Hawaiian Telephone Co., Matter of
| Decision Date | 27 February 1980 |
| Docket Number | No. 5869,5869 |
| Citation | 61 Haw. 572,608 P.2d 383 |
| Parties | In the Matter of the Tax Appeal of HAWAIIAN TELEPHONE COMPANY, Taxpayer. |
| Court | Hawaii Supreme Court |
Syllabus by the Court
1. The fundamental objective in construction of statutes is to ascertain and give effect to the intention of the legislature.
2. The intention of the legislature is to be obtained primarily from the language contained in the statute itself.
3. A basic tenet of statutory interpretation is that where the language of the law in question is plain and unambiguous, construction by the court is inappropriate, and the court is bound to give effect to the law according to its plain and obvious meaning.
4. Where the language of a statute is ambiguous or of doubtful meaning, or where literal construction of the statute would produce an absurd or unjust result, clearly inconsistent with the purposes and policies the statute was designed to promote, judicial construction and interpretation are warranted.
5. In the interpretation of statutes levying taxes, it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used.
6. The rule of strict construction applicable to revenue laws should only be resorted to as an aid to construction when an ambiguity or doubt is apparent on the face of the statute, and then only after other possible extrinsic aids of construction available to resolve the ambiguity have been exhausted.
7. The legislature has a broad power to define terms for a particular legislative purpose, and the courts are generally bound to follow legislative definitions of terms rather than commonly accepted dictionary, judicial or scientific definitions.
8. Questions pertaining to the desirability and need to regulate public service companies and the various functions they perform exist wholly apart from the question of whether certain revenues derived from these companies should be subject to state taxation.
9. Absent specific statutory authority, revenues earned by public service companies are not taxable under the public service company tax law merely because the activities from which they were derived are part of or incident to public service company business.
10. Revenues from the publication and sale of directory advertising and the publication and rental of street address directories cannot be characterized as income from the conveyance or transmission of telephone messages, and, therefore, are not taxable under the public service company tax law.
11. Under the general excise tax law, partnerships are taxable entities.
12. Under the general excise tax law, persons doing business in the state on behalf of another are liable for the payment of tax on account of gross income derived.
Hugh Shearer, H. Mitchell D'Olier, Goodsill, Anderson & Quinn, Honolulu, for taxpayer-appellant.
Alana W. Lau, Deputy Atty. Gen., Honolulu, for Director of Taxation, defendant-appellee.
Before RICHARDSON, C. J., OGATA and MENOR, JJ., and SODETANI, Circuit Judge, in place of KIDWELL, J., disqualified. *
Taxpayer, Hawaiian Telephone Company, appeals from the Tax Appeal Court's findings of fact and conclusions of law and judgment in favor of the Director of Taxation entered on January 28, 1975, pursuant to HRS § 232-19 (1976). After careful consideration of all questions presented in this appeal, we affirm in part and reverse and remand in part.
Hawaiian Telephone Company (hereinafter "Hawaiian Telephone" or "Taxpayer") is a public utility within the meaning of HRS § 269-1 (1976) (subsequently amended) organized for the purpose of establishing telephone lines and to carry on a general telephone business. As a public utility, it is subject to the supervisory, regulatory, investigative and rate-making powers of the Public Utilities Commission (hereinafter "PUC" or "Commission") and, further is susceptible to taxation under Hawaii's Public Service Company Tax Law, Chapter 239 of the Hawaii Revised Statutes (as amended). 1 Under Chapter 239, an annual tax is levied and assessed upon each public utility (with certain exceptions not relevant to this appeal) based on gross income from public utility business at a rate ranging from 5.885 percent to 8.2 percent. HRS § 239-5 (1976).
Under the rules and regulations of the PUC, Taxpayer, as part of its general telephone service, is required to regularly publish telephone directories and distribute them to all of its subscribers. These directories must include, among other things, an alphabetical listing of its customers (except public telephones and those customers who request to be unlisted) including their names and addresses, as well as general instructions regarding the use, operation and repair of telephones. Public Utilities Commission, General Order No. 8 "STANDARDS FOR TELEPHONE SERVICE IN THE STATE OF HAWAII", Rule 4.7 (1965). Although not required to do so by the Commission, Hawaiian Telephone also 1) sells advertising in the classified sections of its directories (commonly referred to as the "yellow pages"), 2) sells boldface listings and additional lines in the regular alphabetical listing of subscribers (or the so-called "white pages" of the directories), 3) publishes and rents street address directories, 2 and 4) salvages old telephone directories for profit. It is the inclusion or the exclusion of these advertising, rental and salvage revenues (hereinafter referred to collectively as "directory revenues") in computing Taxpayer's gross income under the public service company tax law that is one of the principal issues raised in the instant appeal.
The tax assessments involved in this appeal are for 1970, 1971, 1972 and 1973. Pursuant to Chapter 239, the public service tax liability for any given year is based upon the gross income of a public service company during the preceding calendar year. HRS § 239-4 (1976). Therefore, for the purpose of the present controversy, Hawaiian Telephone's gross income for the 1969, 1970, 1971 and 1972 calendar years are relevant. As indicated in the record, Taxpayer's revenues for these years are as follows:
Calendar Year Gross Taxable
in Which Income Exclusive Total
PSC Tax Revenues of Directory Directory
Year Were Earned Revenues Revenues
1970 1969 $48,774,333 $3,366,748
1971 1970 52,166,671 4,049,127
1972 1971 60,100,637 4,580,453
1973 1972 72,129,154 3 4,772,951
In 1970, 1971 and 1972, Hawaiian Telephone reported all of its directory revenues as gross income in each of its PSC tax returns. However, on June 20, 1973, it filed amended returns for those years which excluded directory revenues from gross income, claiming that they were subject to general excise tax and not PSC tax. At the same time, Hawaiian Telephone also claimed a refund based on the difference between taxation of 1970, 1971 and 1972 directory revenues at the PSC tax rates applicable to those years and taxation of such revenues at the lower general excise tax rate. 4 On the basis of these amended returns, the Department of Taxation issued a refund check in the amount of $104,299.99 to Hawaiian Telephone in June of 1973.
On or about September 20, 1973, Taxpayer filed its 1973 PSC tax return. This return, like the amended returns, did not include Hawaiian Telephone's directory revenues for the previous year as part of its reported gross income. Again, the telephone company took the position that such revenues were subject to general excise, rather than PSC, tax.
Subsequently, on May 10, 1974, the Director of Taxation ("Director") mailed to Taxpayer three notices of assessment which, in effect, rejected the latter's position that directory revenues were not includable in gross income for purposes of computing the PSC tax. Accordingly, additional assessments totalling $627,418.99 in back taxes and $60,181.81 in interest thereon were levied against Hawaiian Telephone.
On May 19, 1974, Hawaiian Telephone filed in the tax appeal court a notice of appeal from the additional assessments of the Director of Taxation. In that court, Taxpayer argued 1) that the directory revenues were erroneously treated by the Director as "gross income" under the public service tax law; 2) that the directory revenues were not earned or received by it in its own capacity, but rather, were earned by and collected on behalf of two separate joint ventures, both of which Taxpayer was a member of, and therefore, the Director erroneously treated such revenues as income of Taxpayer; or that, in the alternative, portions of the directory revenues were collected by it as a true agent for and on behalf of another taxpayer, and therefore, the Director erroneously taxed it for the entire amounts collected; 3) that the assessment of PSC taxes against it for the 1970 tax year is barred by the applicable statute of limitations; and 4) that the Director erred in the computation of interest owed as a result of its delinquent payment of taxes. Based on stipulated facts, the tax appeal court upheld the assessments and, in doing so, rejected all of the arguments propounded by Hawaiian Telephone. An appeal to this court followed.
On appeal Taxpayer relies on essentially the same points raised in its appeal to the tax court below. These issues will be addressed in the order in which they appear in Taxpayer's opening brief.
Taxpayer first contends that the tax appeal court's determination that its directory revenues were subject to PSC tax was incorrect because such tax is imposed only on "gross income" as defined in HRS § 239-2(6) and such definition does not encompass directory revenues. The Director, on the other hand, asserts that the PSC tax is applicable to directory revenues since the activities from which...
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