Collector of Winchester v. Charter Commc'ns, ED109513

• Court: Court of Appeal of Missouri (US)
• Writing for the Court: JAMES M. DOWD, JUDGE
• Parties: COLLECTOR OF WINCHESTER, MISSOURI, AND CITY OF WINCHESTER, MISSOURI, Respondents, v. CHARTER COMMUNICATIONS, INC., AND CHARTER COMMUNICATIONS, LLC, Defendants, CHARTER FIBERLINK - MISSOURI, LLC, AND CHARTER ADVANCED SERVICES (MO), LLC, Appellants.
• Docket Number: ED109513
• Decision Date: 26 July 2022

COLLECTOR OF WINCHESTER, MISSOURI, AND CITY OF WINCHESTER, MISSOURI, Respondents,
v.
CHARTER COMMUNICATIONS, INC., AND CHARTER COMMUNICATIONS, LLC, Defendants,

CHARTER FIBERLINK - MISSOURI, LLC, AND CHARTER ADVANCED SERVICES (MO), LLC, Appellants.

No. ED109513

Court of Appeals of Missouri, Eastern District, Fourth Division

July 26, 2022

Appeal from the Circuit Court of St. Louis County 10SL-CC02719 Honorable Michael T. Jamison

Michael E. Gardner, C.J., James M. Dowd, J., and Lisa P. Page, J.

OPINION

JAMES M. DOWD, JUDGE

This class action arose when Appellants Charter Fiberlink - Missouri, LLC, and Charter Advanced Services (MO), LLC^[1] declined to pay to the City of Winchester, Missouri, and to the

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123 other Missouri jurisdictions comprising the class here,^[2] the business license tax each jurisdiction imposed, pursuant to ordinance, on telephone service providers doing business in their jurisdictions. Charter opposed the taxes on a number of bases addressed below including federal preemption in which Charter claims the technology it employs to deliver its telephone service, known as "voice over internet protocol" or VoIP, is not a "telecommunications service" that Class Members may tax, but is an "information service" which they may not.

Winchester instituted this action on July 9, 2010, and so began 10 years of litigation before the trial court - the Honorable Michael T. Jamison - in which the court issued numerous partial judgments and orders. In its final judgment, the court found in favor of the Class and ordered Charter to pay a total of $39,048,386 in damages consisting of the unpaid taxes from July 9, 2005 to December 22, 2020, pre-judgment interest, post-judgment interest, attorney's fees, and legal expenses.

Charter now appeals, raising a total of six points. Points I, II, III, V, and VI relate to all Class Members, and Point IV relates to St. Louis County only.^[3] In Points I and II, Charter argues that given its use of VoIP technology to deliver telephone service, the Telecommunications Act of 1996, 47 U.S.C. §§ 151 et seq. ("the Telecom Act of 1996" or "the Telecom Act"), and the Cable Communications Policy Act of 1984, 47 U.S.C. §§ 521-573 ("the Cable Act of 1984" or "the Cable Act"), preempt the Class Members' business license tax ordinances at issue in this case. In Point III, Charter asserts the trial court erred in finding that Charter Fiberlink was a "telephone company" providing "telephone service" subject to the Class Members' business license taxes because the relevant tax-enabling statutes and the ordinances at issue failed to

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define the terms "telephone company," "telephone," or "telephone service" to specifically include VoIP-enabled telephone service. In Point V, Charter contends the trial court erred by failing to give individualized treatment and effect to each Class Member's ordinance language given differences among the various ordinances. In Point VI, Charter argues the trial court erred by hearing the case at all because the alleged ordinance violations at issue here should have been adjudicated in municipal court. And in Point IV, Charter claims the trial court should have dismissed St. Louis County from the case because Missouri's tax-enabling statute, § 66.300,^[4]grants first-class counties the power to tax "exchange telephone service" and St. Louis County is no longer a first-class county by virtue of a 1995 amendment to Missouri Constitution Art. VI, § 18(a). Because we find in favor of all Class Members on Points I, II, III, V, and VI, and because we find in favor of St. Louis County on Point IV, we affirm the judgment of the trial court.

I. BACKGROUND

A. Relevant Facts Including Factual Findings Made by the Trial Court

Winchester, the Class representative, is a fourth-class city located in St. Louis County. Since 1968, Winchester has imposed a license tax on businesses that supply "telephone or telephone service" in Winchester under the following code provision:

Pursuant to the laws of Missouri, every firm, person or corporation now or hereafter engaged in the business of supplying or furnishing telephone or telephone service in the City of Winchester, Missouri, shall pay to the said City as a license or occupational tax six percent (6%) of the gross receipts derived from such business within the said City

Winchester Municipal Code § 615.150.^[5]

Charter employs VoIP technology to provide telephone service to its customers in Missouri. VoIP enables real time, two-way calling between two VoIP customers or between a

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VoIP and a non-VoIP, traditional telephone customer over Charter's broadband cable network. When a Charter customer places a call to another VoIP user, the sound waves created by the customer's voice are converted into digital data packets which are then transmitted over Charter's network to the call's recipient whereupon the data packets are converted back to sound waves. When a Charter customer calls a traditional telephone user, the data packets are converted into electrical signals in order to transmit the voice content to a recipient over the traditional public switched telephone network or PSTN, which has been in use since the 19th century. Charter's VoIP service is considered to be "interconnected" because Charter's VoIP customers can make and receive telephone calls in real time with other VoIP users or with traditional PSTN users.

In its advertising, Charter markets its VoIP-enabled telephone service as "Charter Phone" and provides the service through its franchised cable system over which it also delivers voice, video, and other data including cable television. Charter Phone uses a simulated dial tone, uses phone numbers, and provides features such as call forwarding, call screening, call waiting, speed dialing, repeat dialing, and three-way calling. Additionally, Charter describes its telephone service as "not an internet phone service, requiring special phones and internet connections, but as a traditional local and long-distance telephone service that makes use of the latest technology, VoIP."

The trial court found that Charter advertises Charter Phone as being "just like traditional wireline services, [and that] Charter Phone works through regular telephone jacks and phones, and provides access to 911 emergency services and directory listings." The trial court also found that "Charter offers its customers regular telephone service that happens to be provided using a different technology [, and that] Charter considers its service functionally equivalent to that provided by traditional wire-line service providers."

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In 2000, Charter formed Charter Fiberlink to provide telephone service using VoIP to its Missouri customers. Charter Fiberlink is licensed to do business in Missouri only. In April 2001, it received a certificate from the Missouri Public Service Commission ("the Public Service Commission" or "the PSC") to provide basic local and interexchange telecommunications services in Missouri. In its filings with the PSC, Charter Fiberlink represented it was a competitive facilities-based provider of telephone services, that it was a telephone company, and that it provided local exchange service.

Charter Fiberlink did not register with the PSC as an interconnected VoIP provider under § 392.550,^[6] but instead registered as a competitive local exchange carrier, i.e., a traditional telephone service provider, through which it operated and provided its VoIP-enabled telephone service. Also, for tax purposes, Charter Fiberlink considered itself a traditional telephone service provider. As such, it collected through its customer billing any required taxes and forwarded them to the appropriate taxing agency.

In March 2013, Charter transferred its Charter Phone service from Fiberlink to a new subsidiary called Charter Advanced Services. Like Fiberlink, Charter Advanced is licensed to do business in Missouri only, but unlike Fiberlink, Charter Advanced registered as a VoIP provider under § 392.550. When it registered in March 2013, Charter Advanced agreed "going forward to charge, collect, and remit fees and surcharges in the same manner as . . . local exchange telecommunications companies including . . . [a]ny applicable license tax."

As a cable company, Charter pays a franchise fee to "franchising authorities" such as Winchester, other Missouri municipalities/cities, and St. Louis County, which have granted

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Charter a franchise to own and operate its cable system in each franchising authority's jurisdiction.

B. Procedural History

Winchester's first amended petition set forth two counts in equity; initially, St. Louis County was not a part of the suit and the proposed class consisted of only Winchester as a proposed class of "at least 100 Missouri municipalities" ("the initial proposed class members"). Count I sought a declaratory judgment that the initial proposed class members' ordinances were applicable to Charter's gross receipts generated by its telephone business in each of those jurisdictions. Count II sought from Charter the back-taxes owed along with penalties and interest in the event the trial court found in favor of the initial proposed class members on Count I. In response to Winchester's petition, Charter raised a number of affirmative defenses including federal preemption under the Telecom Act of 1996 and the Cable Act of 1984.^[7]

In September 2013, Charter moved to dismiss a parallel suit St. Louis County had filed against Charter which sought relief similar to Winchester's petition. Charter claimed that in light of the 1995 Amendment to Mo. Const. Art. VI, § 18(a), St. Louis County, as a charter county, was no longer considered a first-class county and, therefore, it lost the authority under § 66.300 to tax gross receipts of exchange telephone service providers. The trial court denied Charter's motion. In August 2015, St. Louis...