GTE North, Inc. v. Zaino

• Decision Date: 03 July 2002
• Docket Number: No. 2001-0694.,2001-0694.
• Citation: 96 Ohio St.3d 9,770 NE 2d 65
• Parties: GTE NORTH, INC., APPELLANT, v. ZAINO, TAX COMMR., APPELLEE.
• Court: Ohio Supreme Court

96 Ohio St.3d 9

2002-Ohio-2984

770 NE 2d 65

2002-Ohio-2984

GTE NORTH, INC., APPELLANT, v. ZAINO, TAX COMMR., APPELLEE.

No. 2001-0694.

Supreme Court of Ohio.

Submitted February 27, 2002.

Decided July 3, 2002.

Thompson Hine, L.L.P., and John T. Sunderland, for appellant.

Betty D. Montgomery, Attorney General, and James C. Sauer, Assistant Attorney General, for appellee.

MOYER, C.J.

{¶ 1} This cause originated as a challenge by appellant taxpayer GTE North, Inc., now known as Verizon North, Inc. ("GTE"), to a final determination of Roger Tracy, predecessor of Thomas Zaino, appellee, the Tax Commissioner of Ohio. GTE challenged the commissioner's tax assessments of its public utility property for four tax years, including 1997, and ultimately appealed to the Board of Tax Appeals ("BTA"). GTE challenged the constitutionality of the assessment rates prescribed in R.C. 5727.111(B). GTE contended that application of that statute resulted in a violation of the Equal Protection Clauses of the Ohio and United States Constitutions.

{¶ 2} The BTA held a hearing and received evidence submitted by both parties. Thereafter, pursuant to Cleveland Gear Co. v. Limbach (1988), 35 Ohio St.3d 229, 520 N.E.2d 188, and MCI Telecommunications Corp. v. Limbach (1994), 68 Ohio St.3d 195, 625 N.E.2d 597, the BTA affirmed the commissioner's determination based on its recognition that it lacked jurisdiction to determine GTE's constitutional challenge. The cause is before this court upon an appeal as of right.

{¶ 3} The statute challenged by GTE, former R.C. 5727.111, provided for tax year 1997 as follows:

{¶ 4} "The taxable property of each public utility * * * and of each interexchange telecommunications company shall be assessed at the following percentages of true value:

{¶ 5} "* * *

{¶ 6} "(B) In the case of a telephone * * * company, the percentage provided under (D) of section 5711.22 of the Revised Code for taxable property first subject to taxation in this state for tax year 1995 or thereafter, and eighty-eight per cent for all other taxable property;

{¶ 7} "* * *

{¶ 8} "(G) The percentage provided under division (D) of section 5711.22 of the Revised Code in the case of an interexchange telecommunications company." 146 Ohio Laws, Part I, 1664.

{¶ 9} R.C. 5711.22(D), referred to in the foregoing statute, established a twenty-five percent assessment rate. 146 Ohio Laws, Part I, 1659.

{¶ 10} The commissioner determined that GTE is a "telephone company" subject to R.C. 5727.111(B). Accordingly, its taxable personal property that was first subject to tax after 1994 is assessed at twenty-five percent; the remainder is assessed at eighty-eight percent. Id. In contrast, all the taxable personal property of interexchange telecommunications companies, with which GTE competes for certain segments of telephone business, is assessed at twenty-five percent of true value. Former R.C. 5727.111(G) and 5711.22(D). GTE claims that it is thereby denied equal protection of the law.

{¶ 11} In the property tax report filed by GTE for tax year 1997, the value of its property assessed at eighty-eight percent of true value was $418,874,324 and the value of its property assessed at twenty-five percent of true value was $233,842,764. GTE estimates that assessing some of its property at eighty-eight percent instead of twenty-five percent resulted in an additional tax liability of $16.8 million for tax year 1997.

{¶ 12} The terms "telephone company" and "interexchange telecommunications company" as used in R.C. 5727.111 are defined in R.C. 5727.01. "Public utility" is defined in R.C. 5727.01(A) as including each "person referred to as a telephone company." R.C. 5727.01(D) defines "telephone company" as follows:

{¶ 13} "(D) Any person:

{¶ 14} "* * *

{¶ 15} "(2) Is a telephone company when primarily engaged in the business of providing local exchange telephone service, excluding cellular radio service, in this state;

{¶ 16} "* * * {¶ 17} "As used in division (D)(2) of this section, `local exchange telephone service' means making available or furnishing access and a dial tone to an persons within a local calling area for use in originating and receiving voice grade communications over a switched network operated by the provider of the service within the area and for gaining access to other telecommunication services." (Emphasis added.)

{¶ 18} The term "interexchange telecommunications company" is separately defined in R.C. 5727.01(H):

{¶ 19} "Interexchange telecommunications company' means a person that is engaged in the business of transmitting telephonic messages to, from, through, or in this state, but that is not a telephone company."

{¶ 20} Thus, while interexchange telecommunications companies ("interexchange companies") are assessed and taxed under R.C. Chapter 5727, they are not considered to be telephone companies for the purposes of that chapter.

{¶ 21} It is well settled that the assessment of taxes is fundamentally a legislative responsibility and that a taxpayer challenging the constitutionality of a taxation statute "must negate every conceivable basis which might support it." Lyons v. Limbach (1988), 40 Ohio St.3d 92, 94, 532 N.E.2d 106; Weed v. Franklin Cty. Bd. of Revision (1978), 53 Ohio St.2d 20, 21, 7 O.O.3d 63, 372 N.E.2d 338. We have acknowledged that, generally, "`legislatures are presumed to have acted within their constitutional power despite the fact that, in practice, their laws result in some inequality.'" MCI Telecommunications Corp. v. Limbach (1994), 68 Ohio St.3d 195, 199, 625 N.E.2d 597, quoting McGowan v. Maryland (1961), 366 U.S. 420, 425-426, 81 S.Ct. 1101, 6 L.Ed.2d 393.

{¶ 22} A taxpayer is denied equal protection when a similarly situated competitor is allowed to grossly undervalue its property for tax purposes, the former is not authorized to assess its property in the same manner, and there is no rational basis for the disparate treatment. Boothe Financial Corp. v. Lindley (1983), 6 Ohio St.3d 247, 250, 6 OBR 315, 452 N.E.2d 1295; Allegheny Pittsburgh Coal Co. v. Webster Cty. Comm. (1989), 488 U.S. 336, 109 S.Ct. 633, 102 L.Ed.2d 688. The comparison of only similarly situated entities is integral to an equal protection analysis. That is, legislative tax classifications must not have the effect of "`treating differently persons who are in all relevant respects alike.'" MCI, 68 Ohio St.3d at 199, 625 N.E.2d 597, quoting Nordlinger v. Hahn (1992), 505 U.S. 1, 10, 112 S.Ct. 2326, 120 L.Ed.2d 1. But the Equal Protection Clause "does not require things which are different in fact * * * to be treated in law as though they were the same." Tigner v. Texas (1940), 310 U.S. 141, 147, 60 S.Ct. 879, 84 L.Ed. 1124.

{¶ 23} Accordingly, in determining whether R.C. 5727.111 deprives GTE of the constitutional right of equal protection we must first determine whether GTE, a local exchange telephone company ("local company"), is similarly situated to the interexchange telecommunications companies with which it competes.

{¶ 24} Prior to the enactment of the federal Telecommunications Act of 1996, P.L. 104-104, 110 Stat. 56, GTE provided its customers with traditional local residential and business phone service, along with optional features like callwaiting and caller ID. It was classified by the Public Utilities Commission of Ohio ("PUCO") as an incumbent local exchange company. It is undisputed, however, that GTE now competes with interexchange companies such as AT & T Communications and MCI Worldcom for what is known as "intraLATA toll call" business, as described below.

{¶ 25} A customer of GTE can place two types of toll calls to someone outside the customer's local exchange area: an intraLATA call and an interLATA call. The root "LATA" is an acronym for the term "local access and transport area," a concept that arose in the litigation that resulted in the breakup of the Bell system. The LATA concept divides the entire country into geographical local access and service areas beyond which Bell local exchange companies are not permitted to carry telephone calls. A LATA may include all or part of one or more area codes. However, any correlation between the LATA boundaries and the area code boundaries is more by coincidence than by design.

{¶ 26} A call that originates and terminates in the same LATA is designated an intraLATA call. An intraLATA call may or may not be a toll call, depending on whether it goes outside the local calling area. If the intraLATA call is between two phones within the same local calling area (and there is no per-call charge) the call is toll free. However, if a call is made between two local calling areas in the same LATA it would be an intraLATA toll call. A call that originates in one LATA and terminates in a different LATA is an interLATA call.

{¶ 27} As a local company, GTE is authorized by the PUCO to provide intraLATA toll call service. Competing with GTE for intraLATA toll call customers are interexchange companies. In addition to intraLATA toll calls, the competing interexchange companies were also able to provide interLATA toll call service. As a local company, GTE is not authorized to handle interLATA toll calls.

{¶ 28} Before September 1996, all GTE customers who wanted to place an intraLATA toll call with a competing carrier were required to "dial around," i.e., dial a series of numbers, such as XX-XX-XXX, to be connected with a competing intraLATA carrier. However, starting September 1996, as required by the PUCO and the Telecommunications Act of 1996, GTE began making equal access dialing (also referred to as "dialing parity") available to its customers. Using equal access a GTE customer had only to dial "1" plus the area code and local phone number and the intraLATA or interLATA toll call was switched automatically to a competing carrier, if one had been chosen by the customer. By December 1998, GTE's entire system allowed equal access dialing.

{¶ 29} As the...