GTE Sprint Communications Corp. v. State Bd. of Equalization

• Decision Date: 12 December 1991
• Docket Number: No. A051994,A051994
• Citation: 1 Cal.App.4th 827,2 Cal.Rptr.2d 441
• Parties: GTE SPRINT COMMUNICATIONS CORP., Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION, Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

Page 441

2 Cal.Rptr.2d 441

1 Cal.App.4th 827

GTE SPRINT COMMUNICATIONS CORP., Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION, Defendant and Appellant.

No. A051994.

Court of Appeal, First District, Division 5, California.

Dec. 12, 1991.

Daniel E. Lungren, State Atty. Gen., Richard F. Finn, Supervising Deputy Atty. Gen., Marguerite C. Stricklin, Deputy Atty. Gen., San Francisco, for defendant and appellant.

Richard N. Wiley, Mill Valley, for plaintiff and respondent.

HANING, Associate Justice.

Defendant/appellant State Board of Equalization appeals a summary judgment in favor of plaintiff/respondent GTE Sprint Communications Corporation in respondent's action for refund of surcharges paid pursuant to the California Emergency Telephone Users Surcharge Law (the Act). (Rev. & Tax.Code, § 41001 et seq.) ¹ Appellant contends the court erred in determining respondent had no duty to collect the subject surcharge.

FACTS

This case concerns respondent's payment of a surcharge under the Act for the period July 1, 1977 through December 31, 1983. The parties submitted a stipulated statement of facts, upon which our factual statement is based. A long distance telephone call involves three discrete steps in the transmission from caller to receiver. The originating call begins at the caller's telephone and is carried over a local telephone company's transmission and switching facilities to the entry point of a long distance network. This is known as the originating link. The long-distance carrier then transmits the call over its facilities to the exit point of the network in the area where the call is received. This is called the intermediate link. Finally, the call is transmitted over the facilities of a local telephone company to the receiving telephone. This is known as the terminating link. The originating and terminating links are also called "access services," in that they provide long-distance carriers with access to local telephone company facilities that provide the originating and terminating links.

Prior to the 1970s, interstate long-distance telephone services were supplied through a monopolistic joint venture by local telephone companies (LTCs), which provided the originating and terminating links, and American Telephone and Telegraph Company's (AT & T) Long Lines Department, which provided the intermediate link. Many of the LTCs were AT & T subsidiaries known as the Bell Operating Companies (Bell). Such interstate long-distance telephone services were provided pursuant to Federal Communications Commission (FCC)-regulated interstate tariffs. During this monopoly period, intrastate long-distance telephone services were supplied exclusively by the LTCs, which provided all three links. The LTCs were authorized to provide this intrastate service pursuant to state utility commission-regulated intrastate tariffs.

In the late 1970s the FCC decided to license Other Common Carriers (OCCs), such as respondent, to compete with AT & T and the LTCs for interstate long-distance telephone services. The OCCs then provided alternative intermediate links to those previously provided solely by AT & T. To foster competition, the FCC required that the LTCs provide the OCCs with the originating and terminating links needed to complete the OCCs' interstate communication pathways. The terms and conditions of the LTCs' access services were set out in FCC-regulated access tariffs. The OCCs priced their services in part to recover the cost of these access services.

During the relevant period of this action, the LTCs were unable to pass the identity of the originating telephone number (Automatic Number Identification) to the OCCs due to technical limitations. The identification of the location of the point of origin is necessary for the LTCs to determine whether the call is subject to joint venture tariffs for interstate services or to the LTCs' intrastate tariff, and whether taxes and surcharges apply to the call. Thus, calls could originate from any location, pass through one or more LTC end offices and other LTCs or AT & T switching centers and then enter the OCCs' network. Without Automatic Number Identification, the OCCs, including respondent, were unable to determine the point or points of origin of its customers' toll telephone communications and could not selectively block those calls that may have violated the terms of their tariffs, including intrastate calls made.

Effective January 1, 1984, the AT & T/Bell monopoly was dismantled. (See United States v. American Tel. and Tel. Co. (D.D.C.1982) 552 F.Supp. 131, affd. sub nom., Maryland v. United States (1983) 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472.) As a result, the United States was divided into 161 Local Access Transport Areas (LATAs), and California was divided into 10 LATAs. OCCs such as respondent became interLATA carriers supplying telephone communication services between points in different LATAs, but not between points within the same LATA. Thus, the OCCs were able to provide intrastate interLATA telephone services, as well as interstate The calls at issue in the instant case are those that entered respondent's network in California and exited respondent's network and terminated in California. These calls were usually intrastate calls, the originating link being an LTC's end office in a LATA in California, the terminating link being on an LTC's facilities in another LATA in California, and the intermediate link being respondent's network. However, the calls could also have been interstate calls. For example, a private line customer could have called San Francisco by using its private line to call from its Chicago office to its Sacramento office and then have the Sacramento office use respondent's lines to complete the call to San Francisco. In such instance, an OCC would be unable to identify this call as an interstate call. The call could also have entered the originating link at an LTC's end office outside of California, e.g., in Nevada or southern Oregon, and gained access to respondent's network at its nearest switch inside California.

telephone services. After January 1, 1984, the former Bell LTCs were required to provide the OCCs with access equal in price and quality to that afforded [1 Cal.App.4th 831] to AT & T. Thereafter, the LTCs were required to pass Automatic Number Identification from the LTCs to the OCCs.

In June 1983, due to the emergence of competition in interstate telecommunications services and the breakup of the AT & T/Bell monopoly, the State of California Public Utilities Commission (CPUC) ordered an investigation to determine whether competition should be allowed in intrastate telecommunications services. The CPUC consolidated its investigation with applications by respondent and other OCCs to provide intrastate telecommunications services, with a complaint by Pacific Telephone and Telegraph Company (PT & T) that respondent and other OCCs were already unlawfully providing such services.

In January 1984, following evidentiary hearings, the CPUC denied PT & T's complaint and granted respondent and the other OCC applicants authority to provide intrastate service between California's 10 LATAs. It also concluded that any prior intrastate telecommunications were incident to lawfully provided interstate services. In this action, the parties stipulated that during the relevant period respondent did not supply any communications services pursuant to California intrastate tariffs. Respondent's first California intrastate tariff became effective on January 13, 1984.

Between July 1977 and March 1984, appellant advised respondent of its obligation as a service supplier under the Act to register and collect taxes from its customers. Respondent registered under the Act in September 1984 and began to collect the tax from its customers the following month.

In 1984, appellant audited respondent's records and determined that respondent was required to pay the surcharge plus interest thereon. The surcharge was initially assessed for all calls entering respondent's network in California, if the calls also terminated within the state. Later, the surcharge was reduced after estimating the proportion of, and excluding from the surcharge obligation, calls entering respondent's network from outside California. During the relevant period, respondent paid a surcharge of $749,560 plus interest. Appellant issued no regulations clarifying that FCC-regulated services could be subject to surcharge, or advising OCCs that did not have Automatic Number Identification capability of a method for determining the point of origin of calls for purposes of the surcharge.

Following appellant's denial of respondent's request for a refund of the surcharge, respondent filed the instant action for refund. The complaint, filed February 5, 1988, alleged that respondent is not a "service supplier" required to collect the surcharge within the meaning of section 41007, and that any such obligation was excused because respondent was unable to determine the point of origin of its customers' long-distance calls, and therefore unable to determine the exact number of intrastate calls made on its network. The trial court granted respondent's motion for

summary judgment and ordered a refund of taxes paid plus interest.

DISCUSSION

Since the issues here involve the application of a taxing statute to stipulated facts, we are confronted solely with a question of law and are not bound by the trial court's conclusions. (Communications Satellite Corp. v. Franchise Tax Bd. (1984) 156 Cal.App.3d 726, 747, 203 Cal.Rptr. 779.)

Appellant contends respondent was a "service supplier" within the meaning of the Act and thereby liable for the surcharge. The Act was enacted in 1976 to provide for the administration and funding of the "911" emergency telephone number system. (See § 41136.) Effective July 1, 1977, the Act imposed a surcharge, or tax (§ 41013) on users of intrastate...