CITY OF SEATTLE, Director of the Department of Finance and Administrative Services, Appellant,
T-MOBILE WEST CORP., Respondent.
subject of this appeal is municipal taxation of roaming
charges. For purposes of this appeal, roaming charges are
charges for mobile telephone communications that originate in
a foreign jurisdiction. The issue is whether appellant city
of Seattle may levy a utility tax based on revenue received
by respondent T-Mobile West Corp. from Seattle customers who
incur roaming charges. The city hearing examiner and the
superior court correctly refused to allow the tax. Because
the roaming charges are not for intrastate telephone
services, they are beyond the scope of the taxing authority
the legislature has granted to the city.
audit revealed that T-Mobile West did not pay taxes on income
derived from roaming charges during two time periods between
2006 and 2014. The monthly service charge covered wireless
communications throughout the United States. Roaming charges,
as defined during the periods covered by the audit, were
extra charges imposed by T-Mobile West on customers who used
their cell phones while in a foreign country. For example, a
T-Mobile West customer who called home while traveling in
Canada would pay a roaming charge.
city issued assessments requiring that T-Mobile pay $497, 963
in back taxes based on roaming charge revenue. T-Mobile
appealed the assessments to a city hearing examiner. The
hearing examiner determined that the city code did not
authorize taxation of roaming charges. The code authorizes
the city to tax "all charges by the provider of cellular
or cellular mobile telephone services provided to its
customers in any taxing jurisdiction (intrastate or
interstate), which are billed to a 'place of primary
use' located in Seattle." Seattle Municipal Code
5.48.050(A). The hearing examiner reversed the assessments on
the basis that T-Mobile's international services are
neither intrastate nor interstate.
city obtained a writ of review in King County Superior Court
as permitted by RCW 7.16.040. The court affirmed the hearing
examiner's decision to reverse the assessments but for a
different reason. The court's reasoning was based on a
state statute, RCW 35.21.714, not on the city code. The city
appeals and argues that both the hearing examiner and the
superior court misconstrued applicable law.
writ proceeding, we review the hearing examiner's
decision. Getty Images (Seattle), Inc. v. City of
Seattle, 163 Wn.App. 590, 599, 260 P.3d 926 (2011).
review denied, 173Wn.2d 1014(2012). Because neither
party disputes the facts found by the hearing examiner, they
are verities on appeal. Getty Images. 163 Wn.App. at
599. We are asked to review only the conclusion that the city
lacked authority to tax roaming charge revenue. The question
is whether this conclusion is contrary to law. RCW
7.16.120(3); Hilltop Terrace Homeowner's Ass'n v.
Island County. 126 Wn.2d 22, 29, 891 P.2d 29 (1995).
Because the legal conclusion involves statutory
interpretation, our review is de novo. Qwest Corp. v.
City of Bellevue. 161 Wn.2d 353, 358, 166 P.3d 667
must have express legislative authority to levy taxes.
King County v. City of Algona. 101 Wn.2d 789, 791,
681 P.2d 1281 (1984); Vonage Am.. Inc. v. City of
Seattle. 152 Wn.App. 12, 20, 216 P.3d 1029 (2009). The
city contends the legislature's grant of authority is
found in RCW 35.22.280(32). That statute authorizes cities of
the first class "to grant licenses for any lawful
purpose, and to fix by ordinance the amount to be paid
therefor." It authorized a Seattle ordinance enacted in
1932 to tax business activities, including the telephone
business. Pac. Tel. & Tel. Co. v. City of
Seattle. 172 Wash. 649, 651, 21 P.2d 721 (1933),
aff'd, 291 U.S. 300, 54 S.Ct. 383, 78 L.Ed. 810 (1934).
In the absence of restriction, the statute is a comprehensive
grant of power to impose license taxes either for the purpose
of regulation or revenue. Pac. Tel. & Tel. Co..
172 Wash, at 653.
recent statute, RCW 35.21.714, imposes a restriction. It was
first enacted in 1981 as a general grant of authority to tax
"the business activity of engaging in the telephone
business." Laws of 1981, ch. 144, § 10. Two years
later, an amendment inserted the word "intrastate"
as a limitation. Laws of 1983, 2d Ex. Sess., ch. 3, §
37. Since then, the first clause of the statute (before the
proviso) has stated that when a city taxes the telephone
business, it is limited to taxing revenue "derived from
intrastate toll telephone services." The statute
provides as follows:
Any city which imposes a license fee or tax upon the business
activity of engaging in the telephone business which is
measured by gross receipts or gross income may impose the fee
or tax, if it desires, on one hundred percent of the total
gross revenue derived from intrastate toll telephone
services subject to the fee or tax: PROVIDED, That the city
shall not impose the fee or tax on that portion of network
telephone service which represents charges to another
telecommunications company, as defined in RCW 80.04.010, for
connecting fees, switching charges, or carrier access charges
relating to intrastate toll telephone services, or for access
to, or charges for, interstate services, or charges for
network telephone service that is purchased for the purpose
of resale, or charges for mobile telecommunications services
provided to customers whose place of primary use is not
within the city.
RCW 35.21.714(1) (emphasis added).
parties agree that "toll" services are services
that incur a fee. Intrastate means services, traffic, or
facilities that originate and terminate within the same
state. Qwest Corp., 161 Wn.2d at 357 n.6. The
roaming charges at issue here provide revenue derived from
toll telephone services, but the telephone services are not
intrastate. They are international.
city argues that because RCW 35.21.714 does not say that
cities can tax only intrastate toll telephone
services, it should not be interpreted to have that effect.
To give the first clause of the statute that construction
makes the proviso superfluous, the city argues, because none
of the charges listed in the proviso are intrastate toll
services. This is a strained argument. A statutory proviso
does not have to state an exception to the clause that
precedes it. The most natural reading is that the proviso
explains how the first clause operates in particular
circumstances. For example, the proviso clarifies that a city
may not tax charges for services that are part of an
interstate communication network even when the actual use of
the network is for communications within the state of
Washington. Qwest. 161 Wn.2d at 359-61. Another part
of the proviso bars taxation of "charges for mobile
telecommunications services provided to customers whose place
of primary use is not within the city." RCW
35.21.714(1). In other words, if a Bellevue resident was in
Seattle and used her T-Mobile West cellular service to call
someone in Bellevue, this would constitute an intrastate
communication, but Seattle could not tax it because the
customer's place of primary use would not be within
Seattle. Because the proviso illuminates the meaning of the
first clause, it is not superfluous.
city's attempt to tax a telephone service that is not an
intrastate toll service is inconsistent with Vonage.
There, the city sought to tax revenue derived from
Vonage's provision of a service referred to as Voice over
Internet Protocol (VoIP). Vonage. 152 Wn.App. at 15.
We explained that under RCW 35.21.714, "cities have
the option of taxing the intrastate component' of
telephone services, and we held that "Vonage is subject
to the City's telephone utility tax but the
assessment must be based on the intrastate component of
Vonage's service." Vonage. 152 Wn.App. at 24
city argues that the assessments should be upheld because its
taxing method is authorized by a federal statute effective in
2002, the Mobile Telecommunications Sourcing Act. The federal
statute creates a system whereby mobile telecommunications