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. 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. 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.” 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). 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. 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 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; 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; 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. 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.
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
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.
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