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Alltel Isn't A Telco! Vague Tax Law Costs State $5 Million

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Proving that, occasionally, the law can be both correct and absurd is a case from South Carolina which requires disentangling a procedural maze. Happily established at the end, however, is the principle that taxpayers deserve the benefit of the doubt whenever a taxation statute is not perfectly ironclad in its applicability. (Alltel Communications, Inc., v. S.C. Dep’t of Revenue, &c., 399 S.C. 313)

Alltel Communications, Inc. and its affiliates (here, for convenience, “Alltel”), providers of wireless cellular communications, duly filed their tax returns with South Carolina’s Department of Revenue, including payments of corporate license fees required under S.C. Code Ann. § 12-20-50 (“Imposition of license tax on corporations generally”). Upon audit, the DoR issued a deficiency notice against Alltel for over $4.7 million because, as a telephone company, it owed the higher assessments of § 12-20-100 (“License tax on utilities”) imposed on “every express company, street railway company, navigation company, waterworks company, power company, electric cooperative, light company, gas company, telegraph company, and telephone company.” Alltel challenged the claimed deficiency, whereupon the DoR issued a formal determination denying its protests. With no disagreements over facts, the parties submitted cross-motions for summary judgment to an Administrative Law Court (“ALC”), which found for Alltel on two grounds: Alltel did not fit § 12-20-100’s description of “telephone company”; and, alternatively, were any inexactitude detected in the statute, the uncertainty thus arising had to be resolved in the taxpayer’s favor under precedent recognized in South Carolina since 1936.

SC Revenue contested the ALC’s verdict and brought the case before the Court of Appeals, which, despite finding that enforcing § 12-20-100 against Alltel was not “absolutely clear,” reversed the ALC’s dismissal and remanded the case for resumption. Subsequent appeal to the South Carolina Supreme Court saw the state’s highest court overturn the Appeals Court and restore the (correct!) outcome ordered by the ALC.

One reason matters got so complicated, descended so far down this judicial labyrinth, was that the parties had stipulated – that is, had agreed between themselves in pre-trial negotiations – to a definition of “telephone company” that seemed to cover Alltel. Problem is, whether the agreed-upon terminology accurately described Alltel or didn’t is irrelevant: a controlling rule of law insists that a statute’s meaning (here, § 12-20-100’s use of “telephone company”) is “an issue of law to be decided by the court, rather than the parties, and that courts are not bound by parties’ stipulations of law.” The Court of Appeals could have decided if Alltel were a telephone company but elected not to, and returned the case to the ALC. It took the Supreme Court to recognize this.

However, the true reason for the absence of clarity in this case was simply – astoundingly – that the South Carolina Code contains no relevant definition of “telephone company”! Observed the Supreme Court: “The predecessor to section 12-20-100 was enacted in 1904, yet more than a century later the term ‘telephone company’ remains undefined by the legislature.” There’s still no authority to which any party or court can point, to resolve the controversy’s (easy) central question! That failure created sufficient uncertainty to throw the issue into doubt – and out of taxability.

Because the nearest thing to an appropriate description in the SC Code is an outdated reference to “a company that employs landlines and wires to transmit telephonic communications” – whereas everybody knew that Alltel used radio transmissions to carry its mobile telecom – “application of section 12-20-100 to [Alltel] was not ‘absolutely clear as a matter of law.’” Finding ambiguity, as the Court of Appeals failed to, the Supreme Court reinstated the ALC’s grant of summary judgment for Alltel: “Where the language relied upon to bring a particular person within a tax law is ambiguous or is reasonably susceptible of an interpretation that will exclude such person, then the person will be excluded, any substantial doubt being resolved in his favor.”

Thus, because of a minor oversight, but a vital matter of principle, Alltel avoided nearly $5 million in tax liability – a comforting bedtime story for tax practitioners everywhere.

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 and

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