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CenturyLink’s Privilege Tax Case: Portland, OR Levels Playing Field, a Little

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Late this spring, Portland, Oregon was the site of a legal face-off when CenturyLink challenged the city’s implementation of a revised Utility License Fee (“ULF”) régime (also referred to as the city’s “franchise fee” or “privilege tax”) (QWEST CORPORATION, a Colorado corporation d/b/a CENTURYLINK, Plaintiff, v. CITY OF PORTLAND, a municipal corporation, Defendant, IN THE CIRCUIT COURT FOR THE STATE OF OREGON FOR THE COUNTY OF MULTNOMAH, Case No. 1212-16632, Henry C. Breithaupt, Judge, LETTER RULING issued May 13, 2013).

In this decidedly complicated matter, both sides to the controversy filed Motions seeking Summary (or Partial Summary) Judgment, appropriate where no substantive facts are disputed: CenturyLink – the “doing business” arm of Qwest Corporation – asking the Court to issue an Injunction to bar enforcement of amendments to the City Code of Ordinances that went into effect on the first of the year, plus a Declaration that the levy as revised was “invalid as a matter of law,” while the City sought dismissal of the lawsuit outright, believing CenturyLink misguided in its readings of the applicable statutes, and that its new taxing schema was entirely legal.

In his May 13th Letter Ruling, Judge Breithaupt effectively pulled the legs out from under CenturyLink’s legal positions, determining that the state- and federal-level prohibitions (called “preemptions”) the telco sought to invoke against the new taxation plan do not apply to the amended Ordinance as enacted. The telco had looked to “play off” the City’s increase in the tax paid by all utilities operating within its borders: against the language in Oregon Revised Statutes § 221.515 that forbids any Oregon municipality from raising above a set limit the fees that incumbent local exchange carriers (“ILECs” like CenturyLink) have long been required to pay to use the public rights-of-way (“ROW”); and against the Federal Telecommunications Act’s ban on anti-competitive state and local telecommunications laws, such as, the telco insisted, between those who occupy a city’s ROW and those who don’t – such as telecommunications resellers (“CLECs,” competitive local exchange carriers) and mobile/wireless service providers, whose infrastructure bypasses the ROW. According to CenturyLink, one law or another had to yield.

However, instead of being convinced to apply state or federal law to nullify the City Ordinance, Judge Breithaupt, acting as a true mediator, found room at the table for all three. Portland’s ULF, the Judge concluded, isn’t an ROW-usage measure such as would be limited by the Oregon state law, but, rather, is a (non-offending) impost on utility operation generally, whereas the City’s ROW fee is levied under an entirely separate section of the City Code which does not conflict. And because the ULF is, despite its name, clearly a tax as opposed to a fee, the Federal Telecommunications Act doesn’t apply, either, because of built-in restrictions upon its use to strike down state and local laws.

There is a tension here between “dueling unfairnesses,” if you will, of one kind versus another: between a taxability scheme that comes down more heavily on utilities that use the public ROW than it does upon those who don’t – a technological unfairness that does, indeed, weigh disproportionately against ILECs such as CenturyLink; and between the earlier arrangement that had imposed the utility tax on differing revenues (ILECs’ taxable basis being decidedly narrower than CLECs’) and the new law’s effort to broaden – and make more equitable – the revenue base upon which all telecom providers are taxed (thus removing an unfair advantage long enjoyed by the incumbents – an aspect of the situation surprisingly not emphasized in CenturyLink’s court papers).

In this light, CenturyLink’s lawsuit can be seen as an effort to preserve its chosen unfairness, rather than as the outraged response to an injustice that it feigned. Furthermore, any especial disadvantage to it that CenturyLink might have perceived here is more-or-less completely mitigated by Portland’s granting credit against the new tax for amounts paid to satisfy an ILEC’s ROW obligations. Thus (and despite CenturyLink’s declaring that it is “considering its options” going forward), the result here seems an arrangement that moves all parties closer to the ideal goal of conducting business on a playing field that is, per the cliché, truly level and devoid of any inherent unfairness. That, however, still requires some creativity and work.

About the Author: Marc Palmer Kram is a Senior Tax Analyst at Wolters Kluwer Tax & Accounting US, where he performs quality control and troubleshooting on the vast taxability database supporting its best-in-class CCH tax-compliance software, and then sometimes writes about what he finds. Learn more about him by visiting his author bio page. Learn more about Wolters Kluwer at WoltersKluwer.com and SalesTax.com.

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