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State Tax Assessor v. MCI Communication Services, Inc.

Superior Court of Maine, Kennebec

June 30, 2016

STATE TAX ASSESSOR, Petitioner
v.
MCI COMMUNICATION SERVICES, INC., et al., Respondent

          DECISION

         This matter is before the Court on countervailing motions for summary-judgment by petitioner and respondent in the absence of genuine issues of material facts.

         I. Factual and Procedural Background.

         Respondent MCI Communications Services, Inc. (MCI) is a telecommunications service provider who provides long distance telephone service in Maine and throughout the United States. Maine Revenue Services (MRS) audited MCI and determined that MCI should have paid service provider tax (SPT) on revenue from property tax recover charges (PTRC) and carrier cost recovery charges (CCRC). MRS made an assessment against MCI for service provider tax and interest for the period from March 1, 2008 to December 31, 2010.

         MCI sought review of the Division Reconsideration Decision before the Maine Board of Tax Appeals (BOTA). After MCI and MRS filed memoranda and held an appeals conference before BOTA, BOTA concluded the CCRC and PTRC were not subject to the Maine service provider tax.

         On November 6, 2013, the State Tax Assessor (Assessor), the director of MRS, petitioned this Court for judicial review of BOTA's decision.

         MCI is a telecommunications service provider that provides long distance telephone service in Maine and throughout the United States. MCI does not provide local telephone service in Maine; an affiliated entity, MCImetro Access Transmission Services LLC, provides local telephone service in Maine.

         If an MCI customer purchased interstate and international telecommunications services, MCI added two charges to the customer's bill: property tax recover charges (PTRC) and carrier cost recovery charges (CCRC). MCI recovers property taxes paid to state and local jurisdictions on real property and tangible personal property under PTRC. PTRC is a Federal Communications Commission (FCC) tariffed surcharge that is calculated as a percentage of charges for interstate and international telecommunications services. MCI was not required to charge its customers the PTRC. PTRC cannot be purchased as a standalone item and will only appear on a customer's bill if the customer purchases interstate or international telecommunications services. There is no specific calculation performed for what portion of property on which property taxes are paid is attributable to interstate and international telecommunications services versus intrastate telecommunications services because the property is used for intrastate, interstate, and international telecommunications. MCI determines the rate of the PTRC surcharge by comparing the total property tax expenses to be recovered to the total eligible revenue (revenue from interstate and international telecommunications services as reported to the FCC on Form 499-A] against which the PTRC is to be recovered to derive the applicable percentage, with the intention of recovering only around 85% of the total property tax expenses paid.

         MCI recovers a portion of expenses paid to the FCC and costs of administering FCC programs under the CCRC. CCRC is an FCC tariffed surcharge that (1] allows MCI to recover a portion of expenses MCI was required to pay to the FCC or to a third-party administrator appointed by the FCC to administer regulatory programs; and (2] that is calculated as a percentage of charges for interstate and international telecommunications services for large business (enterprise] customers. MCI was not required to charge CCRC to its customers. CCRC cannot be purchased as a standalone item and will only appear on a customer's bill if the customer purchases interstate or international telecommunications service. The expense recovered through the CCRC surcharge that were paid directly to the FCC are annual regulatory fees, which include interstate service provider regulatory fee-159-W invoice from the FCC; international bearer circuit fees; submarine cable fees; and earth station fees. The expense recovered through the CCRC surcharge that were paid to a third-party administrator include the North American Numbering Plan (NANP] administration fee for issuance and tracking of telephone numbers to carriers; federal telecommunications relay services (TRS] administration fees to fund the administration of services to the speech and hearing impaired; and federal local number portability (LNP) administrative fees for administering the local number portability database and tracking the porting of numbers between carriers. MCI determines the amount of CCRC surcharge by comparing the total FCC expenses to the total eligible revenue (revenue from interstate and international telecommunications services as reported to the FCC on Form 499-A] against which the CCRC is to be recovered to derive the applicable percentage.

         On January 5, 2011, Maine Revenue Services (MRS] sent a standard Intent-to-Audit letter to MCI. MRS completed the audit and concluded that the only audit issues were the PTRC and the CCRC. MRS believed that MCI should have paid service provider tax on revenue received from PTRC and CCRC. MRS assessed the amount MCI owed as $140, 815.13 in tax and $31, 603.76 in interest, for a total amount due of $172, 418.89.

         MCI sought reconsideration of the assessment. The Audit Division of the MRS upheld the assessment and noted the accrual of additional interest as of the date of the Audit Division's reconsideration decision in the amount $12, 454.80, for a total amount due of $184, 873.69.

         MRS made an assessment against MCI for service provider tax and interest for the period from March 1, 2008 to December 31, 2010. During this period, there were two versions of the service provider tax statute. The Maine Legislature amended the service provider tax statute under 36 M.R.S. §§ 2551-2560 in P.L. 2007, c. 627, which became effective on July 18, 2008. Consequently, two different versions of the service provider tax statute apply to different parts of the audit period: before July 18, 2008, and beginning on July 18, 2008.

         II. Discussion.

         A. Legal framework.

         Prior to July 18, 2008, Maine imposed tax on the value of telecommunications services. 36 M.R.S. § 2552(1)(E)(2007). Telecommunications services included "[t]he provision of 2-way interactive communications through the use of telecommunications equipment... [but] does not include: service originating or terminating outside this State ...." 36 M.R.S. § 2551(20)(2007). The value of telecommunications services "is measured by the sale price." 36 M.R.S. § 2552(2)(2007). "'Sale price' means the total amount of consideration, including cash, credit, property and services, for which personal property or services are sold, leased or rented, valued in money whether received in money or otherwise, without any deduction for the cost of materials used, labor or service costs, interested, losses and any other expense of the seller." 36 M.R.S. § 2551(15) (2007). "'Sale price' does not include ... [t]he amount of any tax imposed by the United States or the State on or with respect to the sale of a service, whether imposed upon the seller or the consumer." 36 M.R.S. § 2551(15)(2007).

         The Maine Legislature changed the service provider tax law by enacting P.L. 2007, Chapter 627, "An Act Concerning Technical Changes to the Tax Laws, " which took effect on July 18, 2008. As of July 18, 2008, the Legislature included the sales of interstate and international telecommunications services in the value of telecommunications, but exempted them from service provider tax. The Legislature repealed the definition of "telecommunications services" under 36 M.R.S. § 2551(20)(2007), amended by P.L. 2007, ch. 627, § 63 (effective July 18, 2008) and defined "telecommunications services" as "the electronic transmission, conveyance or routing of voice, data, audio, video or any other information or signals to a point or between or among points." 36 M.R.S. § 2551(20-A)(2007), amended by P.L. 2007, ch. 627, § 64 (effective July 18, 2008). The Legislature exempted sales of international telecommunications service and interstate telecommunications service from service provider tax. 36 M.R.S. §§ 2557(33), (34)(2007), amended by P.L. 2007, ch. 627, §§ 74, 75 (effective July 18, 2008). "International telecommunications service" is "a telecommunications service that originates or terminates in the United States and terminates or originates outside the United States, respectively." 36 M.R.S. § 2551(5-A)(2007), amended by P.L. 2007, ch. 627, § 59 (effective July 18, 2008). "Interstate telecommunications service" is "a telecommunications service that originates in one state, territory or possession of the United States and terminates in a different state, territory or possession of the United States." 36 M.R.S. § 2551(5-B)(2007), amended by P.L. 2007, ch. 627, § 60 (effective July 18, 2008). The Legislature did not define "sales."

         B. The Parties' arguments regarding the service provider tax statute effective onlulvl8.2008.

         1. The Assessor's Motion for Summary Judgment, MCI's ...


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