Cable One v. Baumhoer (STC)

August 17th, 2011

State Tax Commission of Missouri

 

CABLE ONE, INC.,

Complainant,

v.

 MARILYN BAUMHOER, Manager Original Assessment,

 Respondent.

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)           Case Numbers 009-02 & 010-01

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DECISION AND ORDER

 

On October 18, 2010, this Commission received from Complainant Cable One, Incorporated (“Cable One”) its Reply Brief for this case regarding the taxation of Cable One’s  Voice Over Internet Protocol (“VoiP”)  services under § 138.420(1), RSMo,1  for

the tax years 2009 and 2010.    Cable One’s  Reply Brief was the last pleading received

 from the parties in this case.  Based on the arguments presented in each parties’ pleadings and motion papers, this Commission finds that the VoiP services provided by Cable One are not subject to taxation under § 138.420 and the prior assessments  of Cable One’s VoiP services for tax years 2009 and 2010 are set aside.

ISSUE

 The Commission takes the appeals filed by Cable One to determine whether Cable

One’s VoiP services are not subject to taxation under§ 138.420(1) for the tax years 2009

 1 All statutory citations are to the Revised Statutes of Missouri 2000,unless otherwise noted.

 and 2010. More specifically, the issue before this Commission is whether VoiP services, as provided by Cable One, constitute a public utility for purposes of taxation under the mandates of§ 138.420 and other applicable Missouri law.

PROCEDURAL HISTORY

 

On June 24, 2009, this Commission issued a final assessment in the amount of one hundred seventy-three thousand, three hundred thirty-three dollars ($173,333) against the VoiP services provided by Cable One for the tax year 2009.   On July 24, 2009, Cable One filed with this Commission a Petition for Rehearing in which Cable One appealed the June 24 final assessment. This action was designated Case Number 009-02.

On July 21, 2010, this Commission issued a final assessment in the amount of one hundred thirty-three thousand, three hundred thirty-three dollars ($133,333) against the VoiP services provided by Cable One for the tax year 2010.  On August 12, 2010, Cable One filed with this Commission a Petition for Reheai:ing in which Cable One appealed the July 21 final assessment.   This action was designated Case Number 010-01.   On August 12, Cable One also filed with this Commission a Motion to Consolidate Dockets, which this Commission granted by order on August 16, 2010.

On August 16, 2010, Cable One filed its Initial Brief with this Commission.  On September 15, 2010, Respondent Marilyn Baumhoer (“Respondent”) filed her Brief with this Commission.   On October 18, 2010, Cable One filed its Reply Brief with this Commission.   As this case presents a purely legal question regarding the central assessment  of  VoiP  services,  no  evidentiary  hearing  has  been  held  before  this Commission.

 

FINDINGS OF FACT

 

1.        Cable One is  a  corporation headquartered at  1314  North Third  Street, Phoenix, Arizona 85004.

2.          Cable One is a cable company offering cable television, cable modem, and

 

VolP services in the state of Missouri.

 

3.        Cable One  has  historically been assessed yearly property  taxes  on  its network of services by local assessors in accordance with Chapter 137, RSMo.

DISCUSSION I.            Jurisdiction

This Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious.  Art. X, § 14, Mo. Canst. of 1945; §§ 138.430, 138.431, RSMo, as amended.   This Commission shall issue a decision and order affinning, modifYing or reversing the determination of Respondent, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious. !d.

II.        Burden of Proof

Cable One has the burden to present substantial evidence to rebut the presumption of conect  assessment by this Commission.   Hermel, Inc. v. State Tax Comm’n., 564

S.W.2d 888, 895 (Mo. bane 1978).    In order to meet this burden in an appeal seeking

exemption from taxation, Cable One must meet the substantial burden to establish that

the property falls outside the provisions of Section 138.420.   State ex rei. Council Apartments v. Leachman, 603 S.W.2d 930, 931 (Mo. bane 1980).   It is well established that taxation is the rule and exemption from taxation is the exception.  Exemption is not favored in the law.  1Yfissouri Church of Scientolgy v. State Tax Comm ‘n., 560 S.W.2d

837, 844 (Mo. bane 1977).

III.     Arguments by Parties

Cable One argues that central assessment of its VoiP property in Missouri by this Commission under §138.420 is unlawful because it is not a telephone company or a public utility. It argues that central assessment is only proper if the taxed entity is a telephone company or public utility, whereas Cable One provides cable TV services, modem  access,  and  VoiP  services  through  its  cable  system.  It argues  that  local assessment under Chapter 137 is appropriate because it is a cable company.

Cable One argues that VoiP is not limited to telephony service, but also includes web gaming, navigation systems, and walkie-talkie service. Cable One also argues that the Missouri Legislature specifically excluded VoiP services from regulation as a telephone company or public utility, within statutes regarding the Public Service Commission.

Respondent argues that unequal treatment of telephone service providers and cable companies offering VoiP services requires central assessment of VoiP property. Respondent argues that because Cable One offers VoiP services to the public for a profit

it is a public utility.  Respondent also argues that VoiP services are used to accomplish

the same function as a land line, and that application of § 138.420 is not limited to technology known in 1944.  According to Respondent, services need only be analogous to those utilities and services listed in §138.420, and that VoiP services are practically the same as telephone service.

IV.     Applicability of Sections 138.420 and 386.020

The case presented is one of first impression before this C01mnission, as well as within the jurisprudence of the state of Missouri.  That is, whether Cable One’s  VolP services are exempt from taxation under § 138.420(1) or, more specifically, whether VoiP services, as provided by Cable One, constitute a public utility for purposes of taxation  under  the  mandates  of  §   138.420  and  other  applicable  Missouri  law. Accordingly, it is necessary to make an analysis of§  138.420 and other Missouri law as it relates to this case.

Section 138.420.1 states:

The state tax commission shall have the exclusive power of original assessment of the distributable property of railroads, rolling stock, street railroads, bridges, telegraph, telephone, electric power and light companies, electric transmission lines, pipeline companies, express companies, and other similar public utility corporations, companies and fitms, and of the aircraft of airlines companies in a manner not inconsistent with chapter 155.

 Section 386.020, RSMo (Cum. Supp. 2010), in petiinent pati, states:

 (23) “Interconnected voice over Internet protocol service”, service that:

(a) Enables real-time, two-way voice communications; (b) Requires a broadband connection from the user’s location;

(c) Requires Internet protocol-compatible customer premises equipment; and

(d) Permits users generally to receive calls that

originate on the public switched telephone network and to terminate calls to the public switched telephone network,


(43) “Public  utility” includes every pipeline corporation, gas

corporation,   electrical  corporation,  telecommunications   company, water corporation, heat or refrigerating corporation, and sewer corporation,  as  these  terms  are  defined  in  this  section,  and  each thereof is hereby declared to be a public utility and to be subject to the jurisdiction, control and regulation of the commission and to the provisions of this chapter;

* *  *

(54)   “Telecommunications    service”,   the                          transmission    of

information  by  wire,  radio,  optical  cable,  electronic  impulses,  or other similar means. As used in this definition, “information”  means knowledge or intelligence represented by any form of writing, signs, signals, pictures, sounds, or any other symbols. Telecommunications service does not include:

* * *

(f) Cable television service;

 U) Interconnected voice over Internet protocol service[.]

Under§ 138.420, the key factor is whether Cable One's  VoiP services constitute a

“public utility” as that term is used in the statute.  If Cable One’s VoiP services are not a public utility, then the STC is without authority to centrally  assess Cable One’s  VoiP

service.   Buchanan County Power Transmission Co. v. Baker, 9 S.W.2d 589, 591 (Mo. bane 1928).

The term “public  utility” is not defined in § 138.420 or Chapter 138, RSMo.   In

determining  whether a company  is or is not a public utility, the important thing is not

what its charter says it may do, but what it actually does.   Buchanan  County  Power Transmission Co., 9 S.W.2d at 591.  In construing a statute it is appropriate to take into consideration statutes involving similar or related subject matter when such statutes shed light upon the meaning of the statute being construed, even though the statutes are found in different chapters and were enacted at different times.  Citizens Electric Cor ‘p. v. Dir. of Dept. of Revenue, 766 S.W.2d 450, 452 (Mo. bane 1989).

As indicated above, Chapter 386 defines several terms that may shed light upon the use of the term “public utility” in § 138.420.   Specifically, § 386.020 defines the terms “public utility,” “Interconnected voice over Internet protocol service,” and “Telecommunications service.”  What is critical to note in these definitions is that (1) the term “public utility” includes the term “telecommunications service” and (2) the term “telecommunications service” specifically excludes from its definition “Interconnected voice over Internet protocol service.” Thus, VoiP services are not deemed a public utility under Chapter 386.  And according to the analysis provided by the Supreme Court in the Citizens Electric case, based on these definitions, “public utility,” as that term is used in§

138.420, does not include VoiP services. Other jurisdictions share a similar conclusion.

 

A  company must be  devoted  to  a  public  use  before  it  is  subject  to  public regulation. Buchanan County Power Transmission Co., 9 S.W.2d at 591.  By professing public service and furnishing service to the general public, a service may be considered a public utility.    Osage  Water  Company  v.  Miller  County  Water  Authority,  Inc.,  950

S.W.2d 569, 574 (Mo. App. S.D. 1997).   To fall into the class of a public utility, a

 

business must be impressed with a public interest and hold itself out as serving or ready to serve all members of the public, who may require it, to the extent of their capacity.  Id., quoting City of Englewood v. City & County of Denver, 229 P.2d 667, 672-73 (Colo. Bane 1951).  An entity that provides telecommunications services for all building tenants is not a public utility because those services were not offered to all comers without discrimination.  Bridle Bit Ranch Co. v. Basin Electric Power Cooperative, 118 P.3d 996,

1011 (Wyo. 2005).  An entity may be characterized as a public utility if the nature of its operation  is  a  matter  of  public  concern,  and  membership  is  indiscriminately  and reasonably made available to the general public. . Osage Water Company, 950 S.W.2d at

574, quoting Marano v. Gibbs, 544 N.E.2d 635, 637 (1989).

 

These statutes and cases do not appear to support Respondent’s  conclusion that if a company is for profit it is a public utility.  Lots of companies are for profit, but most companies are not public utilities.   Applied more succinctly to this case, there doesn’t appear to be any evidence that indicates that the VoiP services provided by Cable One are for a public interest or concern and that Cable One will provide such services indiscriminately to all members of the public.

V.       Summary and Conclusion

 

Cable  One’s  VoiP  services  are  not  a  public  utility  as that  term  IS  used in  §

 

138.420.   It is explicitly excluded under the plain language of § 386.020.   Without a specific definition provided in § 138.420 or other sections of Chapter 138, VoiP services

are exempt from central assessment according to the guidance provided by the Supreme


Court in the Citizens Electric case.  Accordingly, Cable One has met its burden of proof to establish its VoiP  services are not subject to taxation under the provisions of  §

138.420.

 

 

ORDER

 

The assessment of the subject property made by Respondent is SET ASIDE.

 

The collectors of all affected political subdivisions therein shall disburse the protested taxes presently in an escrow account in accordance with this decision on the underlying assessment in this appeal.  However, if any or all protested taxes have been disbursed pursuant to Section 139.031.8, RSMo, either party may apply to the circuit comt having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

A party may file with this Commission an application for review of this decision within thilty days of the mailing date set forth in the Certificate of Service.   The application shall contain specific facts or law as grounds upon which it is claimed the decision is erroneous.   Said application must be in writing addressed to the State Tax Commission of Missouri, P.O. Box 146, Jefferson City, MO 65102-0146, and a copy of said application must be sent to each person at the address listed below in the certificate of service.

Any Finding of  Fact which is a Conclusion of Law or Decision shall be so deemed.  Any Decision which is a Finding of Fact or Conclusion of Law shall be so

deemed.

 

A tt<-w:t    17,

SO ORDERED AlfY’    , 2011.