South Central Bell Tel. Co. v. Traigle

• Citation: 367 So.2d 1143
• Decision Date: 15 December 1978
• Docket Number: No. 62011,62011
• Parties: SOUTH CENTRAL BELL TELEPHONE COMPANY v. Joseph N. TRAIGLE, Collector of Revenue, State of Louisiana.
• Court: Supreme Court of Louisiana

Page 1143

367 So.2d 1143

SOUTH CENTRAL BELL TELEPHONE COMPANY v. Joseph N. TRAIGLE, Collector of Revenue, State of Louisiana.

No. 62011.

Supreme Court of Louisiana.

Dec. 15, 1978.

Rehearing Denied March 16, 1979.

Robert G. Pugh, Shreveport, for defendant-applicant.

Rexford L. Hawkins, Louisville, Ky., J. Robert Fitzgerald, New York City, Victor A. Sachse, Jr., Baton Rouge, for South Central Bell Tel. Co.

DIXON, Justice.

This is a suit to recover transportation and communication utilities taxes paid under protest by South Central Bell Telephone Company. We granted writs on the Collector's application when the Court of Appeal reversed the district court's judgment in favor of the Collector. 357 So.2d 610 (La.App. 1st Cir. 1978).

R.S. 47:1001 et seq. ¹ levies a tax based on gross receipts of certain utilities. The Collector contends that funds received from advertising in telephone directories should be included in the gross receipts on which the tax is computed. The Company contends that advertising is not a public utility, and funds received from sources other than utility revenue are not covered by the taxing statute.

The first section of the statute (§ 1001) levies, in addition to other taxes, a 2% Tax on gross receipts "from its intrastate business" on every owner or operator of a public utility, as defined later in the Part. Section 1002 characterizes the tax as a license tax for the privilege of engaging in a public utility, limited to business not a part of interstate commerce. The third section of the Part contains definitions: (1) defines public utility to include telephone companies; (7) defines telephone companies as those who transmit messages for speech or sound, and are engaged "in the business of furnishing telephone service for compensation;" (11) defines "gross receipts" to mean "the total amount of billings for services rendered, and all receipts from business beginning and ending within the state" except for certain transportation industries. Section 1004 makes the Part applicable to any person engaged in any business, any part of which is included in the various classes of business defined in § 1003, but only on receipts derived from that portion of the business included in § 1003.

In 1950 the Louisiana Public Service Commission issued a special order requiring that a telephone directory be published and distributed to subscribers. ² The Company now derives receipts from advertising in both white pages and yellow pages of the directories (ranging in Louisiana from over $11,000,000 in 1969 to over $18,000,000 in 1975).

At this point, then, it seems clear that the telephone company is a telephone company, that publishing a directory is part of its business covered by the third section, and that revenues from advertising in the directories are to be included in "gross receipts" and taxed.

The Court of Appeal emphasized that advertising is not a public utility, that § 1004 recognized that a public utility company can be engaged in utility and non-utility businesses at the same time, and that only public utility receipts are subject to the tax. Its emphasis is misplaced. The statute emphasized, in § 1001, that the tax is levied on the gross receipts of the intrastate business of the utility. "Gross receipts" means, according to § 1003(11), "the total amount of billings for services rendered, and all receipts from business beginning and ending within the state . . ." It is true that § 1004 recognizes that a person may be engaged in different kinds of business, and that the section limits the tax so that it is to be levied "only upon the gross receipts derived from that portion of the business" covered by § 1003. We cannot say that receipts from advertising in a directory required by the Public Service Commission to be published each year are not "receipts derived from" the telephone business.

The strongest argument of the Company is that the early legislation (Act 26 of the Third Extra Session of 1934 and Act 26 of the Second Extra Session of 1935) contained, in a definition of "gross receipts," the words "whether same be from the actual operation of such business or from a source incidental to such business" and this phrase was removed by an amendment in Act 116 of the Regular Session of 1940. The Company argues that since advertising is not a utility, and is a different kind of business from communication by wire, the advertising revenues are "from a source incidental" to the telephone business; even if directory advertising might have fallen within "gross receipts" before 1940, the Company argues that the 1940 amendment had the effect of limiting "gross receipts" to receipts from telephone service, and not receipts from advertising, which was only incidental to the telephone business.

The advertising revenues here involved are not receipts "from a source incidental to such business." In the "actual operation" of the "business of furnishing telephone service for compensation," the Company is required to distribute to subscribers annual directories, in which the Company prints advertising by its subscribers. True, the Company is not required to carry advertising; but when it does, the income from the advertising is a direct and immediate result of the phone company's business, and not merely a "source incidental" to that business. It is part of the communications among the subscribers of the Company.

The directory is not a separate enterprise of the Company, nor is the advertising contained in the directory, nor the promotion of the advertising. Not only does the directory advertising pay for the directory the Company is required to publish; not only does it turn a profit; it is a direct and immediate promotion of the Company's commodity the use of the telephone. "Let your fingers do the walking" is almost an American idiom because of the Company's intensive promotion designed not merely to sell advertising, but to sell telephone service. As the trial judge found:

"It would tax one's imagination to hold that revenues derived from directory classified advertising constitute revenues derived from a separate enterprise outside the scope of South Central Bell's business of 'furnishing telephone service for compensation.' "

The Collector asserts in brief, and South Central Bell does not forcefully dispute, that by their own records: South Central makes no distinction between white pages and yellow pages for (a) personnel costs; (b) sales promotion costs; (c) delivery and storage of directories; (d) general overhead expense; (e) directory assistance records; and (f) bold-face listings in white pages as against yellow pages, as it relates to revenues. In the production of the directory, as between white and yellow pages, South Central has: no separate staff; no separate building; no separate budget; no separate company; and no separate personnel.

We find no indication that the effect of Act 116 of 1940, when it amended the definition of "gross receipts," was to narrow the definition as the Company claimed. The 1940 amendment represented an abandonment of the effort (in the 1934 and 1935 acts) to tax utilities on receipts from business moving through Louisiana. ³ All references to "the proportion of the mileage within this State" were removed. The old § 2 was replaced with the cleansing precursor of 47:1002, expressing the object of the tax to be a tax on the privilege of operating a utility in Louisiana, with no relation to interstate commerce. The failure of the 1940 act to repeat, in the definition of "gross receipts," the phrase "whether . . . from the actual operation . . . or from a source incidental to such business" appears to be a removal of a redundant phrase, because, as amended, "(T)he words 'gross receipts' shall mean the total amount of billings for services rendered, and shall include all receipts from business beginning and ending within this State." (Act 116 of 1940 amending § 5 of Act 26 of the Third Extra Session of 1934; the same section changed the dates for reporting). The resulting definition of "gross receipts," including "all receipts from business" in the State is very broad. ⁴

We conclude, therefore, that funds received from advertising in telephone directories should be included in the gross receipts on which the tax is computed.

The Collector contends that the trial court erred when it refused to award attorney fees to the Collector pursuant to R.S. 47:1512. ⁵ The Company argues that consistent with two recent Court of Appeal cases, infra, the Company should not be liable for 10% Attorney fees when it pays under protest pursuant to R.S. 47:1576. ⁶

The statutory development of the procedure for paying taxes under protest, and Then litigating the legality of the tax or assessment, took several years. Article 10, § 18 of the Constitution of 1921, to avoid the disruptive practice of enjoining the collection of contested taxes, stated that the legislature should "provide against the issuance of process to restrain the collection of any tax and for a complete and adequate remedy for the prompt recovery by every tax payer of any illegal tax paid by him." In 1927, in a suit to enjoin a paving project, this court held that Art. 10, § 18 was not self-operative, and that the legislature had not passed statutes to make it effective. Taylor v. City of Hammond, 163 La. 1097, 113 So. 573 (1927).

Act 16 of (the Second Extra Session of) 1934 was apparently the first legislation attempting to comply with Art. 10, § 18 of the 1921 Constitution. It contained three sections, the first prohibiting courts from restraining collection of any tax (the preceding act having given the collector or taxing body the right of suspensive appeal from any injunction previously issued in pending tax litigation) and the second section providing for the "reimbursement" of any tax paid and then "declared illegal by any court of competent jurisdiction . . ." The third section declared...