Capitol City Telephone v. Dept. of Revenue
| Decision Date | 09 August 2002 |
| Docket Number | No. S-00-879, No. S-01-558. |
| Citation | 264 Neb. 515,650 N.W.2d 467 |
| Parties | CAPITOL CITY TELEPHONE, INC., a Nebraska corporation, Appellant, v. NEBRASKA DEPARTMENT OF REVENUE, an agency of the State, and Mary Jane Egr, Tax Commissioner, Appellees. Aliant Communications Co., doing business as Alltel, a Delaware corporation, and Aliant Systems, Inc., doing business as Alltel, a Nebraska corporation, Appellees and Cross-Appellants, v. Nebraska Department of Revenue, an agency of the State of Nebraska, and Mary Jane Egr, Tax Commissioner, Appellants and Cross-Appellees. |
| Court | Nebraska Supreme Court |
Michael L. Schleich, of Fraser, Stryker, Meusey, Olson, Boyer & Bloch, P.C., Omaha, for appellant Capitol City Telephone, Inc., in No. S-00-879.
Don Stenberg, Attorney General, and L. Jay Bartel, Lincoln, for appellees Nebraska Department of Revenue and Mary Jane Egr in No. S-00-879.
Don Stenberg, Attorney General, and L. Jay Bartel, Lincoln, for appellants Nebraska Department of Revenue and Mary Jane Egr in No. S-01-558.
Paul M Schudel and Shannon L. Doering, of Woods & Aitken, L.L.P., Lincoln, for appellees Aliant Communications Co. and Aliant Systems, Inc., in No. S-01-558.
These consolidated cases involve appeals from the Nebraska Department of Revenue (the Department). Capitol City Telephone, Inc. (Capitol); Aliant Communications Co. (Aliant); and Aliant Systems, Inc. (Systems), were each audited and issued deficiency assessments by the Department.
Aliant filed a petition for redetermination and paid the alleged deficiency. Systems paid the alleged deficiency and filed a claim of overpayment of sales and use tax. The cases of Aliant and Systems were consolidated. A hearing on that consolidated case was held before a hearing officer of the State Tax Commissioner (the Commissioner). The issues in the district court, according to Aliant's brief, were as follows: (1) whether gross receipts from charges by Aliant and Systems associated with installations, moves, additions, upgrades, or changes of inside wire, station connection, and terminal connections, performed within the premises of businesses or residences at locations commonly referred to as a "customer side" of the "demarcation point" (D mark), are subject to Nebraska sales tax pursuant to Neb.Rev. Stat. §§ 77-2703(1) and 77-2702.07(2) (Cum.Supp.2000); (2) whether imposition of sales tax on charges by Aliant and Systems associated with installations, moves, additions, upgrades or changes of inside wire, station connections, and terminal connections, when sales taxes assertedly not imposed on similar telephone equipment installed by others, constitutes an unreasonable classification in violation of the equal protection clause; and (3) whether the doctrine of equitable estoppel should be applied.
The hearing officer sustained the deficiency determination issued to Aliant and denied Systems' claim for overpayment of sales and use tax. Aliant and Systems then appealed to the district court for Lancaster County which set aside the orders of the Department and the Commissioner. The trial court found that Aliant and Systems are not subject to sales tax, interest, or penalties relating to the gross receipts from the installation and labor charges on the customer side of the D mark, but found that the elements of equitable estoppel had not been proved. The trial court did not address the second issue, the equal protection claim. From that, the Department appeals to this court.
Capitol, after being issued a deficiency assessment by the Department, filed a petition for redetermination, and a hearing was held before a hearing officer of the Commissioner. The issue was whether the portion of the Department's assessment of sales tax on Capitol's gross receipts relating to trip and labor charges, installation charges, and programming charges for installing, connecting, and servicing new telephone systems and related equipment, and for moving, changing, and upgrading existing telephone equipment and features, was properly subject to sales tax in Nebraska. It should be noted that all of Capitol's charges were on the customer side of the D mark. The deficiency assessment was upheld. Capitol appealed to the district court for Lancaster County which affirmed the decision. The district court found that under § 77-2702.07(2), gross receipts shall also mean gross income received from the provision, installation, construction, servicing, or removal of property used in connection with the furnishing, installing, or connecting of telephone communication service. Because of the substantially similar questions involved in these cases, they have been consolidated for this court's review and determination.
On March 1, 1983, the Nebraska Public Service Commission issued an order directing that telephone customers would be responsible for the installation, repair, and maintenance of new inside station wiring and for the repair and maintenance of existing station wiring. Telephone customers were also allowed to purchase their own terminal equipment from sources other than the service provider.
The telephone company was to continue to own its facilities up to the D mark. The D mark is the point at which the facilities that are owned and maintained by the telephone company are connected to the inside station wiring owned by and dedicated to an individual customer's use. Commencing June 1, 1983, ownership of inside wire, station connections, and terminal equipment within the premises of businesses and residences on the customer's side of the D mark was transferred to the customers.
Prior to 1986, separately stated charges for labor and services rendered in installing or connecting tangible personal property were excluded from the definition of gross receipts and, therefore, were not subject to taxation. In 1986, the Nebraska State Legislature extended the sales and use tax to the gross receipts of any person involved in connecting and installing telephone, telegraph, gas, electricity, sewer, water, and community antenna service. 1986 Neb. Laws, L.B. 1027. The following year, the Legislature removed the sales and use tax on the gross receipts of any person involved in installing and connecting sewer, water, gas, and electrical service. 1987 Neb. Laws, L.B. 523. The sales and use tax on the gross receipts of telephone, telegraph, and community antenna television service was retained.
Section 77-2703(1), which amendments have not substantively changed the applicable law in effect during Capitol's, Aliant's, and Systems' audit periods beginning in 1993, provides in relevant part:
There is hereby imposed a tax at the rate provided in section 77-2701.02 upon the gross receipts from all sales of tangible personal property sold at retail in this state, the gross receipts of every person engaged as a public utility, as a community antenna television service operator or any person involved in the connecting and installing of the services defined in subdivision (2)(a), (b), or (d) of section 77-2702.07....
The current version of § 77-2702.07(2), which amendments also have not substantively changed the applicable law in effect during the audit periods beginning in 1993, defines "gross receipts" to include the following:
....
(d)....
Gross receipts shall also mean gross income received from the provision, installation, construction, servicing, or removal of property used in conjunction with the furnishing, installing, or connecting of any public utility services specified in subdivision (2)(a) or (b) of this section or community antenna television service specified in subdivision (2)(d) of this section. Gross receipts shall not mean gross income received from telephone directory advertising.
On September 22, 1986, Roger W. Hirsch, then the deputy Tax Commissioner, wrote a "Dear Telephone Company" letter. The letter stated that telephone companies would be taxed only on installation charges relating to the assembly and placement of components necessary to effect delivery of service from the company's general delivery system up to, but not beyond, the point where the service entered a customer's premises. The Commission has changed its position since this letter was sent, but the record does not reveal any specific documentation regarding this change.
In 1993, the Department's regulation regarding telephone and telegraph communication services, 316 Neb. Admin. Code, ch. 1, § 065.05 (1994), was formally amended in contravention of the...
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