J2 Global Commc'ns, Inc. v. City of L. A.

• Citation: 159 Cal.Rptr.3d 742,218 Cal.App.4th 328
• Decision Date: 01 January 2013
• Docket Number: B241151
• Court: California Court of Appeals
• Parties: J2 GLOBAL COMMUNICATIONS, INC., Plaintiff and Appellant, v. CITY OF LOS ANGELES, Defendant and Respondent.

218 Cal.App.4th 328
159 Cal.Rptr.3d 742

J2 GLOBAL COMMUNICATIONS, INC., Plaintiff and Appellant,
v.
CITY OF LOS ANGELES, Defendant and Respondent.

B241151

Court of Appeal,
Second District, Division 4, California.

Filed 7/26/2013

See 4 Witkin, Summary of Cal. Law (10th ed. 2005) Sales, § 353.

APPEAL from a judgment of the Superior Court for Los Angeles County, Ralph W. Dau, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC423661)

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.

WILLHITE, J.

[218 Cal.App.4th 329]

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

[218 Cal.App.4th 330]

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 Code section 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

[218 Cal.App.4th 331]

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;

[218 Cal.App.4th 332]

“(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...