IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
CITY OF SEATTLE, Director of the )
Department of Finance and Administra- )
tive Services, ) No. 75423-8-1
)
Appellant, ) DIVISION ONE
)
v. )
) PUBLISHED OPINION
T-MOBILE WEST CORP., )
) FILED: May 22, 2017
Respondent. )
)
BECKER, J. — The subject of this appeal is municipal taxation of roaming
charges. For purposes of this appeal, roaming charges are charges for mobile
telephone communications that originate in a foreign jurisdiction. The issue is
whether appellant city of Seattle may levy a utility tax based on revenue received
by respondent T-Mobile West Corp. from Seattle customers who incur roaming
charges. The city hearing examiner and the superior court correctly refused to
allow the tax. Because the roaming charges are not for intrastate telephone
services, they are beyond the scope of the taxing authority the legislature has
granted to the city.
A city audit revealed that T-Mobile West did not pay taxes on income
derived from roaming charges during two time periods between 2006 and 2014.
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The monthly service charge covered wireless communications throughout the
United States. Roaming charges, as defined during the periods covered by the
audit, were extra charges imposed by T-Mobile West on customers who used
their cell phones while in a foreign country. For example, a T-Mobile West
customer who called home while traveling in Canada would pay a roaming
charge.
The city issued assessments requiring that T-Mobile pay $497,963 in back
taxes based on roaming charge revenue. T-Mobile appealed the assessments to
a city hearing examiner. The hearing examiner determined that the city code did
not authorize taxation of roaming charges. The code authorizes the city to tax
"all charges by the provider of cellular or cellular mobile telephone services
provided to its customers in any taxing jurisdiction (intrastate or interstate), which
are billed to a 'place of primary use' located in Seattle." SEATTLE MUNICIPAL CODE
5.48.050(A). The hearing examiner reversed the assessments on the basis that
T-Mobile's international services are neither intrastate nor interstate.
The city obtained a writ of review in King County Superior Court as
permitted by RCW 7.16.040. The court affirmed the hearing examiner's decision
to reverse the assessments but for a different reason. The court's reasoning was
based on a state statute, RCW 35.21.714, not on the city code. The city appeals
and argues that both the hearing examiner and the superior court misconstrued
applicable law.
In this writ proceeding, we review the hearing examiner's decision. Getty
Images (Seattle), Inc. v. City of Seattle, 163 Wn. App. 590, 599, 260 P.3d 926
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(2011), review denied, 173 Wn.2d 1014 (2012). Because neither party disputes
the facts found by the hearing examiner, they are verities on appeal. Getty
Images, 163 Wn. App. at 599. We are asked to review only the conclusion that
the city lacked authority to tax roaming charge revenue. The question is whether
this conclusion is contrary to law. RCW 7.16.120(3); Hilltop Terrace
Homeowner's Ass'n v. Island County, 126 Wn.2d 22, 29, 891 P.2d 29(1995).
Because the legal conclusion involves statutory interpretation, our review is de
novo. Qwest Corp. v. City of Bellevue, 161 Wn.2d 353, 358, 166 P.3d 667
(2007).
Municipalities must have express legislative authority to levy taxes. King
County v. City of Algona, 101 Wn.2d 789, 791, 681 P.2d 1281 (1984); Vonage
Am., Inc. v. City of Seattle, 152 Wn. App. 12, 20, 216 P.3d 1029 (2009). The city
contends the legislature's grant of authority is found in RCW 35.22.280(32). That
statute authorizes cities of the first class "to grant licenses for any lawful purpose,
and to fix by ordinance the amount to be paid therefor." It authorized a Seattle
ordinance enacted in 1932 to tax business activities, including the telephone
business. Pac. Tel. & Tel. Co. v. City of Seattle, 172 Wash. 649, 651, 21 P.2d
721 (1933), aff'd, 291 U.S. 300, 54 S. Ct. 383, 78 L. Ed. 810(1934). In the
absence of restriction, the statute is a comprehensive grant of power to impose
license taxes either for the purpose of regulation or revenue. Pac. Tel. & Tel.
Co. 172 Wash. at 653.
A more recent statute, RCW 35.21.714, imposes a restriction. It was first
enacted in 1981 as a general grant of authority to tax "the business activity of
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engaging in the telephone business." LAWS OF 1981, ch. 144,§ 10. Two years
later, an amendment inserted the word "intrastate" as a limitation. LAWS OF 1983,
2d Ex. Sess., ch. 3,§ 37. Since then, the first clause of the statute (before the
proviso) has stated that when a city taxes the telephone business, it is limited to
taxing revenue "derived from intrastate toll telephone services." The statute
provides as follows:
Any city which imposes a license fee or tax upon the business
activity of engaging in the telephone business which is measured
by gross receipts or gross income may impose the fee or tax, if it
desires, on one hundred percent of the total gross revenue derived
from intrastate toll telephone services subject to the fee or tax:
PROVIDED, That the city shall not impose the fee or tax on that
portion of network telephone service which represents charges to
another telecommunications company, as defined in RCW
80.04.010, for connecting fees, switching charges, or carrier access
charges relating to intrastate toll telephone services, or for access
to, or charges for, interstate services, or charges for network
telephone service that is purchased for the purpose of resale, or
charges for mobile telecommunications services provided to
customers whose place of primary use is not within the city.
RCW 35.21.714(1)(emphasis added).
The parties agree that "toll" services are services that incur a fee.
Intrastate means services, traffic, or facilities that originate and terminate within
the same state. Qwest Corp., 161 Wn.2d at 357 n.6. The roaming charges at
issue here provide revenue derived from toll telephone services, but the
telephone services are not intrastate. They are international.
The city argues that because RCW 35.21.714 does not say that cities can
tax only intrastate toll telephone services, it should not be interpreted to have that
effect. To give the first clause of the statute that construction makes the proviso
superfluous, the city argues, because none of the charges listed in the proviso
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are intrastate toll services. This is a strained argument. A statutory proviso does
not have to state an exception to the clause that precedes it. The most natural
reading is that the proviso explains how the first clause operates in particular
circumstances. For example, the proviso clarifies that a city may not tax charges
for services that are part of an interstate communication network even when the
actual use of the network is for communications within the state of Washington.
Qwest, 161 Wn.2d at 359-61. Another part of the proviso bars taxation of
"charges for mobile telecommunications services provided to customers whose
place of primary use is not within the city." RCW 35.21.714(1). In other words, if
a Bellevue resident was in Seattle and used her T-Mobile West cellular service to
call someone in Bellevue, this would constitute an intrastate communication, but
Seattle could not tax it because the customer's place of primary use would not be
within Seattle. Because the proviso illuminates the meaning of the first clause, it
is not superfluous.
The city's attempt to tax a telephone service that is not an intrastate toll
service is inconsistent with Vonage. There, the city sought to tax revenue
derived from Vonage's provision of a service referred to as Voice over Internet
Protocol (VolP). Vonage, 152 Wn. App. at 15. We explained that under RCW
35.21.714, "cities have the option of taxing the intrastate component" of
telephone services, and we held that "Vonage is subject to the City's telephone
utility tax but the assessment must be based on the intrastate component of
Vonage's service." Vonage, 152 Wn. App. at 24(emphasis added).
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The city argues that the assessments should be upheld because its taxing
method is authorized by a federal statute effective in 2002, the Mobile
Telecommunications Sourcing Act. The federal statute creates a system
whereby mobile telecommunications services may be taxed based on a
customer's "place of primary use":
All charges for mobile telecommunications services that are
deemed to be provided by the customer's home service provider
under sections 116 through 126 of this title are authorized to be
subjected to tax, charge, or fee by the taxing jurisdictions whose
territorial limits encompass the customer's place of primary use,
regardless of where the mobile telecommunication services
originate, terminate, or pass through, and no other taxing
jurisdiction may impose taxes, charges, or fees on charges for such
mobile telecommunications services.
4 U.S.C.§ 117(b). The city praises the regulatory regime created by the federal
statute as a simpler, more efficient taxation system that does away with the
complex task of determining the origin and destination of individual
transmissions. The city's ordinance complies with the federal directive by taxing
all of T-Mobile's services that are provided to customers whose place of primary
use is within Seattle.
But it is not enough that the city's method of taxation by place of primary
use is authorized by the federal statute. The federal statute does not "provide
authority to a taxing jurisdiction to impose a tax, charge, or fee that the laws of
such jurisdiction do not authorize such jurisdiction to impose," and it does not
modify, impair, or supersede any law of any taxing jurisdiction pertaining to
taxation except as expressly provided in the act. 4 U.S.C.§ 118. Thus, while the
federal statute authorizes the method oftaxing by place of primary use, it does
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not authorize the imposition of a tax on roaming charges. A municipal
corporation's authority to tax must be delegated by the state legislature. Vonage,
152 Wn. App. at 20. Implementing legislation is necessary.
In response to the federal statute, our legislature amended
RCW 35.21.714 in 2002 by adding the proviso stating that cities may not tax
"charges for mobile telecommunications services provided to customers whose
place of primary use is not within the city." LAWS OF 2002, ch. 67,§ 9. But the
legislature did not delete the term "intrastate," which we later construed in
Vonage as limiting taxation to intrastate services. The fact that the legislature
has prohibited the city from taxing mobile telecommunications services provided
to customers whose place of primary use is outside the city does not mean that
the legislature has expressly permitted the city to tax all mobile
telecommunications services provided to customers whose place of primary use
is inside the city.
Because the roaming charges at issue here involve communications
originating in a foreign country, they are not intrastate. Following Vonage, we
conclude the legislature has not delegated to the city the authority to tax revenue
derived from the roaming charges. We do not address the hearing examiner's
conclusion that the taxation is unauthorized by Seattle's own ordinance. We
affirm the hearing examiner's conclusion that the city lacked authority to tax
roaming charge revenue, but like the superior court, we base that conclusion on
the absence of specific statutory authority.
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The hearing examiner's decision reversing the assessments against
T- Mobile West is affirmed.
WE CONCUR:
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