Qwest Corp. v. City of Bellevue

Decision Date30 August 2007
Docket NumberNo. 79909-1.,79909-1.
CourtWashington Supreme Court
PartiesQWEST CORPORATION, Respondent, v. CITY OF BELLEVUE, Appellant.

Lori M. Riordan, Cheryl Ann Zakrzewski, Bellevue City Attorney, Bellevue, WA, Kenneth Brunetti, Miller & Van Eaton LLP, San Francisco, CA, for Appellant.

David M. Jacobson, Dorsey & Whitney LLP, Seattle, WA, for Respondent.

SANDERS, J.

¶ 1 The city of Bellevue (City) challenges a summary judgment order prohibiting the City from assessing a utility occupation tax1 (UOT) to Qwest Corporation (Qwest) on (1) charges for access to interstate service, including but not limited to, customer access line charges2 (CALCs) imposed pursuant to 47 C.F.R. Part 693 and private line, frame relay, and ATM (automatic teller machine) charges4 purchased under a Federal Communications Commission tariff; (2) charges for interstate services; or (3) federally tariffed charges. We reject the City's arguments and affirm the trial court's order.

FACTS

¶ 2 Qwest provides interstate5 and intrastate6 network telephone services to customers in various locations including Bellevue, Washington. Qwest is subject to regulation by the Federal Communications Commission (FCC) and the Washington Utilities and Transportation Commission (WUTC) with respect to telephone services provided to customers in Bellevue.

¶ 3 In November 2004 Qwest learned the City planned to conduct an audit review of the UOT and business and occupation tax Qwest owed. During the course of the audit a dispute arose as to whether the City could levy UOTs on certain telecommunications service charges. On October 11, 2005, prior to the City's issuance of its tax assessment, Qwest filed a complaint in King County Superior Court challenging the imposition of the City's UOT on CALCs and other access charges.

¶ 4 On October 28, 2005, the City issued its tax assessment against Qwest. The assessment stated Qwest owed the City a total of $5,809,517.09 in taxes, penalties, and interest. On November 23, 2005, Qwest filed a notice of appeal with the Bellevue hearing examiner pursuant to Bellevue City Code (BCC) section 4.03.140, challenging the assessment. Qwest's notice of appeal addressed, among other things, several issues raised in its complaint, including the City's erroneous inclusion of CALCs and other interstate access charges in Qwest's taxable base.7

¶ 5 On December 9, 2005, the City filed a motion to dismiss in superior court, arguing Qwest had failed to exhaust its administrative remedies through its administrative appeal to the hearing examiner. Qwest filed an opposition to the City's motion to dismiss and cross-moved for summary judgment. In response, the City filed a Civil Rule (CR) 56(f) motion for continuance, asking for 120 days to conduct discovery. The trial court denied the City's motion for continuance. In March 2006 the court granted Qwest's cross motion for summary judgment and denied the City's motion to dismiss. The City filed a motion for reconsideration on April 7, 2006, which the court denied. Final judgment for Qwest was entered on June 1, 2006. The City appealed. Division One of the Court of Appeals certified the case to this court pursuant to RCW 2.06.030(d),8 and we accepted certification.

STANDARD OF REVIEW

¶ 6 We review a trial court's grant of summary judgment de novo. Hubbard v. Spokane County, 146 Wash.2d 699, 706, 50 P.3d 602 (2002). Summary judgment is proper if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c); Hubbard, 146 Wash.2d at 707, 50 P.3d 602. A grant of summary judgment is proper if reasonable persons could reach only one conclusion from the evidence presented. Id. Facts and reasonable inferences therefrom are construed in favor of the nonmoving party. Id.

¶ 7 A trial court's grant or denial of a motion for continuance is reviewed for abuse of discretion, State v. Hurd, 127 Wash.2d 592, 594, 902 P.2d 651 (1995), as is review of a trial court's denial of a motion to dismiss, State v. Goodchild, 146 Wash. 81, 261 P. 786 (1927). Statutory interpretation is a question of law and review is de novo. State v. Ammons, 136 Wash.2d 453, 456, 963 P.2d 812 (1998).

ANALYSIS
I. Whether CALCs and Private Line, Frame Relay and ATM Access Charges Are Charges for Access to Interstate Service Is a Question of Law

¶ 8 The FCC has exclusive jurisdiction over and regulates Qwest's interstate telecommunications activity. 47 U.S.C. § 152. The WUTC has exclusive jurisdiction over and regulates Qwest's intrastate telecommunications activity in Washington. RCW 80.36.100. It is undisputed that under state law the City may tax Qwest's charges for and its provision of access to intrastate services. See RCW 35A.82.060(1) ("Any code city ... may impose the fee or tax, if it desires, on one hundred percent of the total gross revenue derived from intrastate toll telephone services ...."). And in their initial briefs both Qwest and the City agreed the City could not tax Qwest on charges for interstate services. See RCW 35A.82.060(1) (precluding cities from taxing charges "for access to, or charges for, interstate services").9 The City even conceded the trial court "properly held that the statute prohibits taxing `charges for access to interstate services.'" Reply Br. of Appellant at 6.

¶ 9 The City disputes the trial court's ruling to the extent it holds CALCs, private line, frame relay, ATM charges, and other federally tariffed charges are necessarily charges for interstate services (or charges for access to interstate service). The City believes a court cannot make this determination without "conducting any factual analysis as to the true nature of the charges." Reply Br. of Appellant at 3; see also id. at 11 ("[J]ust because a charge is federally tariffed does not mean that it is being imposed for access to or for interstate service as a matter of law."). The City explains it "seeks [only] to tax charges for service ... that is wholly intrastate in nature."10 Br. of Appellant at 14. The City argues, however, it has no way of knowing whether certain private line, frame relay, and ATM services provided by Qwest were intrastate or interstate in nature. It believes the issue of whether these services are interstate or intrastate is a question of fact that will vary on a case by case basis. In a nutshell, the City appears to believe Qwest is concealing certain "intrastate charges" (subject to UOT) under the guise of services Qwest labels as "interstate." See Br. of Appellant at 29 ("at least some of the revenues being reported by Qwest as CALCs are not in fact charges for access to interstate services authorized by the FCC [and] to the extent such charges are not actually charges for interstate service or access to interstate service, they are charges for intrastate services and accordingly are subject to the UOT"); see also id. at 27 ("[T]he charges Qwest labels `customer access line charges' are not necessarily charges for, or access to, interstate services, just because Qwest gives them this label.").

¶ 10 The City states it used its own records to "determine that certain of the dedicated line connections the City purchased from Qwest (using frame relay technology) were used to connect City offices with each other and with other regional offices located entirely within the State of Washington." Br. of Appellant at 25-26. The City's evidence consists of four invoices for frame relay connections between the City of Bellevue and other local agencies. The actual use of the circuits is entirely for intrastate communications. However, evidently when the City signed up for the frame relay services, it indicated it would use such services for interstate communications —hence, Qwest labeled the account as interstate.11

¶ 11 According to Qwest, the City incorrectly assumes one determines the interstate or intrastate nature of a service charge by looking to the customer's use of the service. Qwest explains that according to the FCC, certain services are labeled "interstate" or "intrastate" depending upon the customer's initial indication of how they plan to use the service and not how the service is subsequently used. Thus, the trial court's order "did not depend on whether the services upon which CALCs and other federal access charges are imposed occur between Washington and some other state" because "access charges imposed pursuant to federal tariff are by law charges imposed on access to interstate service." Qwest Resp. Br. at 34.

¶ 12 Qwest's FCC Tariff clarifies that certain "types of dedicated communication connections such as private line transport, frame relay, and ATM products" may be used by customers to "access a local network, an interstate network, or for mixed use." Qwest Resp. Br. at 7-8. "If the customer's estimate of the interstate traffic on the service involved constitutes more than 10% of the total traffic on that service" the service is regulated under Qwest's interstate access FCC Tariff. Clerk's Papers (CP) at 358 (Qwest FCC Tariff No. 1). By contrast, "[i]f the customer's estimate of the interstate traffic on the service involved constitutes 10% or less of the total traffic on that service, the service will be provided in accordance with the appropriate intrastate rules and regulations," i.e., such service is subject to regulation under the WUTC. Id.

¶ 13 To summarize, whether the FCC or the WUTC has jurisdiction over certain charges (i.e., whether the charges are for access to interstate or intrastate service) is not determined by looking to the customer's use of the connections. Instead, whether charges are charges for access to interstate (as opposed to intrastate) service is a question of law, and the City's contention that a court must conduct factual analysis to determine the interstate or intrastate nature of the charges is erroneous.

II. Access Charges Imposed Pursuant to...

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