Sales Tax State Activity Update - March 2009

Washington Says Wireless Not Solely Residential

The Washington Board of Tax Appeals has ruled that a telecommunication company’s sales of wireless service did not qualify as a residential class of telephone service exempt from sales tax. The taxpayer in this case, Sprint, is a national provider of wireless cellular telephone service. The cellular services were sold under various service plans with different numbers of total minutes. The plans were sold to both individuals and companies and were not restricted to certain types or classes of customers. Sprint’s wireless telephone business was not regulated by the Washington Utilities and Transportation Commission (WUTC) and was not required to file tariffs with the WUTC or the FCC. The Department audited Sprint and assessed them for uncollected sales tax on sales of network telephone service to customers that has been assigned as an “R” (Residential) Customer Type Code in Sprint’s billing system during the audit period.

In 1983, the Washington legislature imposed retail sales tax on the sale of broadly defined telecommunications services with the exception of telecommunications services sold to a narrowly defined class of residential customer. Residential customers were defined as individuals subscribing to a residential class of telephone service (Laws of 1983, 2nd Ex. Sess., ch. 3, section 25. Former RCW 82.08.0289 (1983)). In 1996, the Department issued Determination No. 96-090 holding that cellular services were not exempt under RCW 82.08.0289 because cellular service was not provided to premises used primarily for domestic purposes under a tariff.

The Board held that the key issue in this dispute was the meaning of the term “residential customer”. Both parties agreed that the best source for defining that term came from the tariffs filed by the land line phone companies with the WUTC. Those tariffs demonstrated two key points: (1) the telephone service was provided at a specific location and (2) the term “residential premises” was limited to a dwelling where the use of the service was used for “domestic” purposes. The exemption in the statute did not contemplate cell phone service where the individual moved about from location to location without a physical base of usage. Residential class of telephone service was a reference to a land line service connected to a person’s home and typically listed as a residential phone in the phone book published by the land line company.

Finally, the Board held that the Department’s determinations have consistently applied a restrictive application of the statute for tax exemptions, and the legislature has not chosen to overrule the Department; hence, the legislature by its inaction, has tacitly agreed to the Department’s restrictive interpretation. The Board granted the Department’s Motion for Summary Judgment dismissing Sprint’s appeal and sustaining the Department’s assessment.

(Sprint Spectrum L.P., dba Sprint PCS, Appellant, v. State of Washington, Department of Revenue, Respondent, Board of Tax Appeals, Docket No. 06-073, 2/11/09)

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