US West Communications v. City of Eugene

• Decision Date: 18 December 2003
• Parties: US WEST COMMUNICATIONS, INC., Petitioner on Review, v. CITY OF EUGENE, an Oregon municipal corporation, Respondent on Review.
• Court: Oregon Supreme Court

81 P.3d 702

336 Or. 181

US WEST COMMUNICATIONS, INC., Petitioner on Review, v. CITY OF EUGENE, an Oregon municipal corporation, Respondent on Review.

(CC 16-98-01463; CA A105859; SC S49254).

Supreme Court of Oregon, En Banc.

Argued and Submitted September 4, 2003.

Decided December 18, 2003.

David R. Goodnight, of Dorsey & Whitney LLP, Seattle, Washington, argued the cause for petitioner on review. On the briefs were Lawrence Reichman, Elizabeth Schwartz, and Julia E. Markley, of Perkins Coie LLP, Portland.

Jerome S. Lidz, of Harrang Long Gary Rudnick P.C., Eugene, argued the cause for respondent on review. With him on the briefs were William F. Gary, Eugene, and Linda J. Kessell.

KISTLER, J.

The primary question this case presents is whether a city may impose more than a seven-percent privilege tax on telecommunications carriers. We agree with the Court of Appeals that it may. We disagree, however, with the Court of Appeals' decision to reach a subsidiary issue—whether the statutes governing the Public Utility Commission (PUC) preempt cities from regulating telecommunications carriers. Accordingly, we affirm the Court of Appeals decision in part and vacate it in part.

US West Communications, Inc. (U.S. West), which is now known as Qwest, provides telecommunications services within the City of Eugene. Since 1990, U.S. West has operated under the terms of a franchise agreement between the city and U.S. West's predecessor.¹ That agreement, which expires in 2005, requires U.S. West to pay the city seven percent of the revenues derived from U.S. West's exchange access service less net uncollectibles in return for the "privilege [of] engag[ing] in a general communications business using the public [rights of] way."

In 1997, the city amended the Eugene City Code (ECC) to regulate telecommunications activities within the city. Among other things, the city imposed a two-percent annual registration fee on any person "engag[ing] in any telecommunications activity through a communications facility located in the city." ECC § 3.405(1); ECC § 3.415(1). The city also required persons who "construct, place or locate any [telecommunications] facility in, upon, beneath, over or across any public right of way" to pay an annual seven-percent license fee.² ECC § 3.410(1); ECC § 3.415(2). Because U.S. West engages in telecommunications activities within the city, the city sought to recover the two-percent registration fee in addition to the seven-percent franchise fee.

In response, U.S. West brought this action for declaratory and injunctive relief. Among other things, U.S. West sought a declaration that ORS 221.515 bars the city from collecting both the two-percent registration fee and the seven-percent franchise fee.³ ORS 221.515(1) authorizes municipal governments to levy and collect

"from every telecommunications carrier operating within the municipality and actually using the streets, alleys or highways, or all of them, in such municipality for other than travel, a privilege tax for the use of those streets, alleys or highways * * * in an amount which may not exceed seven percent of the gross revenues * * * earned within the boundaries of the municipality."

ORS 221.515(2) defines "gross revenues" as "revenues derived from exchange access services * * * less net uncollectibles."⁴ Finally, ORS 221.515(3) provides that

"[a] telecommunications carrier paying the privilege tax authorized by this section shall not be required to pay additional compensation or consideration * * * to the municipality for its use of public streets, alleys, or highways * * *, and shall not be required to pay any additional tax or fee on the gross revenues that are the measure of the privilege tax."

On cross-motions for summary judgment, the trial court ruled that ORS 221.515 prevents the city from recovering both the two-percent registration fee and the seven-percent franchise fee from U.S. West. The Court of Appeals reversed. US West Communications v. City of Eugene, 177 Or.App. 424, 431-32, 37 P.3d 1001 (2001). It recognized that ORS 221.515 places two limits on a city's ability to impose a tax or fee on telecommunications carriers⁵ but held that the city's registration fee does not run afoul of either limitation.

The court began by recognizing that ORS 221.515 distinguishes between two types of revenue: revenue derived from exchange access services and revenue derived from nonexchange access services. 177 Or.App. at 430-31, 37 P.3d 1001. Under ORS 221.515(3), "[a] telecommunications carrier * * * shall not be required to pay any additional tax or fee" on revenues derived from exchange access services. The registration fee is consistent with that limitation, the court reasoned, because the city imposes the fee solely on revenue derived from nonexchange access services. Id.⁶

The court recognized that ORS 221.515 imposes a second limitation on cities—no city may impose more than a seven-percent tax on telecommunications carriers for the privilege of using the city's public rights-of-way. ORS 221.515(3). The court explained that its decision in AT & T Communications v. City of Eugene, 177 Or.App. 379, 390-91, 35 P.3d 1029 (2001), rev. den., 334 Or. 491, 52 P.3d 1056 (2002), resolved whether the city's registration fee ran afoul of that limitation. US West Communications, 177 Or.App. at 431, 37 P.3d 1001. In AT & T Communications, the court explained that the city had not imposed the registration fee to recover for the privilege of using the public rights-of-way, which ORS 221.515 would prohibit. 177 Or.App. at 390-91, 35 P.3d 1029. Rather, it had imposed the fee to recover for the privilege of operating within the city without regard to whether a telecommunications carrier used (or did not use) the public rights-of-way. Id. Because the registration fee did not come within the scope of the statutory prohibition, the Court of Appeals upheld it.

On review, U.S. West does not challenge the Court of Appeals' first conclusion; that is, U.S. West does not argue that the registration fee violates the statutory prohibition against imposing more than a seven-percent tax or fee on revenue derived from exchange access services. It recognizes, as it must, that the city code, properly interpreted, imposes the registration fee solely on revenue that telecommunications carriers derive from nonexchange access services.

US West focuses its arguments instead on the Court of Appeals' second conclusion. In U.S. West's view, ORS 221.515 expressly exempts telecommunications carriers that pay a seven-percent privilege tax from paying any additional tax or fee. US West acknowledged at oral argument that ORS 221.515 would not excuse it from paying ad valorem or other general taxes, but it argues that the statute prevents the city from imposing any fee or tax (other than the seven-percent privilege tax) on telecommunications carriers for the privilege of operating within the city.⁷ The city responds that the Court of Appeals correctly recognized that the limitations that ORS 221.515 places on municipal taxation are narrower than U.S. West contends.

Before turning to the parties' arguments, it is important to clarify the question their arguments present. The question is not whether ORS 221.515 authorizes the city to impose its two-percent registration fee. See Jarvill v. City of Eugene, 289 Or. 157, 169, 613 P.2d 1 (1980)

(holding that, under the "home rule" provisions of the Oregon Constitution, cities do not need legislative authorization to impose taxes).⁸ Rather, the question is whether state or federal law prohibits the city from doing so. See id. (stating that proposition). With that question in mind, we turn to the text of ORS 221.515. See PGE v. Bureau of Labor and Industries, 317 Or. 606, 611, 859 P.2d 1143 (1993) (describing methodology for statutory construction).

ORS 221.515(1) authorizes the city to impose a privilege tax on a telecommunications carrier "for the use of [the city's] streets, alleys or highways" and provides that the amount of that tax "may not exceed seven percent" of the carrier's gross revenue, which ORS 221.515(2)defines as "revenues derived from exchange access services * * * less net uncollectibles." ORS 221.515(3) specifically limits a city's ability to tax a telecommunication carrier's revenue. It provides that a telecommunications carrier paying the seven-percent privilege tax "shall not be required to pay any additional fee, compensation or consideration * * * to the municipality for its use of public streets, alleys, or highways," nor shall it be required to pay any additional tax or fee on revenues derived from exchange access services.

By its plain terms, ORS 221.515(3) prohibits a city from recovering more than a seven-percent tax or fee from a telecommunications carrier for the privilege of using the public rights-of-way. However, that subsection does not prohibit a city from recovering an additional tax or fee for any other activity that a telecommunications carrier might undertake within a city, as long as that tax or fee is based on revenue derived from nonexchange access services. As the Court of Appeals recognized, the specific limitations that ORS 221.515(3) places on municipal taxation are narrower than U.S. West perceives.

US West, however, advances three arguments why the statute's text and context should lead to a different conclusion. In its opening brief, U.S. West recognizes that, read literally, ORS 221.515 limits only the city's ability to recover a privilege tax for the use of public rights-of-way. It reasons, however, that a telecommunications carrier cannot operate without using a city's rights-of-way. It follows, U.S. West reasons, that capping a city's ability to recover a tax for the use of its rights-of-way also caps a city's ability to recover a tax for the privilege of operating within the city.

The legislature, however, did not draw the statute as broadly as U.S. West construes it. In...