FOR THE CITY OF RENTON RE: TracFone Wireless, Inc. Administrative Appeal ) ) ) ) ) ) ) PARTIAL SUMMARY JUDGMENT RULING UPON RECONSIDERATION Tracfone’s Motion for Reconsideration is granted in part. The March 12, 2021 Partial Summary Judgment Ruling (SJ Ruling) erroneously addressed whether the City’s utility telephone tax applied to Tracfone handset sales. That issue was beyond the scope of the City and Tracfone requests for summary judgment. The SJ Ruling is overruled to the extent that it finds that City of Renton telephone utility tax applies to the proceeds of handset sales. That issue instead should be considered unresolved for purposes of this appeal. The rest of Tracfone’s motion for reconsideration is denied. Tracfone’s assertions of error are each addressed separately below. Evidence Relied Upon Tracfone undated Motion for Reconsideration of SJ Ruling. April 2, 2021 City Response to Tracfone Motion for Reconsideration February 19, 2021 Tracfone Reply to Motion for Reconsideration April 2, 2021 email from Kari Sand April 14, 2021 Emails from Scott Edwards and Kari Sand SJ UPON RECONSIDERATION - 2 Legal Analysis The assertions of legal and factual error in Tracfone’s reconsideration are each addressed separately below. The SJ Ruling Erroneously Applies to the Sale of Handsets. The SJ Ruling erroneously addressed an issue that was not raised by the parties. It concluded that Tracfone gross income from its sale of handsets are subject to the utility tax. Neither party intended to take the position that Tracfone handset sales are subject to the utility tax. The SJ Ruling should not be construed as finding that the City’s utility tax applies to the to the sale of Tracfone handsets. The SJ Ruling was based upon the erroneous but reasonable premise that Tracfone handsets were sold with preloaded1 airtime. As outlined in the email appended as Exhibit A to this reconsideration ruling, there were gaps in the manner in which the Tracfone business model was presented by the City. These gaps left open the possibility that Tracfone sells its handsets with airtime already loaded into the handsets and handset/airtime combined into one sales price. In essence, the handsets would themselves serve as an elaborate airtime card. At the same time one of the two Questions Presented by the City in its summary judgment motion was “Is Tracfone’s gross income from its retail agents properly included within the City’s tax base and not exempt under the so-called ‘resale proviso’ in RCW 35A.82.060(1).” The City’s brief answered “yes” to this Question, without distinguishing between sales of airtime to its retail agents from sales of handsets to its retail agents. Consequently, in its Question Presented the City was asking for a ruling that the gross proceeds of handset sales be included in the proceeds subject to the utility tax. Neither the City nor Tracfone in its summary judgment briefing argued that the sale of handsets should be treated differently from the sale of airtime. Based on this background, the SJ Ruling was worded to apply to sales of both airtime and handsets without distinguishing between the two. In its motion for reconsideration, Tracfone pointed out that neither the City nor Tracfone were taking the position that handset sales were subject to the utility tax. In its response briefing, the City agreed. As part of “oral argument” (done by email) on Tracfone’s reconsideration motion, the parties were asked to identify if the record identifies that Tracfone sells its handsets separately from airtime. The City provided several citations to the record, but none clarified that handsets were sold separately from airtime. The citations revealed that the phones do not work until “activated,” but the same principle applies to Tracfone’s airtime cards. Tracfone’s response was more successful in addressing the issue. It identified that Chesley Dillon’s declaration provided that “[s]eparate from Tracfone’s sales of prepared airtime, TracFone makes 1 For purposes of this ruling, a “preloaded” handset is one that serves the same function as an airtime card, where upon activation a pre-established amount of airtime is available to the consumer. SJ UPON RECONSIDERATION - 3 wholesale and retail sales of handsets and accessories.” This uncontested statement alone2 fills in the informational gaps in the City’s presentation of evidence and is sufficient to establish that the SJ Ruling was based upon the erroneous premise that handsets themselves served as elaborate airtime cards with preloaded airtime. Since the handsets are in fact not sold as elaborate airtime cards, there is no basis under applicable statutory definitions for the SJ Ruling conclusion that the utility tax applies to the gross proceeds from the sale of handsets. RCW 35A.82.060 only applies the telephone utility tax to the activity of engaging in telephone business. RCW 82.16.010 (7)(b)(iii) defines telephone business as including network telephone service. RCW 82.16.010 (7)(b) (ii) provides that network telephone service does not include the providing of competitive telephone service. RCW 82.04.065(5) defines competitive telephone service as the providing of telecommunications equipment or apparatus, “if the equipment or apparatus is of a type which can be provided by persons that are not subject to regulation as telephone companies under Title 80 RCW and for which a separate charge is made.” (emphasis added). Since Tracfone charges for its handsets separately as identified in the Dillon declaration, the handsets sales do not qualify as competitive telephone service and thus do not qualify as network telephone service that is subject to the telephone utility tax. For the reasons stated above, the SJ Ruling is found to have erroneously included proceeds from the sale of handsets in the scope of its assessment and rulings. The SJ Ruling is overturned to the extent that it applies to handset sales. Whether the proceeds of handset sales are subject to the telephone utility tax were beyond the scope of the summary judgment motions and should not be considered addressed by the SJ Ruling. SJ Ruling Doesn’t Make Contradictory Conclusions on Applicability of Resell Proviso3. Setting aside the misunderstanding on handset sales, Tracfone’s most significant reconsideration argument is that the partial summary judgment ruling makes contradictory conclusions on the applicability of the resell proviso. Tracfone points out that the utility tax can only be assessed upon the proceeds of network telephone sales. Therefore, Tracfone asserts that the SJ ruling cannot both conclude that Tracfone is not selling network telephone service to its retailers while at the same time imposing the utility tax on the proceeds of those sales. These conclusions are not found to be contradictory. The gross income that Tracfone acquires from its sales to retailers is ultimately derived from the sale of Tracfone network telephone service to the consumer. The fact that Tracfone has 2 Tracfone also identified several other portions of the record that it felt clarified that handsets were not preloaded with airtime. However, that fact was actually not very clear from the referenced evidence. The retail distribution agreements distinguishes between handset and airtime, but this doesn’t preclude the possibility that the handsets are preloaded with airtime. Mr. Malone’s purchase of both a handset and an airtime card doesn’t preclude the possibility that he purchased the airtime card separately to add airtime to his preloaded handset. The fact he didn’t pay 911 tax on the handset does support the premise that the handset was not preloaded, although that’s a very indirect way of establishing that fact. 3 The “resell proviso” is the RCW 35A.82.060 telephone utility tax exemption “for charges for network telephone service that is purchased for the purpose of resale.” SJ UPON RECONSIDERATION - 4 structured its business plan to generate gross income prior to the final consumer sale does not give Tracfone license to thereby avoid the utility tax. Tracfone’s contradiction argument goes to the heart of Tracfone’s position in this appeal. It implicates the question of whether Tracfone can avoid paying the utility tax by structuring the way it sets up its business and marketing plan. Given the strong legislative intent to avoid this type of maneuvering and related case law, it is found that the conclusions reached in the SJ Ruling should not be construed as contradictory. As noted in the SJ Ruling, the state legislature has adopted broad definitions for companies subject to the telephone utility tax in order to create a level playing field that prevents “emerging, nonregulated telecommunications companies” from avoiding the tax. Evaluating the same business model presented in this appeal, the state supreme court had to determine if Tracfone could avoid the cellular 911 tax, applicable to sales to consumers, by asserting that it was selling cellular service to its retail agents instead of the consumer. The court disagreed, as follows:. We agree that the statutes contemplate collection of the tax from the subscriber. RCW 82.14B.040 says that the state E-911 excise tax on radio access lines "shall be collected from the subscriber by the radio communications service company providing the radio access line to the subscriber." See also RCW 82.14B.042. We do not agree, however, that the manner in which a clearly taxable event (an assigned cell phone number) is marketed can negate a tax that is otherwise clearly payable. Any difficulty in collecting the tax from the subscriber is due to TracFone's choice of business model. Tracfone Wireless v. the Dept. of Revenue, 170 Wn. 2d 273, 289 (2010). The same principles apply to application of the resell provision. Tracfone should not be given license to disrupt the level playing field sought by the broad language of the utility tax provisions simply because of its choice of business model. There is no rational policy basis to distinguish between Tracfone selling directly to consumers or doing it via its retail agents. Yet that is precisely what Tracfone is requesting. If Tracfone doesn’t pay the utility tax, then no one will. Its retail agents would not, because they would legitimately claim that they are not selling network telephone service for the same reasons that Tracfone should be construed as providing that service itself, i.e. Tracfone retains the access rights to telephone networks and Tracfone grants final approval for those access rights via its online and telephone number activation process. It is recognized that the resell proviso expressly applies to what would qualify as an element of a business plan, i.e. whether network telephone services are sold directly or subject to resale. Taken to extremes, the applicability of all taxing regulations are dependent upon what type of business plan is employed. A tax on legal services can be avoided by changing the business plan from legal services to accounting services. Under the “level playing field” rationale, as well as the “choice of business” model rationale of the Dept. of Revenue case, the determinative and logical focus in assessing its business plan is whether Tracfone is still the ultimate provider of network telephone service. In the Dept. of Revenue case what mattered to the court was whether or not Tracfone was providing cell phone service to its consumers as opposed to its retail agents. Similarly, what matters in a level playing field objective is that Tracfone be treated the same as other network telephone service providers – again, as in Dept. of Revenue, the pertinent issue is who is providing the service. The focus on who is providing SJ UPON RECONSIDERATION - 5 the service similarly explains whey the resell proviso does apply in the transactions between Tracfone and its network carriers – those transactions are exempt because the network carriers have sold their network telephone service rights to Tracfone, i.e. rights to use its network facilities. SJ Ruling Did Not Rely Upon Expert Opinion on Issue of Law The SJ Ruling did not rely upon Mr. Ashpaugh’s legal opinion on the interpretation of Tracfone contracts. The Ruling relied upon Mr. Ashpaugh’s opinion on the business model employed by Tracfone. As noted in Mr. Ashpaugh’s declaration, he has extensive experience in auditing utilities and is familiar with the business model of prepaid wireless companies who purchase or lease excess wireless service from network carriers at wholesale and then resell the service to end users. See January 29, 2021 Ashpaugh Declaration, par. 3. Mr. Ashpaugh is not referenced in the SJ Ruling for his expertise in contractual interpretation, but rather what those contracts inform him about the business model used by Tracfone. To the extent Mr. Ashpaugh’s opinions are based upon the legal accuracy of his contractual interpretations, that was independently verified by the examiner and found to be legally accurate. None of Mr. Ashpaugh’s opinions on how Tracfone conducts business are inconsistent with the contracts he references in his declaration. Resell Proviso is an Exemption In its reconsideration motion, Tracfone asserts that the resell proviso is not an exemption, but rather “is a part of the Legislature’s grant of utility tax authority to cities…” The SJ Ruling did not erroneously characterize the resell proviso as an exemption. The difference between an exemption and a grant of authority can become somewhat muddled, since any exemption by definition can be viewed as defining the limits of the grant of taxing authority. There has apparently been no Washington appellate court decision that has provided any detailed guidance on how to distinguish between a grant of taxing authority and its exemptions. The closest case law on the subject may be Western Petroleum v. Friedt, 127 Wn. 2d 420 (1995). In Western Petroleum, the court was tasked with determining whether the elimination of an exemption qualified as a tax increase that was prohibited by a citizen’s initiative. In its analysis, the court concluded that a tax exemption relieves certain taxpayers from payment, in whole or in part, from taxes due. Id. at 426. As noted in the City’s response brief, taxation is the “‘rule’” and “‘exemption is the exception.” Quoting TracFone Wireless, Inc. v. Dep't of Revenue, 170 Wn.2d 273, 296-97, 242 P.3d 810 (2010). The Western Petroleum definition serves as a useful starting point in analyzing how to characterize the resell proviso in RCW 35A.82.060. The origin of a city’s taxing authority is RCW 35.21.870, which authorizes a utility tax of up to 6% without voter approval upon the privilege of conducting a telephone business. RCW 35A.82.060 provides more detail on this grant of authority and its exemptions. The language prior to the “PROVIDED” term in RCW 35A.82.060 serves as part of the grant of taxing authority originating from RCW 35.21.870, specifically that cities may impose a tax upon the business activity of engaging in the telephone business as measured by gross receipts derived from toll telephone service. After defining this grant of authority, immediately after “PROVIDED,” the statute states that “…the city shall not impose the fee or tax…” (emphasis added) followed by numerous activities not subject to “the fee or tax,” including the resell proviso. From this structure, it is clear that the language SJ UPON RECONSIDERATION - 6 prior to “PROVIDED” along with RCW 35A.21.870 creates the “the fee or tax” and the language after it identifies the activities that relieve the taxpayer from having to pay the fee or tax, i.e. the activities for which “..the city shall not impose the fee or tax.” As legal authority for its position, Tracfone cites to Qwest Corp. v. City of Bellevue, 161 Wn. 2d 353 (2007). The Qwest case presents a muddled and implied assessment of what constitutes direct taxing authority as opposed to an exemption in RCW 35A.92.060. The case is somewhat confusing because it frames the issue before it as an issue of direct taxing authority, but evaluates that issue by focusing on the construction of an RCW 35A.92.060 exemption, i.e. one of the business activities listed after the PROVIDED term. Ultimately, the court’s analysis can be construed as consistent with other case law applicable to exemptions if the court’s focus on the RCW 35A.92.060 exemption is understood to be a means of clarifying ambiguities in the direct taxing authority granted by RCW 35A.92.060, i.e. the language preceding the PROVIDED term. The primary issue in Qwest was whether RCW 35A.82.060 authorizes cities and towns to tax interstate in addition to intrastate network telephone service. The Qwest court had to determine if Bellevue could tax interstate internet service. Tracfone correctly identifies that the Qwest court treated this question as an issue of direct taxing authority as opposed to an exemption, because in addressing the interstate issue the court concluded that “[a]mbiguities in taxing statutes are construed most strongly against the government and in favor of the taxpayer.” Id. at 364. This stance is the opposite of the treatment given to tax exemptions, where exemptions must be construed “‘strictly, though fairly and in keeping with the ordinary meaning of their language, against the taxpayer.’” Seattle FilmWorks, Inc. v. Dep't of Revenue, 106 Wn. App. 448, 453, 24 P.3d 460 (2001). As previously noted, RCW 35A.82.060 authorizes cities to tax the business activity of engaging in the telephone business as measured by gross revenue derived from intrastate toll telephone service. Despite the explicit limitation to intrastate telephone service in this grant of authority, Division I of the Court of Appeals interpreted RCW 35A.82.060 as also granting the authority to tax interstate telephone service so long as it wasn’t charged to another telecommunications company. See Cmty. Telecable v. Seattle, 136 Wn. App. 169 (2006). Division I came to this conclusion by an analysis of the RCW 35A.92.060 exemptions, finding that an exemption for interstate telephone charges in RCW 35A.82.060 only applied to sales to other telecommunications companies. On this basis, Division I concluded that the interstate internet service it was reviewing wasn’t exempt because the proceeds subject to utility tax weren’t derived from sales/charges to another telecommunications company. Id. at 182. In its analysis the interstate issue, Division I did not address the grant of authority language in RCW 35A.82.060 that provided that the measure of the tax was to be gross revenues derived from intrastate service. At first blush, the limitation to intrastate taxation in the RCW 35A.82.060 grant of authority would appear to limit the grant of authority to intrastate telephone service. As best as can be inferred, Division I must have considered the intrastate reference not to be a limitation on taxing authority but rather just one way the amount of the tax is to be measured. The Qwest court overruled Division I and determined that the utility tax could not be imposed on any charges for interstate telephone service. Like Division I, the Qwest court arrived at its conclusions by SJ UPON RECONSIDERATION - 7 construing the exemption language of RCW 35A.82.060. As stated by the court, “[b]ecause it is undisputed the City may impose a UOT [utility occupation tax] on Qwest’s revenue derived from charges for intrastate service, only the language following the word “PROVIDED” is necessary for resolution of this case.” Id. at 364. The Qwest court also did not identify the intrastate language as limiting a city’s taxing authority. However, from an analysis of the legislative history it concluded that the exemption for interstate service didn’t just apply to charges to telecommunications companies. It found that the interstate exemption was not linked to other language referencing telecommunications companies and instead was a stand-alone exemption that applied to all interstate telephone charges. The Qwest decision is puzzling because it applies a standard of construction that applies only for grants of taxing authority even though it was construing exemptions. To compound the ambiguity, the court itself identified that it was construing exemptions. It characterized the language exempting interstate telephone service as an “exemption,” the language exempting charges to other telecommunications companies as an “exemption” and another clause exempting interstate services subject to federal tariffs as an “exemption.” See Id. at 362, 366 and 367. The issue of whether or not the court was addressing an exemption as opposed to a grant of taxing authority was not explicitly addressed by the court. Reconciling what the court did with the voluminous case law that requires exemptions to be construed against the taxpayer, it appears that the court considered itself to be using the exemption language to reconcile an ambiguity in the grant of authority. As noted previously, the court stated that it had to review language after the “PROVIDED” term because the language before it made it indisputable that cities could tax intrastate service. Since the grant of authority was clear as to its applicability to intrastate service but silent as to interstate service, the silence on interstate service in the granting clause can be construed as an ambiguity of that clause and the exemption language subsequent to the “PROVIDED” term serving as a means to resolve that ambiguity. SJ Ruling Correctly Found Resell proviso to be Ambiguous Tracfone asserts that the SJ Ruling improperly characterized the resell proviso as ambiguous. The SJ Ruling provided two highly detailed reasonable and conflicting interpretations of the resell proviso. On this basis, the resell proviso clearly qualifies as ambiguous. The SJ Ruling did not err in treating the resell proviso as ambiguous. In support of its argument that the resell proviso is not ambiguous, Tracfone correctly notes that for a statutory provision to be considered ambiguous, it must be susceptible to competing reasonable interpretations. Agrilink Foods, Inc. v. Dep’t of Revenue, 153 Wn.2d 392, 396 (2005). In its reconsideration motion, Tracfone asserts that the SJ Ruling doesn’t “does not identify competing reasonable interpretations of” the resell proviso. In point of fact, the SJ Ruling devoted two single- spaced pages to detailing reasonable competing interpretations of the resell proviso. See SJ Ruling, pages 5-8. The resell proviso exempts “charges for network telephone service that is purchased for the purpose of resale.” The ambiguity of this provision is whether Tracfone retailers have in fact purchased network telephone service when they bought Tracfone’s airtime cards for the purpose of SJ UPON RECONSIDERATION - 8 reselling them to the consumer. Using the terminology adopted by Tracfone, are the retailers merely buying plastic as argued by the City, or are they actually purchasing network telephone service? SJ Ruling Correctly Found No Material Question of Fact Pertinent to Applicability of Resell Proviso. Tracfone has not demonstrated any material question of fact on whether airtime is resold to retailers. The facts that form the basis for that legal conclusion are not in dispute. The qualification of the resell proviso as a tax exemption plays a significant role as to whether there are any material questions of fact that bar resolution through summary judgment. This is because tax exemptions are construed narrowly, and the taxpayer has the burden of showing that he qualifies for a particular exemption. Adult Student Housing, Inc. v. Department of Revenue, 41 Wn. App. 583 (1985). When the nonmoving party bears the burden of proof at trial, the party moving for summary judgment can meet its initial burden by pointing out that the nonmoving party lacks sufficient evidence to meet its burden at trial. Guile v. Ballard Community Hosp., 70 Wn. App. 18, 21, 851 P.2d 689 (Div. 1 1993) (citing Young v. Key Pharmaceuticals, Inc., 112 Wn.2d 216, 225 n.1, 770 P.2d 182 (1989)). The burden then shifts to the nonmoving party to produce evidence. Young, 112 Wn.2d at 225. The nonmoving party cannot rely on its pleadings or on speculation or argumentative assertions that unresolved factual issues remain; rather it must set forth specific facts which sufficiently rebut the moving party's contentions and disclose the existence of a genuine issue as to a material fact. Meyer v. University of Washington, 105 Wn.2d 847, 852, 719 P.2d 98 (1986). Under the summary judgment guidelines listed above, Tracfone has the burden of proof in establishing exemption status under the resell proviso. As such, if the City as the moving summary judgment party demonstrates that Tracfone has insufficient evidence to establish that it qualifies for the resell exemption, then Tracfone bears the burden to set forth specific facts which sufficiently rebuts the City’s claim that the exemption is inapplicable. As shall be discussed, Tracfone’s conflicting “facts” are largely opposing legal conclusions and argumentative assertions that unresolved factual issues remain. The one true fact that Tracfone does present is not pertinent or compelling enough to sufficiently rebut the City’s contentions and reveal that Tracfone does not sell network telephone service to its retail agents for the purpose of resale. In its reconsideration motion, Tracfone asserts that there is a material question of fact as to whether Tracfone or third-party retailers sell airtime to consumers. This position lacks the precision necessary to accurately assess whether the resell proviso applies. The RCW 35A.82.060 resell proviso applies to charges for “network telephone service” that are purchased for the purpose of resale. The airtime referenced by Tracfone is that “network telephone service.” RCW 82.16.010 (7)(b) (ii) defines “network telephone service” as either (1) providing access to a telephone network or (2) providing telephonic, video, data, or similar communication or transmission for hire, via a telephone network or similar transmission system. Ultimately, the SJ Ruling made the legal conclusion that if Tracfone directly provides network telephone service to the consumer, there is no sale of that service to its retail agents. The pertinent facts, therefore, are either (1) whether Tracfone provides access to a telephone network to its retail agents for resale or (2) whether it provides telephonic, video, data, or similar SJ UPON RECONSIDERATION - 9 communication or transmission for hire via a telephone or similar communications network to its retail agents for resale. Applying the “network telephone service” definition outlined above, the SJ Ruling determined that based upon uncontested and material facts, Tracfone provides network telephone service directly to its consumers without resale from its retail agents. The facts upon which this legal conclusion was based were as follows: 1. As between Tracfone and its retailers/distributers: a. Only Tracfone has a contractual relationship with the network carriers. b. Only Tracfone gives consumers final authorization to connect to the carrier networks. c. Only Tracfone imposes terms of use. d. Only Tracfone can terminate service for violating the terms of use. 2. The money that Tracfone acquires from its sales to retail agents and/or distributors is how Tracfone is compensated for the service it ultimately provides to the consumer for sales that involve retail agents/distributors. The facts listed above are the basis of the legal conclusion that for purposes of the RCW 35A.82.060 resell proviso, Tracfone’s retail agents/distributors are not purchasing network telephone service. Tracfone disputes none of those facts. In its request for reconsideration, Tracfone’s sole reference to an alleged disputed fact is a Declaration statement from its President for Taxation, Chelsey Dillon: TracFone’s wholesale sales of prepaid wireless airtime are made to retailers…who purchase the prepaid wireless airtime for the purpose reselling it at retail to end users…TracFone does not control the price at which retailers and distributors resell prepaid wireless airtime. The amounts charged by retailers who make retail sales of prepaid wireless airtime that they purchased for resale (at wholesale) is not TracFone’s income, it is the income of the retailer who makes the retail sale. With one exception, there is nothing in the statement quoted above that creates a material questi on of fact as to whether Tracfone is providing network telephone service to consumers. Mr. Dillon’s statement that “wholesale sale of prepared wireless airtime are made to retailers” is not a fact, it is the legal conclusion that is at the heart of whether the resell proviso applies. Mr. Dillon’s statement that TracFone has no control over the prices set by its retail agents is uncontested by the City and has no SJ UPON RECONSIDERATION - 10 material bearing on whether Tracfone is selling network telephone service directly to consumers when its retail agents are involved. The one fact in Mr. Dillon’s statement that supports the Tracfone position that it’s selling network telephone service to its retail agents is the comment that the retail income from the retail agent’s sale of airtime should not be considered income of Tracfone. This fact was recognized in a slightly different form in the SJ Ruling that the retail agent is the source of income for Tracfone’s network telephone service.4 Another fact in support of Tracfone’s position, also uncontested, is that retail agents in some circumstances must give electronic notice to Tracfone at the sales register when a consumer purchases an air card. See January 29, 20201 Ashpaugh Dec., par. 12. Both of these facts marginally support the position that network telephone service is sold to retail agents. However, the facts are not significant enough to “sufficiently rebut” as required by the Meyer case the City’s assertion that Tracfone has final and ongoing control over consumer access to network telephone facilities and the associated provision of the services available from those facilities as laid out in the network telephone service definition. The nominal facts presented by Tracfone do nothing to establish or, more importantly suggest, that a hearing on the nature of Tracfone’s services will result in any additional material evidence that would be relevant to establishing whether the resell proviso applies to Tracfone. In its reconsideration motion, Tracfone also tries to create a material question of fact over whether Tracfone as opposed to its retail agents activates airtime cards. The SJ ruling recognized that Tracfone and the City strongly disagree over who does the activation. However, the SJ ruling also noted that this disagreement is based upon differing opinions about what activation means. There is no disagreement between the parties as to how access to the network is controlled, which is the only part of the activation issue that is pertinent to resolving the factual issue of whether Tracfone is selling network telephone service to its retail agents. As outlined in the SJ ruling, there is no material disagreement between the parties as to how the final steps to consumer network access are carried out. When airtime cards are sold by a retail agent to a consumer, TracFone is notified electronically when the purchase is scanned if this hasn’t been already done prior to purchase. After purchase, for what Mr. Ashpaugh describes as the second step, the airtime cannot be used unless and until the consumer contacts the Tracfone website by phone or website, at which point Tracfone assigns the phone to a network carrier and sends a signa to the equipment making it available to send and receive wireless calls. January 29, 2021 Asphpaugh Decl., par. 12. Tracfone at no point disputes the necessity of the second step. Its sole dispute is that the second step qualifies as part of the “activation” of the consumer’s cell phone. Whether or not that second step qualifies as “activation,” whatever that means to Tracfone, 4 More precisely, the SJ Ruling noted at p. 5-6 that the “sales price between Tracfone and its retailers and presumably distributors includes the price of network telephone service.” This was written under the erroneous understanding that airtime charges were sometimes combined with handset charges as discussed in the first section of this reconsideration decision. With the proper understanding that airtime charges are always separate from handset charges, it must be recognized that the sales price between Tracfone and its retailers doesn’t m erely “include” the price of network telephone service that Tracfone receives, it is likely the entire source of income that Tracfone receives for the ultimate sale of Tracfone’s service to the consumer. SJ UPON RECONSIDERATION - 11 is irrelevant to whether Tracfone controls final and ongoing access to a telephone network to the consumer, the dispositive factual issue for the resell proviso. Ruling Tracfone’s motion for reconsideration is granted in part. The SJ Ruling is overturned to the extent that it finds gross proceeds from the sale of handsets subject to the RCW 35A.82.060 telephone utility tax. That issue should be considered beyond the scope of the SJ Ruling and has the status of an unresolved issue. The rest of Tracfone’s motion for summary judgment is denied. DATED this 19th day of April 2021. City of Renton Hearing Examiner