j2 Global Commc'n, Inc. v. City of L.A., B241151

• Decision Date: 26 July 2013
• Docket Number: B241151
• Parties: j2 GLOBAL COMMUNICATIONS, INC., Plaintiff and Appellant, v. CITY OF LOS ANGELES, Defendant and Respondent.
• Court: California Court of Appeals

j2 GLOBAL COMMUNICATIONS, INC., Plaintiff and Appellant, v. CITY OF LOS ANGELES, Defendant and Respondent.

B241151

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FOUR

Filed: July 26, 2013

CERTIFIED FOR PUBLICATION

(Los Angeles County

Super. Ct. No. BC423661)

APPEAL from a judgment of the Superior Court for Los Angeles County, Ralph W. Dau, Judge. Affirmed.

Carr & Ferrell, James W. Lucey, Marcus H. Yang and Robert J. Yorio for Plaintiff and Appellant.

Carmen A. Trutanich, City Attorney, Beverly A. Cook; Colantuono & Levin, Holly O. Whatley and Tiana J. Murillo for Defendant and Respondent.

Plaintiff j2 Global Communications, Inc. appeals from a summary judgment in favor of defendant City of Los Angeles on j2's claim for a refund of taxes it paid for telecommunication services it used in connection with services it provided to its customers over the Internet. j2 contends it is exempt from taxation on those telecommunication services under the Internet Tax Freedom Act, as amended in 2007 (ITFA) (47 U.S.C. § 151, note, § 1100 et seq.).¹ The trial court concluded that the City produced evidence to show that j2's purchase of telecommunication services did not fall within the ITFA exemption, and j2 failed to adequately rebut that showing. We agree, and affirm the summary judgment.

BACKGROUND

j2 is a company that provides "online fax, virtual phone systems, hosted email, email marketing, online backup and bundled suites of these services" to businesses and individuals worldwide. One of its core services is eFax, which "enable[s] users to receive faxes into their email inboxes and to send faxes via the Internet" from their computers. To provide this service, j2 purchases telephone numbers known as Direct Inward Dial (DIDs) from third-party telecommunication providers. It assigns one or more DID numbers (local or toll-free) to each customer, from which the customer may receive faxes or voicemail messages in the customer's email. j2 remains the customer of record for all of those DIDs, and derives "a substantial portion" of its revenues from its DID-based services.

The City imposes a communications users tax (CUT) on charges for communications services, which, as defined in Los Angeles Municipal Codesection 21.1.1, subdivision (b), includes the DIDs j2 obtained for its eFax service.² The tax is collected by the person providing the communications services (such as a telephone company) from the person paying for those services, in this case, j2. (LAMC § 21.1.3, subd. (a), (b).) j2 apparently paid the CUT on the DIDs it obtained for its eFax service.³

In May 2009, j2 filed with the City a claim for refund application, seeking a refund of approximately $175,000 in taxes collected from j2 during the period from May 2008 to May 2009. j2 asserted that "[t]hese taxes were incorrectly imposed on telecommunications service used for exempt Internet access." When the City did not respond to its application, j2 filed the instant lawsuit, alleging a single cause of action for unlawful collection of Internet access tax.

The City moved for summary judgment or, in the alternative, summary adjudication. The City argued it was entitled to summary judgment because j2's purchase of telecommunications services was not exempt from taxation under ITFA because j2 did not provide "Internet access" as defined in ITFA. The City also argued it was entitled to summary adjudication of its affirmative defense that j2 failed to exhaust its administrative remedies.

The trial court found the City was entitled to summary judgment, declined to address the City's motion for summary adjudication, and entered judgment in favor of the City. j2 timely filed a notice of appeal from the judgment.

DISCUSSION

As noted, the City's motion for summary judgment was based upon its assertion that j2's purchase of telecommunications services was not exempt from taxation under ITFA. ITFA was first enacted by Congress in 1998 to temporarily impose a moratorium on the collection of taxes by state and local governments on "Internet access." (Pub.L. 105-277, Div. C, Title XI, Oct. 21, 1998, 112 Stat. 2681-719.) The moratorium was extended, and the definition of "Internet access" was modified in a series of amendments, culminating with the most recent amendment in 2007. (Pub.L. 110-108, §§ 2 to 6, Oct. 31, 2007, 121 Stat. 1024 to 1026.) At present (and at the time the taxes at issue in this case were collected), ITFA defines "Internet access" as follows:

"The term 'Internet access' -

"(A) means a service that enables users to connect to the Internet to access content, information, or other services offered over the Internet;

"(B) includes the purchase, use or sale of telecommunications by a provider of a service described in subparagraph (A) to the extent such telecommunications are purchased, used or sold. -

"(i) to provide such service; or

"(ii) to otherwise enable users to access content, information or other services offered over the Internet;

"(C) includes services that are incidental to the provision of the service described in subparagraph (A) when furnished to users as part of such service, such as a home page, electronic mail and instant messaging(including voice- and video-capable electronic mail and instant messaging), video clips, and personal electronic storage capacity;

"(D) does not include voice, audio or video programming, or other products and services (except services described in subparagraph (A), (B), (C), or (E)) that utilize Internet protocol or any successor protocol and for which there is a charge, regardless of whether such charge is separately stated or aggregated with the charge for services described in subparagraph (A), (B), (C), or (E); and

"(E) includes a homepage, electronic mail and instant messaging (including voice- and video-capable electronic mail and instant messaging), video clips, and personal electronic storage capacity, that are provided independently or not packaged with Internet access." (47 U.S.C.A. § 151, note, § 1105, subd. (5).)

In moving for summary judgment, the City contended that j2 was not a provider of Internet access, and that its purchase of telecommunications services (i.e., the DIDs) did not qualify as Internet access as defined in ITFA. In support of its motion, the City submitted its statement of undisputed facts supported by evidence, including j2's Form 10-K Annual Report filed with the Securities and Exchange Commission; j2's form customer agreement for its eFax customers; the declaration of an officer of j2 that was filed in a lawsuit in federal district court, describing how faxes are transmitted to eFax customers; j2's Confidential eFax Corporate Operational Overview; and the declaration of a telecommunications expert, explaining how DIDs work.

According to the facts set forth in the City's statement of undisputed facts, j2 uses the DIDs (for which it paid the CUT) as part of its eFax service. In general, DID numbers are used in a private branch exchange (PBX), which is a switching system physically located on the premises of a telecommunications subscriber,such as a law office. The PBX is connected to the Public Switched Telephone Network (PSTN), which is the generic term for the domestic public telephone network. Each station on a PBX is assigned a DID number drawn from a bank of numbers designated by a local phone company, which typically leases or rents DID numbers to user organizations in blocks of 50, 100, or 250. When an outside caller dials a DID number, the call is connected over a special DID trunk and is passed to the PBX, which automatically routes the call to the station assigned that DID number.

In the case of j2's eFax service, j2 assigns a DID number to each of its customers. When someone sends a fax to a DID number that has been assigned to a j2 customer, the sender is initiating a telephone call that travels over the PSTN to a fax card in one of j2's servers. When the incoming fax is received by a j2 server, it is converted to a customer-specified format (such as PDF) and sent to the customer as an attachment to an email. j2 does not provide its customers with the services required to receive and access the email; j2's customer agreement states that the customer must "obtain and pay for all equipment and third-party services (e.g., Internet access and email service) required for [the customer] to access and use eFax Services."

In opposition to the City's motion, j2 purported to dispute many of the City's facts describing how the eFax service works, but, as the trial court found, those purported disputes were ineffective both procedurally and substantively. For example, as to several of the City's facts, j2 stated the fact was "disputed" because the fact as set forth by the City "do[es] not provide a complete description of how fax transmissions are transmitted [or fax cards are utilized] as part of j2's Internet fax services." In support of its "dispute," j2 cited to the same evidence the City relied upon (although j2 merely cited to the entire documents without specifying a page, line, or paragraph). With regard to some of those facts and others, j2 alsostated that the City "mischaracterizes the scope and content of the information" on the pages of the documents the City cited to, but failed to explain exactly how the City's statement of the information was incorrect. In response to still other facts, j2 simply stated that the fact is "[d]isputed insofar as these statements are meant to describes [sic] or suggest how j2's services specifically work or operate." In no instance did j2 cite to specific evidence that contradicted or raised doubts as to the accuracy of the City's statement of facts, nor did j2 provide additional...