South Carolina              
Administrative Law Court
Edgar A. Brown building 1205 Pendleton St., Suite 224 Columbia, SC 29201 Voice: (803) 734-0550

SC Administrative Law Court Decisions

CAPTION:
Telespectrum, Inc. vs. SCDOR

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
Telespectrum, Inc.

Respondents:
South Carolina Department of Revenue
 
DOCKET NUMBER:
07-ALJ-17-0302-CC

APPEARANCES:
n/a
 

ORDERS:

ORDER GRANTING PETITIONERS’ MOTION FOR SUMMARY JUDGEMENT

STATEMENT OF THE CASE

Petitioners Alltel Communications, Inc. (“Alltel Communications”); Alltel Mobile Communications of the Carolinas, Inc. (“Alltel Mobile Communications”); New York Newco Subsidiary, Inc. (“New York Newco”); Telespectrum, Inc. (“Telespectrum”); 360 Communications Co. of SC No. 1 (“360 Communications No. 1”); and 360 Communications Co. of SC No. 2 (“360 Communications No. 2”) (collectively, the “Alltel Entities”) each filed a request for a contested case hearing with the Administrative Law Court (“ALC” or “Court”), seeking to have this Court reject a determination by the South Carolina Department of Revenue (“DOR”) that the Alltel Entities are liable for a total of $4,709,671 in additional corporate license fees, interest, and penalties. The parties filed joint stipulations pursuant to S.C. Code Ann. § 12-60-3320 (2000) and ALC Rule 25(C), and subsequently filed cross‑motions for summary judgment. For the reasons set forth below, the Court grants the motion for summary judgment filed by the Alltel Entities, rejects DOR’s determination, and denies the motion for summary judgment filed by DOR.

BACKGROUND AND PROCEDURAL HISTORY

The Alltel Entities timely filed corporate income tax returns with the required license fee reports for the license fee years ending December 31, 1999‑December 31, 2003.[1] As part of these returns, the Alltel Entities calculated their annual corporate license fee for the license fee years at issue pursuant to S.C. Code Ann. § 12‑20‑50 (2000). This is the license fee statute generally applicable to corporations and requires a corporation to pay a license fee based upon a percentage of its capital stock and paid‑in‑surplus. § 12‑20‑50(A).

DOR initiated an audit of the Alltel Entities in 2004, which is the only audit of a provider of wireless voice and data communications service via radio that has been conducted by DOR. On September 14, 2005, DOR notified the Alltel Entities that it had determined that a deficiency existed in corporate license fees paid by the Alltel Entities for the corporate license fee years ending December 31, 1999‑December 31, 2003. DOR stated that the deficiency was based on its determination that each of the Alltel Entities is a “telephone company” as defined in § 12‑20‑100 and therefore is required to calculate license fees under the provisions of that statute. DOR therefore determined that the Alltel Entities were responsible for a total of $4,709,671 in unpaid fees, penalties, and interest. 

On December 13, 2005, the Alltel Entities each timely filed a Protest of the proposed deficiency in corporate license fees, penalties, and interest pursuant to S.C. Code Ann. § 12‑60‑450 (Supp. 2006). DOR issued its determination denying all of the Protests of the Alltel Entities on May 30, 2007. On June 29, 2007, the Alltel Entities each timely filed requests for contested case hearings with the Court.

Each of the Alltel Entities timely filed Petitions on or about August 17, 2007, pursuant to separate Orders of this Court dated July 17, 2007. DOR thereafter timely filed Answers to the Petitions on or about September 4, 2007. A status conference was held before this Court on November 13, 2007. This Court thereafter consolidated these six cases by Order of Consolidation and Scheduling dated November 14, 2007. The parties filed a Joint Motion for Continuance dated January 2, 2008, which this Court granted on January 4, 2008. The Court then issued an amended Order of Continuance and Amended Notice of Scheduling dated January 4, 2008 and scheduled this matter for a hearing on February 19, 2008. The parties filed Joint Stipulations with this Court on January 25, 2008. The parties filed Cross‑Motions for Summary Judgment on February 1, 2008. DOR timely filed its memorandum opposing the Alltel Entities Motion for Summary Judgment on February 7, 2008, and the Alltel Entities timely filed their memorandum in opposition DOR’s Motion for Summary Judgment on February 11, 2008.

The cross‑motions for summary judgment came before the Court for argument on February 19, 2008 at 10:00 a.m. The Alltel Entities were represented at the hearing by John M.S. Hoefer, Esquire, and Tracey C. Green, Esquire, of Willoughby & Hoefer, P.A., Columbia, South Carolina. DOR was represented at the hearing by Harry A. Hancock, Esquire, Counsel for Litigation, South Carolina Department of Revenue, Columbia, South Carolina.

JOINT STIPULATIONS OF FACT

Pursuant to ALC Rule 25(C), the Alltel Entities and DOR jointly entered into the following stipulations:

1.                   DOR has audited only one provider of wireless voice and data communications service via radio, and has no knowledge if other such companies have failed to file and pay corporate license fees under § 12‑20‑100.

2.                   Alltel Communications; Alltel Mobile Communications; New York Newco; Telespectrum; and 360 Communications No. 1 are engaged in the business of providing wireless voice and data communications service via radio to the public for compensation in the State of South Carolina.

3.                   360 Communications No. 2 held at the relevant times interests in one or more partnerships engaged in the business of providing wireless voice and data communications service via radio to the public for compensation in the State of South Carolina.

4.                   The Alltel Entities hold no license, certification, or other regulatory permit from the State of South Carolina or its agencies, including the Public Service Commission of South Carolina (“PSC”), to engage in their wireless communications business, nor are they required to do so.

5.                   The amount of the license fees payable for the Alltel Entities for the license fee years ending December 31, 1999‑December 31, 2003 is in dispute. The amount of income taxes payable for the Alltel Entities for the income tax years ending December 31, 1998‑December 31, 2002 is not in dispute.

6.                   Pursuant to S.C. Code Ann. § 12‑6‑5020 (2000), Alltel Communications timely filed a consolidated corporate income tax return and license fee report with other entities for the income tax years ending December 31, 1998‑December 31, 2002 and the license fee years ending December 31, 1999‑December 31, 2003.

7.                   For corporate license fee years ending December 31, 1999‑December 31, 2002, the consolidated return included Alltel Mobile Communications, a corporation affiliated with Alltel Communications within the meaning of § 12‑6‑5020.

8.                   Alltel Mobile Communications remitted to DOR license fees as part of the consolidated return that were calculated in accordance with the provisions of § 12‑20‑50.

9.                   Alltel Mobile Communications had a short taxable year in 2001 because it merged into another member of the consolidated return group on July 2, 2001, and therefore filed its final return for the income tax year ending on that date.

10.               Because Alltel Mobile Communications filed its final return for the taxable period ending July 2, 2001, no license fee was due for the license fee year ending December 31, 2002, and Alltel Mobile Communications is entitled to a refund of the minimum $25 license fee paid for that year, plus appropriate interest, as reflected in DOR’s Report of Field Audit.

11.               For license fee years ending December 31, 2002‑December 31, 2003, the consolidated return included New York Newco, a corporation affiliated with Alltel Communications within the meaning of § 12‑6‑5020.

12.               New York Newco remitted to DOR license fees as part of the consolidated return for the license fee years ending December 31, 2002‑December 31, 2003 that were calculated in accordance with the provisions of § 12‑20‑50.

13.               The consolidated return also included Alltel South Carolina, Inc., another corporation affiliated with Alltel Communications for the license fee years at issue within the meaning of § 12‑6‑5020, but DOR did not propose a deficiency in the license fees paid by that corporation.

14.               The total amount of fees originally paid by Alltel Communications, Alltel Mobile Communications, and New York Newco as part of the consolidated returns for the license fee years at issue was as follows:

Period Ended

License Fee

12/31/99

$5,344

12/31/00

$5,304

12/31/01

$5,488

12/31/02

$128,598

12/31/03

$223,599

15.               New York Newco timely filed a separate corporate license fee return with DOR for license fee year ending December 31, 2001 and remitted to DOR license fees which were calculated in accordance with the provisions of § 12‑20‑50.

16.               The total amount of license fees paid by New York Newco for the license fee year ending December 31, 2001 was $73,617.

17.               Telespectrum timely filed corporate license fee returns with DOR for license years ending December 31, 1999‑December 31, 2002 and remitted to DOR license fees which were calculated in accordance with the provisions of § 12‑20‑50.

18.               On July 2, 2001, Telespectrum merged into another corporation and therefore filed its final return for the income tax year ending on that date.

19.               Because Telespectrum filed its final return for the taxable period ending July 2, 2001, no license fee was due for the license fee year ending December 31, 2002, and Telespectrum is entitled to a refund of the minimum $25 license fee paid for that license fee year, plus appropriate interest, as reflected in DOR’s Report of Field Audit.

20.               The total amount of license fees paid by Telespectrum for the license fee years ending December 31, 1999‑December 31, 2002, including the minimum $25 license fee that should be refunded, was $7,225.

21.               360 Communications No. 1 timely filed corporate license fee returns with DOR for license years ending December 31, 1999‑December 31, 2002 and remitted to DOR license fees which were calculated in accordance with the provisions of § 12‑20‑50.

22.               On July 2, 2001, 360 Communications No. 1 merged into another corporation and therefore filed its final return for the income tax year ending on that date.

23.               Because 360 Communications No. 1 filed its final return for the taxable period ending July 2, 2001, no license fee was due for the license fee year ending December 31, 2002, and 360 Communications No. 1 is entitled to a refund of the minimum $25 license fee paid for that license fee year, plus appropriate interest.

24.               The total amount of license fees paid by 360 Communications No. 1 for the license fee years ending December 31, 1999‑December 31, 2002, including the minimum $25 license fee that should be refunded, was $7,642.

25.               360 Communications No. 2 timely filed corporate license fee returns with DOR for license years ending December 31, 1999‑December 31, 2002 and remitted to DOR license fees which were calculated in accordance with the provisions of § 12‑20‑50.

26.               On July 2, 2001, 360 Communications No. 2 merged into another corporation and therefore filed its final return for the income tax year ending on that date.

27.               Because 360 Communications No. 2 filed its final return for the taxable period ended July 2, 2001, no license fee was due for the license fee year ended December 31, 2002, and 360 Communications No. 2 is entitled to a refund of the minimum $25 license fee paid for that license fee year, plus appropriate interest, as reflected in DOR’s Report of Field Audit.

28.               The total amount of license fees paid by 360 Communications No. 2 for the license fee years ending December 31, 1999‑December 31, 2002, including the minimum $25 license fee that should be refunded, was $100.

29.               In 2004, DOR initiated an audit of the Alltel Entities.

30.               On September 14, 2005, and pursuant to § 12‑60‑420, DOR notified the Alltel Entities that it had determined that a deficiency existed in corporate license fees paid by the Alltel Entities for the corporate license fee years ending December 31, 1999‑December 31, 2003.

31.               The asserted basis for the proposed deficiency was that the Alltel Entities each are a “telephone company” and therefore are liable for corporate license fees calculated in accordance with § 12‑20‑100.

32.             DOR proposed to assess Alltel Communications, Alltel Mobile Communications, and New York Newco additional corporate license fees, penalties, and interest related to the consolidated returns filed for the license fee years ending December 31, 1999‑December 31, 2003 as follows:

Period Ended

License Fee

Interest

Penalty

Total

12/31/99

$269,126

$142,942

$67,281

$479,349

12/31/00

$259,166

$111,381

$134,583

$515,130

12/31/01

$268,982

$78,798

$67,245

$415,025

12/31/02

($31,452)

($3,793)

$0

($35,245)

12/31/03

$593,566

$80,798

$148,391

$822,755

33.               DOR proposed to issue a refund to New York Newco of corporate license fees in the amount of $73,592 plus allocable interest for the license fee year ending December 31, 2001, during which it filed a separate South Carolina return and did not file as part of the consolidated return with Alltel Communications, Inc. and Affiliates.

34.             DOR proposed to assess Telespectrum additional corporate license fees, penalties, and interest for the license fee years ending December 31, 1999‑December 31, 2001, and to issue a refund for the license fee year ending December 31, 2002, as follows:

Period Ended

License Fee

Interest

Penalty

Total

12/31/99

$327,349

$173,813

$81,812

$582,974

12/31/00

$324,962

$134,469

$81,240

$540,671

12/31/01

$329,718

$96,590

$82,429

$508,737

12/31/02

($25)

($3)

($0)

($28)

35.               DOR proposed to assess 360 Communications No. 1 additional corporate license fees, penalties, and interest for the license fee years ending December 31, 1999‑December 31, 2001 as follows:

Period Ended

License Fee

Interest

Penalty

Total

12/31/99

$12,256

$6,510

$3,064

$21,830

12/31/00

$10,732

$4,441

$2,683

$17,856

12/31/01

$10,732

$3,144

$2,683

$16,559

12/31/02

($25)

($3)

($0)

($28)

36.             DOR proposed to assess 360 Communications No. 2 additional corporate license fees, penalties, and interest for the license fee years ending December 31, 1999‑December 31, 2001, and to issue a refund for the license fee year ending December 31, 2002, as follows:

Period Ended

License Fee

Interest

Penalty

Total

12/31/99

$182,628

$97,000

$45,657

$325,285

12/31/00

$182,628

$75,571

$45,657

$281,785

12/31/01

$182,628

$53,500

$45657

$281,785

12/31/02

($25)

($3)

$0

($28)

37.               On December 13, 2005, the Alltel Entities each timely filed a Protest of the proposed deficiency in corporate license fees, penalties, and interest pursuant to § 12‑60‑450 (Supp. 2006).

38.               DOR issued its determination denying all of the Protests of the Alltel Entities on May 30, 2007.

39.               On June 29, 2007, the Alltel Entities each timely filed requests for a contested case with the ALC.

40.               The ALC has jurisdiction over these requests for a contested case pursuant to the South Carolina Administrative Procedures Act (“APA”), S.C. Code Ann. §§ 1‑23‑10 to 1-23‑660 (2005 & Supp. 2007), and the South Carolina Revenue Procedures Act, S.C. Code Ann. §§ 12‑60‑460 & 12-60‑510 (Supp. 2007), and ALC Rules 2 and 11.

41.               Section 12‑20‑100 requires certain identified types of companies, including a “telephone company,” to calculate and pay a corporate license fee based on $1 for each $1,000 of the company’s assets used in the performance of business in South Carolina during the preceding taxable year, and $3 for each $1,000 of the company’s “gross receipts derived from services rendered from regulated business within this State” during the preceding taxable year.

42.               A company not identified in § 12‑20‑100 must calculate its corporate license fee in accordance with § 12‑20‑50.

43.               There are no South Carolina cases interpreting the term “telephone company” as used in § 12‑20‑100.

44.               Under Chapter 11 of Title 58 of the South Carolina Code, the Alltel Entities each are a “radio common carrier” as defined in § 58‑11‑10(f) because each entity is a corporation “owning or operating in this State equipment or facilities for the transmission of intelligence by a modulated radio frequency signal, for compensation to the public.”

45.               The Alltel Entities are not and never have been required to obtain any license, certification, or other permit from the State of South Carolina or the PSC to engage in their wireless communications business.

46.               Alltel Communications; Alltel Mobile Communications; New York Newco; and 360 Communications No. 1 held radio station licenses issued by the Federal Communications Commission (“FCC”) during the license fee years at issue.

47.               The State of South Carolina has never regulated the retail sale of wireless voice and data communications services via radio to the public for compensation by the Alltel Entities.

48.               In 1993, South Carolina and all other states were preempted by the federal government from regulating the entry of wireless communication providers into a state to do business and the rates which they could charge to customers for their services unless they were authorized to do so by the FCC after petition by the state. See 47 U.S.C. § 332(c)(3)(A).

49.               No such petition has ever been filed by the State of South Carolina or the PSC.

50.               Telephones and telephone companies transmit intelligence over a vast network of wires located in public rights of way and in easements over private property.

51.               The Alltel Entities do not have facilities located in public rights of way.

52.               The Alltel Entities providing wireless voice and data communications services use radio communication towers or facilities owned or leased by the entity or licensed to the entity.

53.               Section 12‑20‑20 requires companies and corporations, but not partnerships, to file an annual report.

54.               Sections 12‑20‑50 and 12‑20‑100 impose a license fee on companies and corporations but not on partnerships or individuals.

55.               Section 12‑20‑100 applies only to a telephone company’s ownership and use of business property within South Carolina and to the earning of gross receipts from regulated business within this state.

56.               During the license fee years at issue, the Alltel Entities owned partnership interests of various percentages in one or more partnerships that in turn held radio station licenses issued by the FCC (the “Radio Station Partnerships”).

57.               When calculating the portion of the license fee based on the assets of the Alltel Entities under § 12‑20‑100(A)(1), DOR included in that calculation a portion of the assets of the Radio Station Partnerships equivalent to the corporate partner’s percentage interest in each of the Radio Station Partnerships multiplied by the assets reported or assumed to be reported by that partnership in its separate property tax return for the license fee years at issue.

58.               When calculating the license fee based on the revenues of the Alltel Entities under § 12‑20‑100(A)(2)(a), DOR included in that calculation a portion of the revenues of the Radio Station Partnerships equivalent to the corporate partner’s percentage interest in each of the Radio Station Partnerships multiplied by the revenues reported or assumed to be reported by that partnership in its separate property tax return for the license fee years at issue.

59.               The substantial understatement penalty imposed by § 12‑54‑155 (2000) in effect for the license fee years at issue, which is 25% of the amount of the underpayment attributable to any substantial understatement, does not apply to “the tax treatment of any item if there is or was substantial authority for such treatment.”

60.               Pursuant to § 12‑54‑155, in effect for the license fee years at issue, Treasury Regulation Section 1.6662‑4, 26 C.F.R. § 1.6662‑4, in effect at the time of the license fee years at issue, governs the interpretation of “substantial authority.”

61.               If the license fee of $269,166 calculated in the Report of Field Audit for the license fee year ending December 31, 2000 is found to be correct, the correct substantial understatement penalty would be 25% of $269,166 or $67,292, and not $134,583 as set forth in DOR’s Report of Field Audit for the license fee year ended December 31, 2000, which would provide for a total substantial understatement penalty of $350,209 for the license fee years ending December 31, 1999‑December 31, 2003.

A.                The error appears to result from double counting in that 25% of the license fee deficiency proposed for the license year ending December 31, 2000 for all entities filing a consolidated return and included in the proposed assessment is $67,292 ($269,166 total license fee deficiency shown in the September 14, 2005 proposed assessment x 25% § 12‑54‑155 penalty) and not $134,583 as shown in the September 14, 2005 proposed assessment.

B.                 Because $134,583 is approximately twice the correct calculation of $67,292, the error appears to result from double counting and therefore the amount of the penalty attributable to Alltel Mobile Communications has been double counted as well.

C.                When the correctly calculated penalty of $52,025 for the license year ending December 31, 2000 attributable to Alltel Mobile Communications is added to the penalties for the remaining license years attributable to Alltel Mobile Communications, the correct total penalty is $156,137 ($52,028 + $52,025 + $52,084).

D.                Therefore, DOR’s proposed assessment of penalties attributable to Alltel Mobile Communications is erroneous and should be reduced to $156,137 even if the imposition of penalties is appropriate, which is denied.

62.               DOR erroneously calculated the license fee due with respect to New York Newco for the license fee year ending December 31, 2003.

A. DOR determined in Schedule F, Page 3 of the Report of Field Audit that the license fee for New York Newco should be calculated for the license fee year ending December 31, 2003 based on assets of $38,162,935 from Greenville MSA LP as taken from the partnership’s property tax returns for the appropriate reporting period.

B. DOR determined in Schedule F, Page 3 of the Report of Field Audit that the license fee for New York Newco should be calculated for the license fee year ending December 31, 2003, based on revenues of $42,863,000 as taken from the partnership’s financial information for the appropriate reporting period.

C. However, DOR erroneously aggregated on Schedule F, Page 1 of the Report of Field Audit the amounts for the license fee year ending December 31, 2003, with the amounts from the same partnership for the license fee year ended December 31, 2002.

D. Specifically, the calculation errors were as follows:

i. Assets valued at $38,162,935 for the license fee year ended December 31, 2003 as calculated on Schedule F, Page 3 were added to the amount of assets calculated for the license fee year ending December 31, 2002 on Schedule F, Page 3, or $4,222,043, to arrive at total assets of $42,384,978 for the licenses fee year ended December 31, 2003 as set forth on Schedule F, Page 1.

ii. Revenues of $42,863,000 for the license fee year ending December 31, 2003 as calculated on Schedule F, Page 3 were added to the amount of assets calculated for the license fee year ending December 31, 2002 on Schedule F, Page 3, or $5,105,479, to arrive at revenues of $47,968,479 for the license fee year ended December 31, 2003 as set forth on Schedule F, Page 1.

E. Use of these erroneous figures in the calculation of the license fee property and gross receipts factors resulted in an error of $19,538 in favor of DOR for the license fee year ending December 31, 2003.

F. Therefore, the audit determination of $27,882 for the license fee year ending December 31, 2003 should be reduced to $8,344 based on the methodology and numbers used by DOR.

63.               If the license fee amounts as calculated in the proposed deficiency for any period are recalculated or eliminated for any reason as part of this proceeding before the ALC, the penalties and interest calculated by DOR in the proposed deficiency must be recalculated in accordance with the South Carolina Code of Laws and any pertinent regulations.

LAW AND ANALYSIS

The Alltel Entities and DOR have filed joint stipulations and cross‑motions for summary judgment. The Court should grant summary judgment in favor of a party if there is “no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law.” SCRCP 56; see, e.g., Henderson v. Allied Signal, Inc., 373 S.C. 179, 183, 644 S.E.2d 724, 726 (2007). The Court finds that there is no genuine issue of material fact and further finds that DOR’s Determination must be rejected because, for the reasons set forth below, the Alltel Entities are not, as a matter of law, a “telephone company” as required for application of § 12‑20‑100.

Section 12‑20‑100 Does Not Apply to the Alltel Entities

Because the Alltel Entities are engaged in the retail sale of wireless voice and data communications service via radio to the public, they are not a telephone company under the plain meaning of § 12‑20‑100. This statute imposes on “every express company, street railway company, navigation company, waterworks company, power company, electric cooperative, light company, gas company, telegraph company, and telephone company” a license fee as follows:

·        $1 for each $1,000 of “fair market value of property owned and used within this State in the conduct of business as determined by the department [DOR] for property tax purposes for the preceding taxable year”; and,

·        $3 for each $1,000 of “gross receipts derived from services rendered from regulated business within this State during the preceding taxable year . . . .”

S.C. Code Ann. § 12-20-100(A)(1) & (2). If a corporation is not one of the enumerated entities delineated in § 12-20-100, it must calculate and report its corporate license fee pursuant to § 12-20-50, which imposes a license fee of $15 plus $1 for each $1,000 of “capital stock and paid-in or capital surplus of the corporation. . . .” §§ 12-20-50 & 12-20-100. Pertinent to this case, § 12‑20‑100 applies only to a “telephone company.” § 12‑20‑100(A).

The question therefore presented for resolution by this Court is whether each of the Alltel Entities is a “telephone company” for purposes of § 12-20-100. The statute does not expressly define the term “telephone company” and there are no other statutes in Title 12 or any South Carolina cases interpreting or further defining the term “telephone company.” See § 12‑20‑100. Thus, the court must look to the rules of statutory construction to answer the question before it. Our Supreme Court had held that where “the statute’s language is plain and unambiguous, and conveys a clear and definite meaning, the rules of statutory interpretation are not needed and the court has no right to impose another meaning.” Hodges v. Rainey, 341 S.C. 79, 85, 533 S.E.2d 578, 581 (2000). Further, it has held that the “usual rules of statutory construction apply to the interpretation of tax statutes.” Multi‑Cinema, Ltd. v. S.C. Tax Comm’n, 292 S.C. 411, 413, 357 S.E.2d 6, 7 (1987); see also Palmetto Net, Inc. v. S.C. Tax Comm’n, 318 S.C. 102, 109, 456 S.E.2d 385, 389 (1995) (applying plain meaning rule to tax statutes). The Court finds that, under the plain and unambiguous meaning of the statute (“plain meaning rule”), none of the Alltel Entities are a “telephone company” for purposes of § 12‑20‑100.

The parties stipulated that a “telephone company” is an entity that transmits intelligence over a vast network of wires located in public rights of way and in easements over private property.[2] The system used by a “telephone company” requires an extensive network of “poles, aerial wires, underground conduits, wires and cables, and phones plugged into the wired network at a fixed location.” Bell Atlantic Mobile Corp. Ltd. v. Commissioner of Revenue, ATB 2007‑121, 143 (Mass. App. Tax Bd. Feb. 27, 2007). Telephone companies also have been granted the authority to install their wires and related facilities in public rights of way, and have been given the power of eminent domain to install these facilities across public property. See §§ 58‑9‑2020 to 58-9‑2030 (1977 & Supp. 2007) (granting power of eminent domain to telephone companies).

In contrast to a telephone company’s use of telephone technology to transmit communications, the Alltel Entities operate using “patent[ly]” different technology and different methods of providing services, as DOR concedes. Specifically, the Alltel Entities provide “wireless voice and data communications service via radio to the public for compensation in the State of South Carolina.” (emphasis added); see Bell Atlantic Mobile, ATB 2007‑121, at 154‑155 (“[T]he connectivity of [Bell Atlantic Mobile’s] distribution network depends on the transmission and receipt of radio waves.”). As such, they are defined as radio common carriers under state law. See § 58‑11‑10(f) (1977) (defining radio common carrier, and expressly excluding telephone utilities regulated under Title 58, Chapter 9). These wireless radio transmissions “take place through the air, requiring radio transmission, receiving and amplification equipment, antennae, towers, and wireless hand units which can send and receive communications while traveling beyond city, state, and national borders.”[3] Bell Atlantic Mobile, ATB 2007‑121, at 143.

Further, the Alltel Entities do not use facilities located in public rights of way. Instead, they provide “wireless voice and data communications services us[ing] radio communication towers or facilities owned or leased by the entity or licensed to the entity.” See also Bell Atlantic Mobile, ATB 2007‑121, at 151 (discussing the fact that Bell Atlantic Mobile did not own “poles, wires and underground conduits, wires and pipes.”). Reflecting this difference from a telephone company, the Alltel Entities have not been granted the power of eminent domain. Compare §§ 58‑9‑2020 to 58-9‑2030 (telephone companies have power of eminent domain) with §§ 58‑11‑10 to 58-11‑600 (1977 & Supp. 2007) (statutory framework for radio common carriers does not include power of eminent domain).

As support for the conclusion that technological differences separate companies providing communications services via telephone from those providing wireless communications services via radio, the Court again notes that the Alltel Entities are defined under state law as radio common carriers, not as a “telephone company” or “telephone utility.” § 58‑11‑10(f); see Bell Atlantic Mobile, ATB 2007‑121, at 155 (finding that Bell Atlantic Mobile was not regulated as a telephone company). As a result, the “terms, conditions, rates, and availability of” wireless communications services provided by radio common carriers are not regulated by the state. See § 58‑11‑100(B) (1977 & Supp. 2007). In fact, the “Alltel Entities are not and never have been required to obtain any license, certification, or other permit from the State of South Carolina or the PSC to engage in their wireless communication business.” And, although radio common carriers use radio frequencies licensed by the Federal Communications Commission, the “FCC does not specify the rates wireless service providers may charge for their services nor does it require them to file tariffs for their wireless operations.” Bell Atlantic Mobile, ATB 2007‑121, at 144‑146. The Court notes that, in contrast, a telephone company’s terms, rates, and conditions of service are subject to regulation of their terms, conditions, rates, and service changes by the PSC. See §§ 58‑9‑200 to 58-9‑585; see also Bell Atlantic Mobile, ATB 2007‑121, at 143‑144 (“The differences in required equipment and technology led directly to a difference in the competitive nature of the respective industries.”).

The Court therefore finds, based on the plain language of the statute, that none of the Alltel Entities are a “telephone company” because the services they provide relate to the provision of wireless communications via radio, not communications via telephone. As explained above, the wireless voice and data communications service provided by the Alltel Entities is based not on telephone technology, but on “technological developments in radio technology.” Bell Atlantic Mobile, ATB 2007‑121, at 156. These technological distinctions leave no doubt that the Alltel Entities are not encompassed by the term “telephone company” as used in § 12‑20‑100.

Succinctly stated, DOR’s argument is that the term “telephone company” should be read broadly to include all types of companies providing communications services to the public. However, the statute uses the term “telephone company,” not “telecommunications company.” The General Assembly obviously knows how to provide for application of a statute to “telecommunications.” See e.g., § 12‑10‑80 (Supp. 2007) (using “telecommunications” for job development credit); § 12‑36‑910 (2000 & Supp. 2007) (sales tax on mobile telecommunications services); §§ 12‑36‑1910 to 12-36‑1930 (Supp. 2007) (rules for sourcing the sale of telecommunication services).[4] Had the General Assembly wished for § 12‑20‑100 to apply to any “telecommunications company” instead of a telephone company, it could have done so, although such would be inconsistent with the regulated nature of the entities enumerated in § 12-20-100. Further, because the General Assembly specifically excluded a telephone company from its definition of a radio common carrier, it is evident that the legislature recognizes the distinction between the two types of entities. See § 59‑11‑10(f) (1977) (defining “radio common carrier” and expressly excluding “telephone utilities or services regulated by Articles 1 through 13 of Chapter 9 of Title 58 of the 1976 Code.”).

DOR is correct that the “General Assembly has retained the term ‘telephone company’ despite noted changes in telecommunications technology over the life of § 12‑20‑100.” But, that retention does not evince a legislative expectation that the term covers entities other than providers of communications services via telephone. More to the point, the legislature has left § 12-20-100 alone while also using the different term telecommunications in other places in the code. This difference reflects that the term “telephone company” is narrower than “telecommunications” or “telecommunications company” and that the General Assembly has chosen not to expand that term in § 12‑20‑100, a decision which, the Court finds, is entirely consistent with the different treatment of these entities from a regulatory standpoint. Finally, the Court notes that DOR also attempts to separate the word “telephone” from “company,” whereas § 12‑20‑100 addresses the taxation of a “telephone company,” not a “telecommunications company,” a “radio company” or a “radio common carrier.”

The Court therefore finds that DOR’s argument for a broader reading of § 12‑20‑100 must fail because the statute uses the term “telephone company” and the plain meaning of that term is an entity providing communications services via telephone. If DOR believes that § 12-20-100 should have a broader appeal, it may seek amendment of the statute by the General Assembly. Under the existing version of the statute, the Alltel Entities are not a “telephone company” and therefore were required to calculate their license fee(s) due for the license fee years at issue under § 12‑20‑50. Because the parties have stipulated that the Alltel Entities did in fact calculate the license fee(s) filed with their original returns based on this statute, this Court therefore grants the motion for summary judgment filed by the Alltel Entities, rejects DOR’s determination in this case which was applicable to all of the Protests of the Alltel Entities, and denies the motion for summary judgment filed by DOR.

Alternatively, if it is assumed that the statute is ambiguous as applied to the Alltel Entities based on the arguments presented, the Court nevertheless finds that resolution of the assumed ambiguity leads to the same conclusion as that set forth above: § 12‑20‑100 does not apply to the Alltel Entities.[5] A statute is ambiguous if it is capable of more than one reasonable interpretation. Kennedy v. S.C. Retirement Sys., 345 S.C. 339, 348, 549 S.E.2d 243, 247 (2001). If, however, the meaning of § 12‑20‑100 is deemed ambiguous because it can be interpreted in more than one manner, it must be resolved in favor of the Alltel Entities and against DOR. “Under the established rule that, where substantial doubt exists as to the construction and interpretation of legislative action with respect to the enactment and enforcement of tax statutes, the doubt must be resolved against the government. . . .” Columbia Ry., Gas & Elec. Co. v. Carter, 127 S.C. 473, 121 S.E. 377, 380 (1924). Similarly, “where the language relied upon to bring a particular person within a tax law is ambiguous or is reasonably susceptible of an interpretation that will exclude such person, then the person will be excluded, any substantial doubt being resolved in his favor.” Cooper River Bridge, Inc. v. S.C. Tax Comm’n., 182 S.C. 72, 188 S.E. 508, 509 (1936); see also Coble Dairy Products Coop., Inc. v. Livingston, 239 S.C. 401, 123 S.E.2d 301, 302 (1961) (“A tax statute is not to be extended beyond the clear import of its language, and any substantial doubt as to its meaning is to be resolved in favor of the taxpayer.”).

Furthermore, analysis of the purported ambiguity under other rules of statutory construction also leads to the conclusion that the retail sale of wireless voice and data communications via radio to the public by the Alltel Entities does not bring them within the ambit of § 12‑20‑100. To resolve an ambiguity in a statute, it is of course appropriate to reference the legislative history to ascertain the legislative intent. See Town of Forest Acres v. Seigler, 224 S.C. 166, 173, 77 S.E.2d 900, 903 (1953). The predecessor version of § 12‑20‑100 was enacted in 1904, well before there were companies engaged in the retail sale of wireless voice and data communications services via radio to the public. See 1904 Statutes at Large of South Carolina, No. 269, § 9; see also Columbia Ry., 121 S.E. at 378; William J. Quirk & Fred A. Walters, A Constitutional and Statutory History of the Telephone Business in South Carolina, 51 S.C. L. Rev. 290, 375 (2000) (noting 1904 enactment of gross receipts tax on telephones). Like the current version of § 12‑20‑100, the original enactment did not expressly define “telephone company.”

The Court finds that when the “telephone company” license tax was enacted in 1904, a telephone company was the same type of entity that it is today: a company that transmits intelligence over a vast network of wires located in public rights of way and in easements over private property. The Court notes that the General Assembly in 1904 also gave the Railroad Commission—the predecessor of the current Public Service Commission—authority to “fix and regulate the rates or tolls to be charged by the owners or operators of all such telephone lines, stations or exchanges, for the transmission of intelligence for hire.” 1904 Statutes at Large of South Carolina, No. 281, § 1; see Quirk, supra, at 297. Furthermore, in 1899, the General Assembly granted to every telephone company the right to “operate its line” in public rights of way and also granted every telephone company the right of eminent domain. See 1899 Statutes at Large of South Carolina, No. 40, §§ 1‑2; Quirk, supra, at 316‑17 (discussing 1899 enactment of telephone franchise). In short, when the first predecessor of § 12‑20‑100 was enacted in 1904, a telephone company was an entity transmitting intelligence for hire through telephone lines and wires located in public rights of way and through easements across private property.

The Court finds that its conclusion herein is consistent with the differing nature of telephone and radio communications in the early 1900s. There were no entities engaged in the retail sale of wireless voice and data communications via radio to the public for compensation at that time. See, e.g., Bell Atlantic Mobile, ATB 2007‑121, at 156‑57. As late as 1915, “radio communications technology was basically providing one‑way communications . . . using transmission and receiving equipment that did not traverse municipal boundaries.” See id. at 157. In fact, the primary use of radio technology was “ship‑to‑ship and ship‑to‑shore communications, and later by police departments, as well as for the broadcasting of programming by networks such as NBC.” Id. Radio technology was not used as part of the retail sale of wireless voice and data communications service to the public for compensation until the early 1980s. Id. By this same time, there were by one count over 80 million telephones in use as part of the provision of communications services via telephone to the public. Id. Since the turn of the century, “telephone and radio technology [have grown] on parallel but distinct tracks.” Bell Atlantic Mobile, ATB 2007‑121, at 156.

The Court further finds that radio common carriers are not the same type of entity as those enumerated in § 12‑20‑100. As one noted commentator on state and local taxes stated, “[a] selective gross receipts tax, such as § 12‑20‑100, is a relic of the monopoly days when the Public Utility Commission regulated both rate of return and service charges.” Quirk, supra p.28, at 376‑77. The purpose of § 12‑20‑100 is to impose a higher tax on certain entities as “a quid‑pro‑quo for special privileges granted by the state.” Id. at 377. However, the Court finds that radio common carriers do not receive these same special privileges in South Carolina. Unlike a telephone company, the Alltel Entities do not hold any license, certification, or other regulatory permit from the State of South Carolina to engage in their wireless communications business (nor are they required to do so). The retail sale of wireless voice and data communications service via radio to the public for compensation by the Alltel Entities has never has been regulated by this State. Further, this State is preempted from regulating the rates these radio common carriers charge customers unless they are authorized to do so by the FCC after a petition is filed by the state (which South Carolina has not elected to do). And, as previously noted, a radio common carrier has no power of eminent domain. Compare §§ 58‑9‑2020 to 58-9‑2030 (telephone companies have power of eminent domain) with §§ 58‑11‑10 to 58-11‑600 (statutory framework for radio common carriers does not include power of eminent domain). The Court therefore finds that the basis for imposing a higher license fee does not exist in this case because, unlike every other entity listed in § 12‑20‑100, radio common carriers (such as the Alltel Entities) receive no special benefits from this State and thus not be subjected to the higher license fee imposed pursuant to § 12‑20‑100.

The Court finds that this analysis is entirely consistent with and dictated by Cooper River Bridge, Inc. v. South Carolina Tax Commission, 182 S.C. 72, 188 S.E. 508 (1936). In Cooper River Bridge, the South Carolina Tax Commission (predecessor agency to DOR) contended that a bridge and toll company fell within a statutory provision that imposed an income tax on public utility and public service corporations. Id., 188 S.E. at 508‑09. The statutory provision imposed a specific type of income tax on enumerated public service corporations, including “every corporation engaged in the . . . telephone . . . business . . . or other form of public service.” Id. at 510. Although the Tax Commission admitted that the bridge company was not an enumerated corporation, it contended that the words “other form of public service” were “broad enough to include the [bridge company] as a public utility or public service corporation.” Id. The Supreme Court rejected the Tax Commission’s argument, concluding that bridge companies and tollgate companies did not fall within the statutory language, in part because the General Assembly had not included them within the definition of the enumerated companies. Id., at 511. As part of its analysis, the Supreme Court also considered whether bridge and tollgate companies were subject to the jurisdiction of the Railroad Commission, which was the predecessor to the PSC. Id. To summarize: the Supreme Court held in the Cooper River Bridge case that an income tax statute analogous to § 12‑20‑100 with much broader language[6] did not include a different type of entity than the enumerated companies because the language was “ambiguous or . . . reasonably susceptible of an interpretation that would exclude the person called on to pay the tax.” Id.

In conclusion, the Court finds in the alternative that, if the term “telephone company” is ambiguous as applied to the Alltel Entities and their retail sale of wireless voice and data communications services to the public via radio, DOR’s determination nevertheless must be overturned. The Court finds that, at the very least, the completely different nature of the operations, technology, and regulation of a radio common carrier leads to substantial doubt regarding the application of § 12‑20‑100 to the Alltel Entities, which must be resolved against DOR. See Columbia Ry., 121 S.E. at 380; see also Cooper River Bridge, 188 S.E. at 509‑10, 511. Similarly, the Court concludes that examination of the legislative history of the statute supports the Alltel Entities’ position. The Alltel Entities therefore must calculate their license fee under § 12‑20‑50. Because the Alltel Entities did so for the license fee years at issue, the Court also grants summary judgment in favor of the Alltel Entities, overturns DOR’s Determination, and denies DOR’s motion for summary judgment on this alternative basis.

Other Issues

The Alltel Entities further contend that DOR improperly calculated “gross receipts from regulated business” in its computation of the § 12‑20‑100 license fee due to the absence of a regulated business;[7] that it improperly included the assets and gross receipts from partnerships in the computation of the § 12‑20‑100 license fee because the corporate license fee applies only to corporations;[8] and, that it improperly asserted a substantial understatement penalty against the Alltel Entities under § 12‑54‑155 (2000) because there is substantial authority for the calculation of the license fee on the original license fee returns.[9] Because the Court finds that § 12‑20‑100 does not apply to the Alltel Entities, it is unnecessary to reach these further assertions. If the Court were to reach these issues, however, it would find for the Alltel Entities on each of these issues for the reasons set forth above.[10]

The parties also agreed by stipulation that DOR made computational errors in its Determination and that it would be necessary to recalculate penalties and interest if the license fee amounts set forth in the Determination were recalculated. At the hearing on this matter, the Court inquired and the parties agreed that any necessary recalculations should be resolved by remanding the case to DOR for further resolution. However, because the Court finds that the Determination should be rejected in its entirety, it is unnecessary to recalculate the Determination and it therefore is unnecessary to remand this case to DOR for further proceedings.

For the reasons set forth above, the Court finds that the Alltel Entities are not a telephone company for purposes of § 12‑20‑100 and therefore were required to calculate their corporate license fee pursuant to § 12‑20‑50. The Alltel Entities filed their corporate license fee returns for the years at issue in accordance with this statute. Accordingly,

ORDER

IT IS HEREBY ORDERED that the Petitioners’ Motion for Summary Judgment is GRANTED, and that the Respondent’s Motion for Summary Judgment is DENIED.

IT IS FURTHER ORDERED that the Respondent’s Determination in this matter is REVERSED.

AND IT IS SO ORDERED.

___________________________________

Marvin F. Kittrell

Chief Administrative Law Judge

April 22, 2008

Columbia, South Carolina



[1] “The amount of the license fees payable for the Alltel Entities for the license fee years ending December 31, 1999‑December 31, 2003 is in dispute. The amount of income taxes payable for the Alltel Entities for the income tax years ending December 31, 1998‑December 31, 2002 is not in dispute.”

[2] Because the Alltel Entities provide “wireless voice and data communications service via radio to the public for compensation in the State of South Carolina,” this stipulation would seem to resolve the issue in favor of the Alltel Entities. However, DOR contends that the term “telephone company”, as used in § 12-20-100, must be given a broader meaning than its words suggest. As explained herein, the Court rejects this contention, finding that the term “telephone company” must be given its plain and ordinary meaning and that the Alltel Entities are not encompassed within the plain meaning of the statute.

[3] The Court also finds it noteworthy that the switching equipment used in providing wireless communications services via radio “is far more sophisticated [than that of a telephone communications provider] and performs a function unnecessary in the wired telephone industry: monitoring the location of mobile users and switching cellular callers and receivers to different cell sites depending on their location.” Bell Atlantic Mobile, ATB 2007‑121 at 155.

[4] This Article defines “mobile telecommunications service” by reference to “Section 124(7) of Public Law 106‑252,” which in turn refers to 40 C.F.R § 20.3, Pub. L. No. 106‑252, § 124(7). See § 12‑36‑1910(8). This provision of the Code of Federal Regulations defines “mobile service” as “[a] radio communication service carried on between mobile stations or receivers and land stations . . . .” 40 C.F.R. § 20.3 (emphasis added).

[5] This section is included as an alternative basis for the Court’s finding in this case that § 12‑20‑100 does not apply to the Alltel Entities. As explained above, however, the Court does not find that substantial doubt exists as to the construction of § 12‑20‑100. Put simply, the statute is plain on its face and the history and development of the two technologies supports the Court’s position for the reasons explained above.

[6] DOR argues that the Alltel Entities must be included within the definition of “telephone company” for license fee taxation purposes pursuant to the doctrine of Ejusdem generis.” In Plantation Pipe Line Company v. South Carolina Tax Commission, et al, 261 S.C. 358, 200 S.E.2d 79 (1973), our Supreme Court held that interstate common carriers of petroleum products which operated pipelines in South Carolina were taxable as public service corporations pursuant to § 65-256 of the 1962 S.C. Code of Laws. This statute imposed an income tax on corporations engaged in the business of operating as a steam or electric railroad, navigation company, water works company, light or gas company, power company, express service, telephone or telegraph business, sleeping car company, or “other form of public service.” In applying the doctrine of Ejusdem generis, the Court found that the words “other form of public service” must be construed to relate to and embrace such corporations as are of a similar nature or perform services of a similar kind to the companies enumerated in the statute. DOR asserts that the Alltel Entities are engaged in a business similar to telephone companies. The Court finds that the doctrine of Ejusdem generis is inapplicable because § 12-20-100 does not have a “catch all” phrase similar to that in Section 65-256.

[7] The Court also finds in the alternative that there was no regulated business within the meaning of § 12-20-100(A)(2) for the reasons set forth above. See Bell Atlantic Mobile, ATB 2007-121, at 155.

[8] DOR also sought to include the assets and gross receipts of legally separate partnerships as part of computing the license fee for the Alltel Entities under § 12‑20-100. For the reasons set forth above, the Court finds that the Alltel Entities are not subject to § 12-20-100. Moreover, DOR has not and cannot claim that the partnership entities should be considered in calculating the corporate license fee under § 12-20-100 because that license fee calculation is based on capital stock and paid-in-surplus. The Court further finds in the alternative that the corporate license fee applies to corporations, not partnerships, and that, unlike the statutory income tax provisions, there is no provision for flow-through taxation of partnerships in the statutory license fee provisions. See § 12‑6‑600 (2000) (“Each partner shall include its share of South Carolina partnership income on the partner’s respective income tax return.”) (emphasis added).

[9] The Court finds as an alternative basis for its decision that the Alltel Entities had substantial authority for their treatment of the corporate license fee on the original license fee returns for the reasons set forth above in this Order.

[10] DOR also contended at the hearing that there generally is a civic duty to pay taxes. The Court disagrees. As stated by Judge Learned Hand: “‘Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.’” Commissioner v. First Security Bank of Utah, N.A., 405 U.S. 394, 398 n.4 (1972) (quoting Commissioner v. Newman, 159 F.2d 848, 850‑51 (2nd Cir. 1947) (L. Hand, J., dissenting)); see also United States v. Thompson/Center Arms Co., 504 U.S. 505, 511 n.4 (1992) (plurality opinion) (same).


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