Assurance Wireless, USA, LP v. Wash. Dep't of Revenue

• Decision Date: 27 December 2022
• Docket Number: 83089-9-I
• Parties: ASSURANCE WIRELESS, USA, LP, f/k/a Virgin Mobile USA, LP, Appellant, v. State of Washington DEPARTMENT OF REVENUE, Respondent.
• Court: Washington Court of Appeals

522 P.3d 65

ASSURANCE WIRELESS, USA, LP, f/k/a Virgin Mobile USA, LP, Appellant,

v.State of Washington DEPARTMENT OF REVENUE, Respondent.

No. 83089-9-I

Court of Appeals of Washington, Division 1.

Filed December 27, 2022

Scott M. Edwards, Brett S. Durbin, Lane Powell PC, 1420 5th Ave., Ste. 4200, Seattle, WA, 98101-2375, Alla Raykin, Eric Tresh, 999 Peachtree St. NE, Suite 2300, Atlanta, GA, 30309, for Appellant.

Charles E. Zalesky, Attorney General of Washington, P.O. Box 40123, Olympia, WA, 98504-0123, Rosann Fitzpatrick, WA Board of Tax Appeals, 1110 Capitol Way S Suite 300, Olympia, WA, 98504-0915, for Respondent.

Rachel Hill Herd, Davis Wright Tremaine LLP, 920 5th Ave., Ste. 3300, Seattle, WA, 98104-1610, Mark P. Trinchero, 1300 SW 5th Ave., Suite 2400, Portland, OR, 97201, for Amicus Curiae on behalf of National Rural Education Assoc.

Jeffrey David Lombard, Attorney at Law, 1700 7th Ave., Ste. 1900, Seattle, WA, 98101-1355, for Amicus Curiae on behalf of Americans for Tax Reform.

PUBLISHED OPINION

Birk, J. ¶ 1 Assurance Wireless is a telecommunications provider that participates in the Federal Communications Commission (FCC) "Lifeline" program, which is intended to aid qualifying low-income consumers in obtaining telecommunications services. The Washington State Department of Revenue (Department) assessed retailing business and occupation (B&O) taxes and sales taxes on funds Assurance received from the Universal Service Administrative Company (USAC) for its participation in the Lifeline program. Assurance appealed this assessment to the Board of Tax Appeals (Board), asserting that its receipt of funds from USAC is not associated with any retail sale as defined under Washington tax law, and, alternatively, that the taxes are unconstitutional because they fall on the federal government or an instrumentality of the federal government. The Board granted summary judgment to the Department. We agree there are no genuine issues of material fact and affirm the Board's determinations that a taxable retail sale occurred and that the tax does not fall on the federal government or an instrumentality of the federal government.

I

¶ 2 Assurance Wireless USA LP is a telecommunications company that provides wireless telecommunications services to consumers in Washington and elsewhere, including Lifeline services. Lifeline is a federal program that is designed to make telecommunication services more affordable for qualifying low-income consumers. The FCC prescribes the minimum services that an eligible carrier must offer and regulates other aspects of the program, including consumer eligibility requirements. The Assurance Lifeline plan provides eligible consumers a free wireless phone and free monthly services that consist of a fixed amount of voice minutes, text messages, and data. A subscriber can purchase additional voice or text services if they desire a greater level of service than the baseline monthly plan.

¶ 3 The Lifeline program is administered by the USAC. USAC is "a not-for-profit, independently, wholly-owned subsidiary of the National Exchange Carrier Association, Inc." The record discloses that according to its website, "USAC is not a federal government agency or department or a government controlled corporation." USAC collects funds from telecommunications carriers, which are required by federal law to make contributions to the Universal Service Fund (USF) supporting the Lifeline program and other universal service programs. See 47 U.S.C. § 254(d) ("Every telecommunications carrier that provides interstate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms established by the [FCC] to preserve and advance universal service."). USAC administers the collection and disbursement of the USF funds. Id. The Congressional Budget Office treats USF funds as federal funds, though they are not federally-appropriated. 47 U.S.C. § 254(d) ; 47 C.F.R. § 54.706 ; Tex. Office of Pub. Util. Counsel v. Fed. Commc'ns Comm'n, 183 F.3d 393, 427 (5th Cir. 1999) ; In re LAN Tamers, Inc., 329 F.3d 204, 206 (1st Cir. 2003).

¶ 4 To receive reimbursements, Assurance must file FCC form 497. The form requires Lifeline providers to report the number of Lifeline subscribers as of the first day of the month. Assurance receives a reimbursement of $9.25¹ for each non-Tribal subscriber² who has used the service within the last 30 days, a reimbursement rate established by federal law. 47 C.F.R. § 54.403(a)(1). To receive Lifeline funds, Assurance must attest:

I certify that my company will pass through the full amount of all Non-Tribal and Tribal federal Lifeline support for which it seeks reimbursement, as well as all applicable intrastate Lifeline support, to all qualifying low-income subscribers by an equivalent reduction in the subscriber's monthly bill for voice telephony service, or by offering a pre-paid wireless plan that includes a set number of minutes of use per month.

(Emphasis added.) Assurance implements a business rule to exclude 2 percent of the total number of its Lifeline recipients in each state when submitting its attestation, to ensure that it does not claim more Lifeline funds than it is entitled to receive.

¶ 5 The Department audited Assurance's excise tax records for the period of January 2010 through December 2016 and issued assessments for B&O taxes, retail sales taxes, and interest. Assurance paid the assessments and sought refunds of $3,895,840 in taxes together with associated penalties and interest. Assurance appealed to the Department's Administrative Review and Hearings Division for review of the assessment. The Department denied Assurance's petitions and upheld the assessments. Assurance timely appealed the assessments to the Board.

¶ 6 The Department moved for summary judgment, arguing that the issues raised by Assurance were questions of law, not fact, and that the assessments should be upheld. The Board granted the Department's motion for summary judgment. The Board concluded that "the items that [Assurance] claims are material facts in dispute are actually legal arguments, and that there [were] no material facts in dispute." The Board concluded that "[t]here is no preemption that prohibits the state from applying its generally applicable retail sales tax to the sale of telecommunication services to consumers in Washington, even if the buyer is a third party." Assurance appeals, arguing that the evidence created "questions of fact" concerning whether there is any taxable "retail sale" involved in providing Lifeline plans to consumers. Alternately, Assurance argues Lifeline program funds are immune from state tax under the supremacy clause of the United States Constitution.

II

¶ 7 This court reviews an order granting summary judgment de novo. Young v. Key Pharms., Inc., 112 Wash.2d 216, 226, 770 P.2d 182 (1989). We review the evidence in the light most favorable to the nonmoving party, here, Assurance. Id. Summary judgment is appropriate where the written record shows there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. Balise v. Underwood, 62 Wash.2d 195, 199, 381 P.2d 966 (1963). A material fact is one upon which the outcome of the litigation depends. Haines-Marchel v. Dep't of Corr., 183 Wash. App. 655, 662, 334 P.3d 99 (2014). In a summary judgment motion, the moving party bears the initial burden of showing the absence of any issue of material fact. LaPlante v. State, 85 Wash.2d 154, 158, 531 P.2d 299 (1975). To defeat a motion for summary judgment, the nonmoving party must, by affidavits or as otherwise provided in CR 56, set forth specific facts establishing a genuine issue for trial. Young, 112 Wash.2d at 225-26, 770 P.2d 182.

¶ 8 Here, the parties do not dispute the material facts or the reasonable inferences that can be drawn from them. There is no dispute about the process through which Lifeline services are provided and the Lifeline funds are received. Assurance bears the burden to prove that it is entitled to the tax refund it is claiming. Everi Payments, Inc. v. Dep't of Revenue, 6 Wash. App. 2d 580, 590, 432 P.3d 411 (2018). The issue before us is whether the Board correctly determined that Assurance had not met its burden to prove it is entitled a tax refund, which is a question of law that we review de novo. See Bravern Residential II, LLC v. Dep't of Revenue, 183 Wash. App. 769, 776, 334 P.3d 1182 (2014). Statutory interpretation is a question of law that we review de novo. Ekelmann v. City of Poulsbo, 22 Wash. App. 2d 798, 807, 513 P.3d 840 (2022).

A

¶ 9 A person³ making retail sales in Washington is subject to retailing B&O tax and is also required to collect retail sales tax, unless an exemption applies. RCW 82.04.220 ; RCW 82.08.020, .050(1). The retailing B&O tax is imposed on the seller as a percentage of a business's gross receipts, and the retail sales tax is a percentage of the selling price on each retail sale. RCW 82.04.250 ; RCW 82.08.020. The retail sales tax must be paid by the buyer to the seller, and the seller must collect the full amount of tax payable. RCW 82.08.050. If the seller fails to collect the tax, whether as the result of the seller's own acts or the result of acts or conditions beyond the seller's control, the seller is personally liable to the state for the amount of the tax. RCW 82.08.050(3).

¶ 10 A "retail sale" is the sale of tangible personal property to all persons, unless it is a sale that qualifies for an exception. RCW 82.04.050(1)(a). Under RCW 82.04.050(5), retail sales include providing "telecommunications service." "Telecommunications service" is defined as "the electronic transmission, conveyance, or routing of voice, data, audio, video, or other information or signals to a point, or between or among points." RCW 82.04.065(27). "Prepaid wireless calling service" is a telecommunication service that "provides...