Tracfone Wireless, Inc. v. Comm'n on State Emergency Commc'ns

397 S.W.3d 173

56 Tex. Sup. Ct. J. 458

TRACFONE WIRELESS, INC. and Virgin Mobile USA, L.P., Petitioners,

v.COMMISSION ON STATE EMERGENCY COMMUNICATIONS, Respondent.

No. 11–0473.

Supreme Court of Texas.

Argued Oct. 17, 2012.

Decided April 5, 2013.

Christian J. Ward, Reagan W. Simpson, Ryan Parker Bates, Yetter Coleman LLP, Austin, TX, David J. Sewell, Gilbert J. Bernal Jr., Stahl Bernal & Davies LLP, Austin, TX, Franklin Scott Spears Jr., Arenson & Spears, Austin, TX, for Petitioner TracFone Wireless, Inc.

Charles W. Schwartz, Christopher Jason Bellotti, Skadden Arps Slate Meagher & Flom, Houston, TX, for Petitioner Virgin Mobile USA, L.P.

Brian Alan Prestwood, Moltz Morton O'Toole LLP, Austin, TX, Clarence Andrew Weber, Kelly Hart & Hallman LLP, Austin, TX, Daniel L. Geyser, James C. Ho, Gibson Dunn & Crutcher LLP, Dallas, TX, Daniel T. Hodge, First Asst. Attorney General, David C. Mattax, Director of Defense Litigation, Office of the Attorney General, David S. Morales, Office of the Attorney General of Texas, Deputy First Assistant Attorney General, Elizabeth R.B. Sterling, Environmental Protection & Administrative Law Div., Office of the Attorney General, Greg W. Abbott, Attorney General of Texas, Jonathan F. Mitchell, Solicitor General, Office of the Attorney General, Kristofer S. Monson, Assistant Solicitor General, William J. “Bill” Cobb III, Office of the Attorney General, for Commission on State Emergency Communications.

Jonathan D. Pauerstein, Rosenthal Pauerstein Sandoloski Agather LLP, San Antonio, TX, for Amicus Curiae CTIA—The Wireless Association.

Eric S. Tresh, Sutherland Asbill & Brennan LLP, Atlanta, GA, Jeffrey A. Friedman, Sutherland Asbill & Brennan LLP, Washington, DC, Rachel Giesber Clingman, Sutherland Asbill & Brennan LLP, Houston, TX, for Amicus Curiae T–Mobile USA, Inc.

Michael J. Tomsu, Vinson & Elkins, Austin, TX, for Amicus Curiae Texas 9–1–1 Alliance.

Kurt Howard Kuhn, Kuhn Hobbs PLLC, Austin, TX, for Amicus Curiae Texas Association of Business.

Justice WILLETT delivered the opinion of the Court.

Texas cellphone users help fund the State's 911 emergency networks via two distinct “e911 fee” statutes. The first, enacted in 1997, imposes on wireless subscribers a $0.50/month “emergency service fee” ¹ collected on the customer's bill. The second, effective June 1, 2010, imposes on prepaid wireless subscribers a flat 2% fee,² collected by the retail seller when a consumer buys prepaid service. The 2010 law assesses the e911 fee on prepaid wireless customers; the question here is whether the pre–2010 law did so. We answer no.

In this case, the government seeks not judicial construction of a tax law ³ so much as judicial enlargement of it. We decline. Tax policy gap-filling—specifically, deciding who is taxed—is best left to legislators, not courts or agencies. The two e911 statutes are either ambiguous, meaning they must be construed narrowly in favor of the taxpayer, or they are unambiguous, meaning prepaid customers are impermissibly double-taxed. Either way, the original 1997 law—on the books before prepaid service was on the market—does not apply. Accordingly, we reverse the court of appeals' judgment.

I. Background

A. An Overview of Prepaid Wireless Service

TracFone Wireless, Inc. and Virgin Mobile U.S.A., L.P. (the Prepaid Providers) offer prepaid wireless telephone service. As the name suggests, prepaid service differs from traditional service by the manner in which customers are charged. The traditional “postpaid” arrangement involves a locked-in contract between provider and customer, with the customer billed monthly. By contrast, prepaid-wireless subscribers skip the long-term contract and instead pay up front for the handset and a defined amount of service—usually a specified dollar amount or block of minutes. Unlike traditional, monthly-billed wireless users, prepaid users receive no bills, have no obligation to remain a customer, and utilize the service purchased as quickly or as slowly as they wish (if at all). Users who exhaust their prepaid airtime can purchase more on a “pay as you go” basis, but they have no ongoing contractual obligation.

B. The Two e911 Fee Statutes for Wireless Customers

Chapter 771 of the Health and Safety Code governs the e911 fee, which has applied to wireless customers since 1997 (and landline customers for longer). ⁴ The Commission on State Emergency Communications (CSEC) is charged with imposing an e911 fee on each “wireless telecommunications connection,” to be collected from subscribers by the “wireless service provider.” ⁵ “Wireless service provider” is defined as:

a provider of commercial mobile service under Section 332(d), Federal Telecommunications Act of 1996 (47 U.S.C. Section 151 et seq.), Federal Communications Commission rules, and the Omnibus Budget Reconciliation Act of 1993 (Pub.L. No. 103–66), and includes a provider of wireless two-way communication service, radio-telephone communications related to cellular telephone service, network radio access lines or the equivalent, and personal communication service.⁶

The original 1997 e911 fee statute for wireless subscribers is Section 771.0711(b), which specifically mandates how the fee is to be billed, collected, and remitted:

A wireless service provider shall collect the fee in an amount equal to 50 cents a month for each wireless telecommunications connection from its subscribers and shall pay the money collected to the comptroller not later than the 30th day after the last day of the month during which the fees were collected.

The monthly $0.50 fee is collected by the wireless providers “in the same manner it collects ... charges for service.” ⁷

A dozen years later, in 2009, the Legislature, responding to technological and business innovation—namely the emergence of prepaid wireless services—amended Chapter 771 to also impose a distinct e911 fee specific to prepaid subscribers. This change, effective June 1, 2010, added Section 771.0712, which assesses a 2% upfront fee to each sale of prepaid wireless service:

To ensure that all 9–1–1 agencies ... are adequately funded ... a prepaid wireless 9–1–1 emergency services fee of two percent of the purchase price of each prepaid wireless telecommunications service purchased by any method, shall be collected by the seller from the consumer at the time of each retail transaction of prepaid wireless telecommunications service occurring in this state and remitted to the comptroller consistent with Chapter 151, Tax Code, and distributed consistent with the procedures in place for the emergency services fee in Section 771.0711, Health and Safety Code.⁸

C. The Present Dispute

Between 2001 and 2005, the Prepaid Providers paid roughly $2.3 million in e911 fees under Section 771.0711, long before Section 771.0712 took effect on June 1, 2010. When the Prepaid Providers later concluded that tax-preparation errors caused them to remit millions erroneously (out of their own pockets, not collected from customers), they stopped paying additional fees and sought refunds of the amounts already paid. (Interestingly, nothing in the record suggests the State ever sought to enforce the e911 fee against other prepaid wireless companies or that anyone besides these two providers actually remitted fees on their customers' behalf.)

The CSEC initiated a contested case against the Prepaid Providers to determine Chapter 771's applicability to prepaid services. An administrative law judge issued a proposal for decision construing Section 771.0711 as imposing the e911 fee on prepaid wireless, but noting that (1) “prepaid cellular phone services ... were not contemplated by the legislature in the statutory scheme”; and (2) CSEC presented no evidence that, at any time during the relevant period, it had issued a rule, opinion, or policy letter stating the e911 fee applies to prepaid wireless. CSEC adopted the ALJ's proposal for decision and denied the Prepaid Providers' motion for rehearing.

Shortly thereafter, in 2009, the Legislature enacted Section 771.0712, the e911 fee statute specific to prepaid wireless service. This new statute did not amend the original $0.50/month fee enacted in 1997. Rather, it detailed a separate calculation and collection mechanism specifically tailored for prepaid wireless: 2% of the purchase price collected by the retailer at the point of sale.

Once the new e911 fee was adopted, the Prepaid Providers sought review in the trial court, which agreed with them and ordered refunds, holding that prepaid wireless was not covered by Section 771.0711. The court of appeals reversed, concluding the Prepaid Providers were obligated to collect and remit the e911 fee in the original statute.⁹ This appeal followed, posing a simple question: Does the pre–2010 statute tax prepaid service?

II. Discussion

The court of appeals held,¹⁰ and CSEC argues, that the original e911 fee in Section 771.0711 unambiguously applied to prepaid wireless before June 1, 2010. Alternatively, the court of appeals held, ¹¹ and CSEC argues, that even if the 1997 statute is deemed ambiguous, CSEC should still prevail.

Whether the pre–2010 statute unambiguously imposed a fee on prepaid customers is not instantly clear. On the one hand, Section 771.0711(a) seems to cover all wireless providers, including prepaid, stating broadly that “the commission shall impose on each wireless telecommunications connection a 9–1–1 emergency service fee.” ¹² Moreover, Section 771.001(13) states, “ ‘Wireless telecommunications connection’ means any wireless communication mobile station assigned a number containing an area code assigned to Texas ....” ¹³ On the other hand, the mandatory mechanics of the pre–2010 statute seem nearly impossible to apply coherently to prepaid service. For one thing, it requires providers to collect the fee from customers on a monthly basis,¹⁴ even though prepaid is not sold in monthly increments, and customers use an unpredictable number of months of prepaid...