The opinion
TO BE PUBLISHED IN THE OFFICIAL REPORTS
OFFICE OF THE ATTORNEY GENERAL
State of California
JOHN K. VAN DE KAMP
Attorney General
_________________________
:
OPINION : No. 85-205
:
of : FEBRUARY 11, 1986
:
JOHN K. VAN DE KAMP :
Attorney General :
:
JOHN T. MURPHY :
Deputy Attorney General :
:
________________________________________________________________________
THE STATE BOARD OF EQUALIZATION has requested an opinion on
the following question:
For purposes of the Moore Universal Telephone Services Act, are the
revenues received by interLATA intrastate suppliers of telecommunications services for
providing intraLATA intrastate telecommunications services included within taxable
gross revenues?
CONCLUSION
For purposes of the Moore Universal Telephone Services Act, the revenues
received by interLATA intrastate suppliers of telecommunications services for providing
intraLATA intrastate telecommunications services are included within taxable gross
revenues.
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ANALYSIS
INTRODUCTION
The Moore Universal Telephone Act (Stats. 1983, ch. 1143, § 1 et seq.)
provides for "lifeline" residential telephone service for needy individuals and families.
This low-cost service is subsidized by the Universal Telephone Service Fund, established
by the Moore Act, which is supported by a tax on the "gross revenues" of "service
suppliers". The Moore Act is administered by the California Public Utilities Commission
(CPUC) and the State Board of Equalization (SBE). The CPUC determines the scope of
the telephone services provided, the service rates and the tax; the SBE supervises the tax
reporting and collecting. (Pub. Util. Code, § 739.2; Rev. & Tax Code, § 44000 et seq.)
HISTORY
By the Moore Act the Legislature directed the CPUC to design a "lifeline"
program of telephone service to meet the minimum residential communications needs of
those unable to afford regular service, particularly the elderly, the handicapped and the
infirm. (Pub. Util. Code, § 739.2, subd.(a).) The CPUC was also directed to set the
"rates and charges for that service, and eligibility criteria for that service." (Pub. Util.
Code, § 739.2, subd.(a).) Generally, the "lifeline" rate was not to be greater than 50
percent of the basic rate for measured service or for flat rate service, exclusive of
federally mandated access charges, available to the residential subscriber. (Pub. Util.
Code, § 739.2, subd.(b).) The CPUC was authorized to change the "lifeline" rate so
established either specifically or pursuant to any general restructuring of all telephone
rates, charges and classifications. (Pub. Util. Code, § 739.2, subd.(d).)
To finance this program a tax is imposed on "every service supplier in the
state measured by the gross revenues received from intrastate telecommunication services
provided on or after July 1, 1984." (Rev. & Tax Code, § 44030.) The tax rate is
determined annually and is not to exceed 4 percent of the gross revenues received by a
service supplier. (Rev. & Tax Code, §§ 44040 and 44041.) The term "service supplier"
is defined as follows (Rev. & Tax Code, § 44016):
"'Service supplier' means any person supplying any of the following:
"(1) InterLATA intrastate telecommunications
services.
"(2) IntraLATA intrastate telecommunications services if the
commission [CPUC], after public hearings, determines that such
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intraLATA intrastate telecommunications services shall be subject to the
tax imposed under this part in accordance with the intent of the Legislature
as set forth in Section 1 of the act enacting this section at the 1983-84
Regular Session of the Legislature.
"(3) Intrastate telecommunications services
on a basis not defined by LATA boundaries."
Before going further we must explain these words. A LATA is a local
access and transport area as approved in the telephone divestiture proceedings.1 (United
States v. Western Elec. Co., Inc. (D.D.C. 1983) 569 F.Supp. 990; Rev. & Tax Code,
§ 44019.) As explained in the above case, at pages 993-994 (fns. omitted):
"Pursuant to the decree, all Bell territory in the continental United
States is divided into LATAs, generally centering upon a city or other
identifiable community of interest. Most simply, a LATA marks the
boundaries beyond which a Bell Operating Company may not carry
telephone calls. What the Operating Companies will do in the services field
after divestiture is (1) to engage in exchange telecommunications, that is, to
transport traffic between telephones located within a LATA, and (2) to
provide exchange access within a LATA, that is, to link a subscriber's
telephone to the nearest transmission facility of AT & T or one of AT & T's
long-haul competitors.
"Once the divestiture is completed, the Operating Companies will be
allowed to transport communications only to and from telephones and other
apparatuses located within the same LATA (intra-LATA traffic); because
of their local monopoly position, the decree does not permit the Operating
Companies to carry calls between different LATAs (inter-LATA traffic).
Only AT & T and its intercity competitors - such as MCI, Sprint, and
Satellite Business Systems - may carry telecommunications traffic which
originates in one LATA and terminates in another."
In short, interLATA means between one LATA and another and intraLATA means
within a single LATA. (Rev. & Tax Code, §§ 44020 and 44021.)
1
In 1982, the American Telephone and Telegraph Company (AT & T) and the United States
Department of Justice signed a consent decree divesting AT & T of subsidiaries supplying local
telephone service. (United States v. American Tel. and Tel. Co., (D.D.C. 1982) 552 F.Supp. 131,
140-143, aff'd mem. sub. nom. Maryland v. United States (1983) 460 U.S. 1001.)
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The Moore Act, in Revenue and Taxation Code section 44024, defines
"gross revenues" as follows:
"'Gross revenues' means all revenues billed by a service supplier for
the provision of intrastate telecommunications services, including revenues
derived from monthly service flat rate charges, message unit charges, toll
charges, and intrastate wide area telephone service charges, and any other
flat rate or usage charge, excluding all federal, state, and local taxes and all
accounts which have been found to be worthless and written off for income
tax purposes or, if the service supplier is not required to file income tax
returns, written off in accordance with generally accepted accounting
principles."
The term "intrastate telecommunication service" is then defined in Revenue and Taxation
Code section 44025 as follows:
"'Intrastate telecommunication service' means
any of the following:
"(a) A telecommunication for which there is a toll charge which
varies in amount with the distance and elapsed transmission time of each
individual communication, where the point of origin and the point of
destination are located within this state.
"(b) A service which entitles the subscriber, upon payment of a
periodic charge (determined as a flat amount or upon the basis of total
elapsed transmission time), to the privilege of an unlimited number of
telecommunications to or from persons having telephone, data, or
radiotelephone stations which are outside the exchange area in which the
station provided with the service is located, where the point of origin and
the point of destination are located within this state.
"(c) A service which entitles the subscriber, upon payment, to
transfer or move information whether voice, data, digital, or video in nature
where the point or points of origin and the point or points of destination of
the service are located in different exchanges in this state."
In summary, the tax scheme imposes the tax upon the gross revenues from
intrastate telecommunications services of the suppliers of interLATA intrastate
telecommunications services and, if the CPUC so determines, upon the gross revenues
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from intrastate telecommunications services of the suppliers of intraLATA intrastate
telecommunications services.
In compliance with the Moore Act's directive, the CPUC initiated
proceedings2 and conducted hearings which resulted in Interim Opinion, decision 84-04-
053, April 18, 1984. This opinion, inter alia, established a 4 percent tax on interLATA
intrastate toll calls, stating that "although it [CPUC] has the power to do so it will not at
this time tax intraLATA toll calls," and that "we [CPUC] may later have to include
intraLATA intrastate services if the tax does not generate enough to fund the program."
(Slip Opn., pp. 2 and 15.)3
On November 7, 1984, the CPUC issued Opinion on Establishing a General
Order for Administration of the Moore Act, decision 84-11-028. By this opinion and
general order (No. 153) the CPUC defined "service suppliers" so as to exclude
intraLATA suppliers (Gen. Order No. 153, § 1.3.24):
"'Service Supplier' - means any person supplying any of the
following:
"InterLATA intrastate telecommunication services.
"Intrastate telecommunications services on a basis not defined by
LATA boundaries."
The CPUC also defined "gross revenues" so as to exclude revenues for providing
intraLATA services (Gen. Order No. 153, § 1.3.8):
"'Gross revenues' means all revenues billed by a service supplier for
the provision of intrastate interLATA telecommunications services,
excluding all federal, state, and local taxes and all accounts which have
been found to be worthless and written off for income tax purposes or, if
the service supplier is not required to file income tax returns, written off in
accordance with generally accepted accounting principles."
2
"Investigation on the Commission's own motion into the method of implementation of the
Moore Universal Telephone Services Act," OII 83-11-05, November 30, 1983.
3
The tax was also placed on revenues from "intrastate services not defined by LATA
boundaries". (Slip Opn., p. 15; see Rev. & Tax Code, § 44016, subd. (3).) Discussion of this
provision is not relevant to our opinion.
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By this action the CPUC excluded from the tax any gross revenues from intraLATA
intrastate telecommunications services furnished by interLATA intrastate suppliers. (See
also interim opinions 84-11-028, 85-05-009 and 85-08-083.)
Some additional history must be examined to explain this exclusion. In a
separate but related proceeding4, by decision 84-06-113, June 13, 1984, the CPUC
generally prohibited interLATA intrastate suppliers from providing intraLATA services.
(Slip Opn., pp. 98-104.) However, this decision did not preclude interLATA intrastate
suppliers from furnishing certain high-speed intraLATA data services over private line
networks or certain "incidental" intraLATA services. (Slip Opn., pp. 67-72a, 99-104.)
This latter exception arose because of the present technical inability of some interLATA
intrastate suppliers to identify all intraLATA traffic of their customers and block such
traffic from their systems. (Slip Opn., pp. 8-9, 69-72a.) Consequently, some interLATA
intrastate suppliers do receive revenues from intraLATA services which they have been
allowed to provide.
PROBLEM
Revenue and Taxation Code section 44016, subdivision (1), makes a
supplier of interLATA intrastate telecommunications services subject to the tax. The tax
is measured by gross revenues, which term under the Moore Act covers "all revenues
billed by a service supplier for the provision of intrastate telecommunications services," a
measurement which would encompass both interLATA revenues and intraLATA
revenues. (Rev. & Tax Code, §§ 44024 and 44030.) On its face the Moore Act makes all
the intrastate telecommunications services revenues of the interLATA intrastate suppliers
subject to the tax.
The CPUC, exercising authority as perceived by it under Revenue and
Taxation Code section 44016, subdivision (2), determined that intraLATA intrastate
telecommunications services were not to be taxed under the Moore Act. It also
determined, that "gross revenues" mean only revenues billed by a service supplier for the
provision of interLATA intrastate telecommunications services. This definition differs
from the definition of "gross revenues" set forth in Revenue and Taxation Code section
44024. The problem, then, is whether an interLATA intrastate supplier must pay the tax
on intraLATA revenues.
4
"Order Instituting Investigation to determine whether competition should be allowed in the
provision of telecommunications services within the state," OII 83-06-01, June 29, 1983.
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RESOLUTION
The Moore Act is of recent origin and has not been judicially construed. In
examining the act we will follow several principles of statutory construction used by
courts. The primary rule is to "'ascertain the intent of the Legislature so as to effectuate
the purpose of the law.'" (People v. Davis (1981) 29 Cal.3d 814, 828.) In determining
legislative intent, we first turn to the language used, giving the words their usual and
ordinary import. (California Teachers Assn. v. San Diego Community College Dist.
(1981) 28 Cal.3d 692, 698; People v. Belleci (1979) 24 Cal.3d 879, 884.) "Moreover, the
various parts of a statutory enactment must be harmonized by considering the particular
clause or section in the context of the statutory framework as a whole." (Moyer v.
Workmen's Comp. Appeals Bd. (1973) 10 Cal.3d 222, 230.) Also, great respect must be
given to an administrative agency's interpretation of the statute it is charged with
enforcing. (San Lorenzo Education Assn. v. Wilson (1982) 32 Cal.3d 841, 850.) On the
other hand, an administrative agency may not "rewrite the statute to suit its notion of
what the Legislature must have intended. . . ." (Regents of University of California v.
Public Employment Relations Bd. (1985) 168 Cal.App.3d 937, 944-945; Daley v. State
Dept. of Social Services (1969) 276 Cal.App.2d 801, 804.)
The Moore Act is rooted in the Legislature's "plenary power" to confer
additional authority and jurisdiction upon the CPUC beyond that conferred by the
California Constitution. (Cal. Const., art. XII, § 5; see County of Inyo v. Public Utilities
Com. (1980) 26 Cal.3d 154, 160.) The question of whether the Legislature has made the
gross revenues from intraLATA intrastate telecommunications services of interLATA
suppliers subject to the tax is a question of law, and such a question is reviewable. (Cal.
Portland Cement Co. v. Public Util. Com. (1957) 49 Cal.2d 171, 175.)5 While the
CPUC's "interpretation of the Public Utilities Code should not be disturbed unless it fails
to bear a reasonable relation to statutory purpose and language . . . ." (Greyhound Lines,
Inc. v. Public Utilities Com. (1968) 68 Cal.2d 406, 410-411), it may not "disregard other
laws representing the legislative policy of the state . . . ." (Sale v. Railroad Commission
(1940) 15 Cal.2d 612, 621). We believe the CPUC has misinterpreted provisions of the
Moore Act in the Revenue and Taxation Code.
Under Revenue and Taxation Code section 44030, as we have seen, the tax
is "measured by the gross revenues received from intrastate telecommunications
services . . . ." Under section 44016, subdivision (1), interLATA carriers are service
suppliers subject to the tax as so measured by section 44030. (See also Rev. & Tax Code,
5
Orders and decisions of the CPUC are reviewable in the California Supreme Court. (Pub.
Util. Code, § 1756.) Review is confined to whether the CPUC has regularly pursued its authority
or whether its order or decision violated constitutional rights. (Southern Pac. Transportation Co.
v. Public Utilities Com. (1976) 18 Cal.3d 308, 311-312, fn. 2.)
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§ 44025, defining "gross revenues.") The CPUC cannot rewrite this tax scheme to
change the tax measurement from revenues from all intrastate services to revenues billed
for the provision of interLATA intrastate services only.
The Legislature in section 44016 made a clear distinction between the
suppliers of interLATA services and the suppliers of intraLATA services. It determined
that the former should be taxed, giving the CPUC no discretion in the matter. However,
whether the latter would be taxed was made dependent on future CPUC action. It is our
view that the Legislature in identifying intraLATA service suppliers was pointing out
those which supply only intraLATA services, as described in the modified final judgment
in the telephone divestiture case. (See United States v. American Tel. and Tel. Co.,
supra, 552 F.Supp. 131, aff'd mem. sub. nom. Maryland v. United States (1983) 460 U.S.
1001.) The Legislature was aware that upon divestiture the former Bell Operating
Companies were authorized to provide service only within the LATA boundaries created
by the divestiture. (Id., pp. 227-228.) The Legislature in section 44016, then, was
distinguishing these companies from other telecommunications suppliers authorized to
operate in interLATA capacities (and interstate capacities) but not forbidden by reason of
the divestiture from furnishing intraLATA services as well. Accordingly, the Legislature
intended and so directed that the tax be imposed on all the intrastate (both interLATA and
intraLATA) revenues of the companies offering interLATA services.
Moreover, subdivision (2) of section 44016 allows the CPUC to exempt
from the tax the service suppliers of "intraLATA intrastate telecommunications services"
if the CPUC determines that "such intraLATA intrastate telecommunications services"
should not be taxed. (Emphasis added.) The word "such" refers back to the services of
the intraLATA suppliers identified in subdivision (2) and not to the services of
interLATA suppliers identified in subdivision (1) of section 44016. (See People v.
School District (1894) 101 Cal. 655, 658; Estate of Wallace (1950) 98 Cal.App.2d 285,
289-290.) Consequently, the CPUC's discretion was limited to excluding the intraLATA
revenues of intraLATA suppliers only.
For the above reasons we conclude that for purposes of the Moore
Universal Telephone Services Act the revenues received by interLATA intrastate
suppliers of telecommunications services for providing intraLATA intrastate
telecommunications services are included within taxable gross revenues.
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