BILL REQ. #:  Z-0817.1 

Prefiled 11/23/11. Read first time 11/28/11.   Referred to Committee on Ways & Means.

     AN ACT Relating to clarifying the sales tax exemption for local telephone service; reenacting and amending RCW 82.08.0289; creating new sections; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   (1) In 1983 retail sales tax was extended to telephone services. However, an exemption was provided for certain residential telephone service. That exemption, codified in RCW 82.08.0289, applies to individuals "subscribing to a residential class of telephone service."
     (2) The legislature finds that the department of revenue has consistently interpreted the phrase "a residential class of telephone service" as it would have been understood when the residential telephone service exemption was enacted in 1983. The legislature further finds that in 1983, all telephone service was divided into "residential" and "business" classifications, as defined by regulatory tariffs filed with the utilities and transportation commission. As a result, the department of revenue has consistently restricted the residential telephone service exemption to local telephone service provided under a regulatory tariff. This includes traditional landline telephone service but excludes cellular telephone service and voice over internet protocol telephone service, which are not subject to regulatory tariffs.
     (3) The legislature further finds that the department of revenue's interpretation of the residential telephone service exemption has been upheld by the board of tax appeals but was recently rejected by the Thurston county superior court. In Sprint Spectrum LP v. State of Washington Department of Revenue, Cause No. 10-2-02276-4, the Thurston county superior court ruled that the taxpayer's sales of cellular telephone services to nonbusiness customers qualify for the residential telephone service exemption in RCW 82.08.0289. The legislature recognizes that this decision, if upheld on appeal, would very likely require the department of revenue to grant the residential telephone service exemption to all other telecommunications services a carrier treats as residential, such as voice over internet protocol telephone service. The legislature also finds that if the superior court's decision is sustained on appeal, the unexpected state and local revenue impacts would be extremely large.
     (4) The legislature intends by this act to prevent the adverse fiscal impacts that would result if the Thurston county superior court's Sprint Spectrum LP decision were to be upheld on appeal. Therefore, this act clarifies that the residential telephone service exemption in RCW 82.08.0289 has always applied only to residential telephone service offered under a tariff filed with the utilities and transportation commission, consistent with the department of revenue's long-standing interpretation of the exemption. As a clarification of the law, this act is intended to apply both prospectively and retroactively.

Sec. 2   RCW 82.08.0289 and 2007 c 6 s 1006 and 2007 c 6 s 1005 are each reenacted and amended to read as follows:
     (1) The tax levied by RCW 82.08.020 ((shall)) does not apply to sales of:
     (a) Local service;
     (b) Coin-operated telephone service; and
     (c) Mobile telecommunications services, including any toll service, provided to a customer whose place of primary use is outside this state.
     (2) The definitions in RCW 82.04.065, as well as the definitions in this subsection, apply to this section.
     (a) "Local service" means ancillary services and telecommunications service, as those terms are defined in RCW 82.04.065, other than toll service, provided to an individual subscribing to a residential class of telephone service offered under a tariff required to be filed with the Washington utilities and transportation commission under Title 80 RCW.
     (b) "Toll service" does not include customer access line charges for access to a toll calling network.
     (c) "Coin-operated telephone service" means a telecommunications service paid for by inserting money into a telephone accepting direct deposits of money to operate.

NEW SECTION.  Sec. 3   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 4   This act applies prospectively as well as retroactively to tax periods open for assessment or refund of taxes under RCW 82.32.050 or 82.32.060, including any refund claims or disputed assessments pending before the department of revenue, board of tax appeals, or any court of law.

NEW SECTION.  Sec. 5   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.