       IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

CITY OF SEATTLE, Director of the      )
Department of Finance and Administra- )
tive Services,                        )         No. 75423-8-1
                                      )
                   Appellant,         )         DIVISION ONE
                                      )
              v.                      )
                                      )         PUBLISHED OPINION
T-MOBILE WEST CORP.,                  )
                                      )         FILED: May 22, 2017
                   Respondent.        )
                                      )

       BECKER, J. — The 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.

       A 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.
No. 75423-8-1/2

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.

       The 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.

       The 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.

          In this 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


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No. 75423-8-1/3

(2011), review denied, 173 Wn.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

(2007).

       Municipalities 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.

       A more 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


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No. 75423-8-1/4

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).

       The 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.

       The 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

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No. 75423-8-1/5

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.

      The 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 (VolP). 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(emphasis added).




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No. 75423-8-1/6

       The 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 services may be taxed based on a

customer's "place of primary use":

       All charges for mobile telecommunications services that are
       deemed to be provided by the customer's home service provider
       under sections 116 through 126 of this title are authorized to be
       subjected to tax, charge, or fee by the taxing jurisdictions whose
       territorial limits encompass the customer's place of primary use,
       regardless of where the mobile telecommunication services
       originate, terminate, or pass through, and no other taxing
       jurisdiction may impose taxes, charges, or fees on charges for such
       mobile telecommunications services.

4 U.S.C.§ 117(b). The city praises the regulatory regime created by the federal

statute as a simpler, more efficient taxation system that does away with the

complex task of determining the origin and destination of individual

transmissions. The city's ordinance complies with the federal directive by taxing

all of T-Mobile's services that are provided to customers whose place of primary

use is within Seattle.

       But it is not enough that the city's method of taxation by place of primary

use is authorized by the federal statute. The federal statute does not "provide

authority to a taxing jurisdiction to impose a tax, charge, or fee that the laws of

such jurisdiction do not authorize such jurisdiction to impose," and it does not

modify, impair, or supersede any law of any taxing jurisdiction pertaining to

taxation except as expressly provided in the act. 4 U.S.C.§ 118. Thus, while the

federal statute authorizes the method oftaxing by place of primary use, it does


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No. 75423-8-1/7

not authorize the imposition of a tax on roaming charges. A municipal

corporation's authority to tax must be delegated by the state legislature. Vonage,

152 Wn. App. at 20. Implementing legislation is necessary.

       In response to the federal statute, our legislature amended

RCW 35.21.714 in 2002 by adding the proviso stating that cities may not tax

"charges for mobile telecommunications services provided to customers whose

place of primary use is not within the city." LAWS OF 2002, ch. 67,§ 9. But the

legislature did not delete the term "intrastate," which we later construed in

Vonage as limiting taxation to intrastate services. The fact that the legislature

has prohibited the city from taxing mobile telecommunications services provided

to customers whose place of primary use is outside the city does not mean that

the legislature has expressly permitted the city to tax all mobile

telecommunications services provided to customers whose place of primary use

is inside the city.

       Because the roaming charges at issue here involve communications

originating in a foreign country, they are not intrastate. Following Vonage, we

conclude the legislature has not delegated to the city the authority to tax revenue

derived from the roaming charges. We do not address the hearing examiner's

conclusion that the taxation is unauthorized by Seattle's own ordinance. We

affirm the hearing examiner's conclusion that the city lacked authority to tax

roaming charge revenue, but like the superior court, we base that conclusion on

the absence of specific statutory authority.




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No. 75423-8-1/8

      The hearing examiner's decision reversing the assessments against

T- Mobile West is affirmed.




WE CONCUR:



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