Western Telepage, Inc. v. City of Tacoma
| Decision Date | 11 May 2000 |
| Docket Number | No. 68028-1.,68028-1. |
| Citation | 140 Wash.2d 599,998 P.2d 884 |
| Court | Washington Supreme Court |
| Parties | WESTERN TELEPAGE, INC. d/b/a AT & T Wireless Services, Appellant, v. CITY OF TACOMA DEPARTMENT OF FINANCING, Respondent. |
Lane, Powell, Spears & Lubersky, George Carl Mastrodonato, Olympia amicus curiae on behalf of Association of Washington Businesses.
Davis, Wright & Tremaine, D. Bruce Lamka, Dirk Jay Giseburt, Seattle, for Petitioner.
Harding Thomas Roe, Assistant Tacoma City Attorney, Tacoma, for Respondent.
We must decide in this case if the City of Tacoma's (Tacoma) local public utility tax on paging services is consistent with the state law definition of a taxable telephone business under RCW 82.04.065(4), and whether Tacoma's tax constitutes an excessive increase in a tax rate pursuant to RCW 35.21.710. Insofar as paging services involve the transmission of data by microwave systems, we conclude Tacoma's local public utility tax on paging services is consistent with RCW 82.04.065. We also hold Tacoma's taxation of paging services under its public utilities tax does not violate RCW 35.21.710, even though Tacoma formerly taxed such activities under the services classifications of its local business and occupation (B & O) tax. We affirm the judgment of the trial court.
1. Does the definition of "telephone business" under RCW 82.04.065 include paging services?
2. Does a municipality violate the restriction of RCW 35.21.710 if it properly classifies and taxes an activity under its local tax ordinances thereby changing the rate of taxation on the activity?
Western Telepage, Inc., d/b/a AT & T Wireless Services (Telepage), has provided paging services in Tacoma and elsewhere in Washington since 1984. It also leases paging devices to some of its customers. Telepage's paging service transmits numeric and alpha-numeric messages to customers. A numeric message is usually transmitted in response to a telephone call made to a customer's pager access number; a telephone company then transmits the call to Telepage's paging terminal. Alternatively, an alpha-numeric message may be prompted by a message sent to the paging terminal by one of several ways, including direct access by modem, dictation to a live operator, and Internet e-mail. For either the numeric or alpha-numeric message, Telepage's paging terminal sends a microwave (radio) transmission to the pager device advising the caller to return a call to the specified telephone number or transmitting the brief alpha-numeric message.1 Generally, the pager itself does not permit the customer to respond to callers or to initiate messages, nor does it have any of the capacities sometimes associated with more recent innovations in two-way paging—message acknowledgment, embedded responses, or message initiation.
Until 1981, the Legislature imposed a public utility tax on traditional telephone services. Former RCW 82.16.010 (1965), amended by Laws of 1981, ch. 144, § 2. Recognizing the impending revolution in telecommunications services and wishing to "level the playing field" between regulated telephone businesses and emerging, nonregulated telecommunications companies,2 the Legislature broadened the definition of companies susceptible to the state public utilities tax by amending former RCW 82.16.010. Former RCW 82.16.010(6), the 1981 predecessor to RCW 82.04.065, stated:3
"Telephone business" means the business of providing access to a local telephone network, local telephone network switching service, toll service, or coin telephone services, or providing telephonic, video, data, or similar communication or transmission for hire, via a local telephone network, toll line or channel, or similar communication or transmission system. It includes cooperative or farmer line telephone companies or associations operating an exchange. "Telephone business" does not include the providing of competitive telephone service, or the providing of cable television service.
Laws of 1981, ch. 144, § 2(6).
As predicted, the telecommunications industry underwent unprecedented change in the 1980's. The breakup of the AT & T telephone system monopoly involving the local Bell operating companies, United States v. American Tel. & Tel. Co., 552 F.Supp. 131 (D.D.C.1982), aff'd, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983), the onset of new, competitive long distance telephone services, and the development of new telecommunications services such as cable television, cellular telephones, and Internet-based services were major mileposts in that industry-wide change. Several of these new service industries sought and obtained exemptions from the public utilities tax, which are reflected in the present language of RCW 82.04.065, which states:
(1) "Competitive telephone service" means the providing by any person of telecommunications equipment or apparatus, or service related to that equipment or apparatus such as repair or maintenance service, if the equipment or apparatus is of a type which can be provided by persons that are not subject to regulation as telephone companies under Title 80 RCW and for which a separate charge is made.
(2) "Network telephone service" means the providing by any person of access to a local telephone network, local telephone network switching service, toll service, or coin telephone services, or the providing of telephonic, video, data, or similar communication or transmission for hire, via a local telephone network, toll line or channel, cable, microwave, or similar communication or transmission system. "Network telephone service" includes interstate service, including toll service, originating from or received on telecommunications equipment or apparatus in this state if the charge for the service is billed to a person in this state. "Network telephone service" includes the provision of transmission to and from the site of an internet provider via a local telephone network, toll line or channel, cable, microwave, or similar communication or transmission system. "Network telephone service" does not include the providing of competitive telephone service, the providing of cable television service, the providing of broadcast services by radio or television stations, nor the provision of internet service as defined in RCW 82.04.297, including the reception of dial-in connection, provided at the site of the internet service provider.
In the early 1990's, representatives of the cellular telephone industry prevailed upon the Legislature to direct the Department of Revenue (DOR) to review state and local taxes on cellular telephone companies. DOR created an advisory committee on cellular telephone services; in turn, that committee recommended a model local ordinance on the taxation of such services. Prompted by the dissemination of this model ordinance, Tacoma initiated a review of its tax treatment of cellular telephone and paging services.
Until 1995, Telepage had reported and paid its B & O taxes locally under the "Services and Other" classification of Tacoma Municipal Code (TMC) 6.68.220.4 Under that classification, Telepage paid a B & O tax of forty-eight one-hundredths of one percent (.0048%) of its gross income, the rate applicable to those "engaged in the business of rendering any type of service[.]" TMC 6.68.220(I). Prior to 1995, Tacoma did not apply its local public utility tax to paging services.
In March 1995, Tacoma adopted Ordinance 25680, which amended Title 6 of the Tacoma Municipal Code, and defined pager service for purposes of Tacoma's local public utilities tax as follows:
"Pager service" means service provided by means of an electronic device which has the ability to send or receive voice or digital messages transmitted through the local telephone network, via satellite or any other form of voice or data transmission.
TMC 6.67.020. TMC 6.67.030 subjects both cellular telephone services and paging services to the local public utility tax of six percent of the taxpayer's total gross income. This is the same rate applicable to "telephone businesses" generally. TMC 6.66.030. The tax became effective on July 1, 1995.
After the adoption of the ordinance, Tacoma sent a letter to Telepage stating:
Effective July 1, 1995, a city tax of 6% will be imposed on paging services, which is defined as a communication service. Prior to July 1, 1995, all gross sales received from customers inside the city limits should be reported under the Service and Other classification.
Ex. 4. When Tacoma discovered pager companies had not been reporting under the proper tax classification, it decided to prospectively collect the proper rate under the proper classification. This decision allowed the companies to continue reporting as they had been doing, but provided a date certain as to when they would be required to begin reporting under the proper classification and paying at the proper rate. Tacoma also believed this decision would limit the financial hardship for the companies' previous underreporting, as it did not seek retroactive adjustment.
Under protest, Telepage paid the tax as required and requested a refund at the end of the year. Tacoma denied the request, and Telepage administratively appealed to the Tacoma Office of the Hearing Examiner. A hearing examiner considered only the issue of whether Telepage's services fit the definition of "pager service" set forth in TMC 6.67.020. The hearing examiner denied Telepage's refund request and affirmed the application of TMC 6.67 to Telepage.
Telepage appealed the hearing examiner's...
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