VIRGIN MOBILE v. ADOR

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IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE VIRGIN MOBILE USA, LP fka VIRGIN MOBILE USA, LLC, ) ) ) Plaintiff/Appellant, ) ) v. ) ) ARIZONA DEPARTMENT OF REVENUE, ) ) Defendant/Appellee. ) __________________________________) DIVISION ONE FILED: 08/02/2012 RUTH A. WILLINGHAM, CLERK BY: sls 1 CA-TX 11-0005 DEPARTMENT T O P I N I O N Appeal from the Arizona Tax Court Cause No. TX2009-000238 The Honorable Dean M. Fink, Judge AFFIRMED Snell & Wilmer L.L.P. by Don Bivens Martha E. Gibbs Adam E. Lang And Skadden, Arps, Slate, Meagher & Flom LLP by Charles W. Schwartz (pro hac vice) Attorneys for Plaintiff/Appellant Phoenix Houston Thomas C. Horne, Attorney General by Scot G. Teasdale, Assistant Attorney General Attorneys for Defendant/Appellee Phoenix S W A N N, Judge ¶1 summary Virgin judgment Mobile USA, holding it LP ( Taxpayer ) liable for tax appeals from on prepaid wireless phone services under A.R.S. § 42-5252(A). its a Finding no genuine dispute of material fact or legal error, we affirm the judgment. FACTS AND PROCEDURAL HISTORY ¶2 Taxpayer offers telephone services. users in Arizona prepaid wireless- Users purchase Taxpayer s phones, activate those phones on Taxpayer s wireless service, and pay for airtime by topping up. Users top up by funding an account, the balance of which offsets charges for future use of the phones. Users must top up, i.e., prepay for airtime, at least once every 90 days. any airtime, Taxpayer If 90 days elapse without the user purchasing the user classifies then the has user s 60 phone days to number top as up before inactive and removes it from the wireless service. ¶3 Between predecessor Arizona October (Virgin taxes for 2002 Mobile its and USA, LLC) prepaid pursuant to A.R.S. § 42-5252(A). July 2006, remitted Taxpayer s $619,148.86 wireless-telephone in services The tax in § 42-5252(A) is known as the 911 tax because it is collected for the purpose of financing emergency telecommunication services. Taxpayer calculated its 911 tax liability in Arizona based upon how many activated phones in its system had an Arizona area code. ¶4 with On October 19, 2006, Taxpayer filed a refund claim the Arizona Department of Revenue (the Department ). Taxpayer took the position that § 42-5252 was inapplicable to it 2 as a prepaid provider of wireless services. denied the refund claim. The Department Taxpayer protested the claim s denial, and the parties litigated the tax s applicability to prepaid wireless services. After an administrative law judge rejected its claim, Taxpayer appealed to the Arizona Tax Court under A.R.S. § 42-1254(C). ¶5 The parties filed cross-motions for summary judgment concerning whether prepaid services. was liable for Arizona s 911 tax applied to Taxpayer s Ultimately, the tax court held that Taxpayer the tax under § 42-5252(A). The tax court entered judgment in favor of the Department on March 22, 2011. This appeal followed. ¶6 apply On appeal, Taxpayer contends that the 911 tax does not to its prepaid wireless services for three reasons. First, Taxpayer argues that the tax in § 42-5252(A) applies only to statutorily defined providers, and that it is not such a provider. Second, it argues that the tax is only applicable to services that are billed monthly, and that its prepaid services are not so billed. Finally, it argues that for wireless services Arizona law adopts the taxation-situs rules in the Mobile Telecommunications Sourcing Act, which specifically excludes from its situs determination services. 3 any prepaid wireless STANDARD OF REVIEW ¶7 We review the tax court s grant of summary judgment de novo. 196, Wilderness World, Inc. v. Dep t of Revenue, 182 Ariz. 198, 895 P.2d 108, 110 (1995). Summary judgment is warranted when there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law. Ariz. R. Civ. P. 56(c)(1). DISCUSSION I. TAXPAYER IS A PROVIDER OF WIRELESS SERVICES SUBJECT TO A.R.S. § 42-5252(A). ¶8 911 A section of statutorily defined terms precedes the tax statute. corporation offering There, a provider telephone or is a public telecommunications service services pursuant to title 40, which provides exchange access services. A.R.S. § 42-5251(4) (footnote omitted). A wireless provider, however, is defined as a supplier of wireless services (with wireless services being defined as two-way voice commercial mobile radio service as defined by the federal communications commission ). ¶9 A.R.S. § 42-5251(5), (6).1 According to Taxpayer, the distinction between provider and wireless provider in § 42-5251 is important when reading § 42-5252(A), which begins: A tax is levied on every provider in an amount as follows . . . . 1 Taxpayer argues The definitions contained in § 42-5251 are binding unless the context otherwise requires. 4 that the legislature s use of the term provider alone, without adding the term wireless provider, means that Taxpayer is not subject to § 42-5252(A). argument, is that the The reason, according to Taxpayer s definition in § 42-5251 of provider rests on provid[ing] exchange access services, and Taxpayer provides no such services. ¶10 Taxpayer reads the term provider in § 42-5252(A) too narrowly. Under A.R.S. § 42-5251(5), means a supplier of wireless services. [w]ireless provider Every person supplying wireless services is a wireless provider -- whether or not that person might also be a provider. A full reading of § 42- 5252(A), including subsection (1), makes clear that provider in this context is the generic term for both provider and wireless provider : A tax is levied on every provider in an amount as follows: (1) For the fiscal years beginning from and after June 30, 2001 and ending before July 1, 2006, thirty-seven cents per month for each activated wire and wireless service account for the purpose of financing emergency telecommunication services. (Emphases added.) ¶11 to Taxpayer s attempt to restrict the scope of § 42-5252 providers therefore fails, because when a provider activates a wireless account it is by definition acting as a wireless provider. The statute s stated purpose of subjecting 5 wireless accounts to the tax could never be achieved unless it extended to wireless providers, and we conclude that it does. We therefore hold that Taxpayer s prepaid wireless services are subject to the tax levied under § 42-5252(A). II. TAXPAYER CANNOT USE ITS BILLING PRACTICES TO AVOID THE APPLICABILITY OF A.R.S. § 42-5252(A). ¶12 Taxpayer argues that § 42-5252 imposes a tax only on services that are billed monthly. And because Taxpayer does not bill each month for its prepaid services, it claims that § 425252 does not apply to it. ¶13 It is true that the statute computes the 911 tax on a monthly basis. For each activated account, the rate is thirty- seven cents per month. A.R.S. § 42-5252(A)(1). must remit the tax amount monthly. Each provider A.R.S. § 42-5253(A). But even if the tax amount and remittance period are expressed in months, it is not true, as Taxpayer contends, applies only to services billed monthly.2 that the tax Taxpayer tries to reach that conclusion by relying on the definition in § 42-5251 of customer. According to A.R.S. § 42-5252(C), [e]ach provider shall state on the invoice to customers a separate line item stating the amount of the tax levied. And customers, according to Taxpayer, are limited by statutory definition to 2 It would be absurd, for example, to read the statute as exempting from the tax all wireless providers who billed for their services on a quarterly basis. 6 those who 5251(1). receive bills regularly issued. A.R.S. § 42- So if a person is not receiving regularly issued bills in connection with his or her wireless services -- as when a person uses Taxpayer s prepaid wireless services -- that person is not a customer and the wireless services fall outside the scope of § 42-5252(A). ¶14 In making that argument, though, Taxpayer reads the definition of customer in § 42-5251 selectively. Taxpayer focuses only on what the statute describes as evidence that a person is a customer. See A.R.S. § 42-5251(1). According to the statute, a customer is a person or entity in whose name telephone evidenced or by telecommunication a signature on an services are application or rendered, as contract for service or by receipt or payment of bills regularly issued in the person s or entity s name. Id. Under this definition, a person is a customer because he or she receives telephone or telecommunication services, not because he or she receives bills. Looking to the person who receives bills regularly issued is simply a reasonable way of identifying who the customer is. ¶15 We therefore reach a conclusion other courts have reached: even if Taxpayer does not have customers whom it bills monthly, it is required, as a wireless provider, to calculate and remit the 911 tax monthly. 7 A.R.S. §§ 42-5252(A)(1), 42- 5253(A); cf. Comm n on State Emergency Commc ns v. TracFone Wireless, Inc., 343 S.W.3d 233, 239-40 (Tex. App. 2011) (finding no intent to exclude prepaid wireless telecommunications from the 911 emergency service fee); TracFone Wireless, Inc. v. Wash. Dep t of Revenue, 170 Wash. 2d 273, 290, ¶ 35, 242 P.3d 810, 819 (2010) (holding that the taxable event does not change by virtue of the fact that the telecommunications company does not send monthly billing statements ). III. ARIZONA S INCORPORATION OF THE FEDERAL MOBILE TELECOMMUNICATIONS SOURCING ACT DOES NOT MAKE THE 911 TAX INAPPLICABLE TO PROVIDERS OF PREPAID WIRELESS SERVICES. ¶16 Arizona incorporates into its Telecommunications Sourcing ( the MTSA ), U.S.C. §§ 116-126. Under A.R.S. § 42-5034.01(A), any tax levied Act law the Mobile codified at 4 and collected under chapter 5 of Title 42 (which includes the 911 tax) relating to mobile telecommunications services shall be levied and collected pursuant to the MTSA. ¶17 Enacted in 2000, the MTSA provides sourcing rules that determine services whether are subject 4 U.S.C. § 117. terms of the charges to a for mobile particular telecommunications taxing jurisdiction. That jurisdiction, or situs, is expressed in customer s place of primary use. Id. By determining the tax situs, these sourcing rules solve a problem that was created by the 8 proliferation of wireless telecommunications: multiple tax wireless obligations. phone calls Leonard J. were Kennedy subject & Heather to A. Purcell, Wandering Along the Road to Competition and Convergence -- The (2004). Changing CMRS Roadmap, 56 Fed. Comm. L.J. 489, 521 But these sourcing rules, by the MTSA s own terms, do not apply to the determination of the taxing situs of prepaid telephone calling services. ¶18 4 U.S.C. § 116(c)(1). Taxpayer argues that because of A.R.S. § 42-5034.01, the 911 tax can only be levied and collected if Arizona is a taxing situs as defined by the MTSA. rules for determining specifically exclude the any taxing wireless And because the MTSA s situs of services wireless that are services prepaid, Taxpayer claims that its prepaid wireless services are in no way subject to § 42-5252(A). ¶19 We disagree with Taxpayer s reasoning. The fact that the MTSA declines to address the tax situs of prepaid wireless services, coupled with the fact that Arizona has adopted the MTSA for taxes relating to mobile telecommunications services, does not lead to the conclusion that Arizona cannot be a tax situs for any prepaid wireless services. Cf. TracFone Wireless, 170 Wash. 2d at 285 n.5, ¶ 24, 242 P.3d at 816 n.5 (Washington s incorporation of the MTSA prepaid-services exception would not resolve the issue whether prepaid wireless is subject to the state E 911 excise tax ). It only means that Arizona s tax 9 jurisdiction over those prepaid services rests on some legal basis other than the MTSA. ¶20 Nothing in the MTSA prohibits a state from establishing itself as a tax situs for mobile services, and we decline to find that the statute accomplishes such a profound result by mere implication. When the MTSA declares whether Arizona has taxing jurisdiction over postpaid wireless services, Arizona follows that determination. When the MTSA is silent, as it is with respect to prepaid wireless services, Arizona can still tax those services if the services have a nexus to Arizona and if the tax does not run afoul of the Commerce Clause. Oil Corp. v. Comm r of Taxes of Vt., 445 U.S. Mobil 425, 436-37 (1980); Goldberg v. Sweet, 488 U.S. 252, 259 (1989). Here, Taxpayer does not challenges the tax on those grounds. 10 CONCLUSION ¶21 favor We affirm the tax court s grant of summary judgment in of the Department. A.R.S. § In addition, 12-348(B)(1) for we deny request under appeal. Taxpayer s attorney s fees on We award the Department its costs on appeal. /s/ ___________________________________ PETER B. SWANN, Presiding Judge CONCURRING: /s/ ____________________________________ MICHAEL J. BROWN, Judge /s/ ____________________________________ JON W. THOMPSON, Judge 11

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