WASHINGTON-A federal judge in Kentucky temporarily blocked enforcement of a new law prohibiting telecom operators from passing through to subscribers a targeted 1.3-percent gross receipts tax, pending the outcome of truth-in-billing litigation in the 11th U.S. Circuit Court of Appeals.
The turn of events in the U.S. District Court for the Eastern District of Kentucky is considered a legal victory for the wireless industry, which sued the state in November over the tax anti-pass-through provision set to kick in Jan. 1.
Cingular Wireless L.L.C., Verizon Wireless, Sprint Nextel Corp. and T-Mobile USA Inc. argued the tax measure-signed into law in March by Gov. Ernie Fletcher-violates the 1993 prohibition on state regulation of wireless rates. They asserted non-Kentucky cellular customers on national calling plans would have to absorb most of cost of the state tax without gaining any benefit, and that other states might decide to do the same. The lawsuit names as defendants Robbie Rudolph, secretary of the finance and administration cabinet, and Mark Treesh, commissioner of the Department of Revenue, of Kentucky.
“Defendants opposition to plaintiffs’ motion for preliminary injunction raises several issues that are currently before the 11th Circuit in the NASUCA Review,” said U.S. District Judge Karen Caldwell. NASUCA is the National Association of State Utility Consumer Advocates. “Plaintiffs and defendants have conferred and stipulated to the entry of this order granting preliminary injunctive relief and staying further proceedings pending the outcome of the NASUCA Review Proceeding. The court finds that, in light of above, granting the preliminary relief sought by plaintiffs and staying further proceedings in this matter pending the outcome of the NASUCA Review Proceeding will conserve the resources of the parties and the court, and will serve the public interest.”
Before it agreed with industry lawyers to the grant of the preliminary injunction, Kentucky officials argued to the court there were options other than blocking enforcement of the tax pass-through measure.
“It should be noted that this provision does not forbid a provider from otherwise communicating with its customers about the enactment of the gross revenue tax,” the state said. “Providers are free to include flyers, inserts, or other literature in their bills explaining that they are subject to the tax, how the tax affects their business or operates, and even expressing their opposition to it.”
But wireless carriers say they are not opposed to the tax itself, only the ban against passing it on to subscribers.
The 11th Circuit has been asked to decide whether the Federal Communications Commission last year overstepped its authority in pre-empting state regulation of line-item charges on mobile-phone bills.
In the March decision, the FCC also extended truth-in-billing regulations to cellular carriers over their protests. But the wireless industry gained more ground than it lost in the ruling. Indeed, the FCC declined to ban regulatory recovery fees as requested by NASUCA-at least so long as such charges are not misleading. Regulatory recovery fees are broken out on wireless bills by mobile-phone operators to recover the cost of implementing federal mandates such as enhanced 911, local number portability and universal-service-fund contributions.
NASUCA and the Vermont Public Service Board disliked the FCC decision and took the agency to court.
The cellular industry says tampering with carrier practices in a way that impacts monthly charges to consumers is pre-empted by a 1993 federal law banning state regulation of rates and market entry of wireless operators. The same law also gives states jurisdiction over “other terms and conditions.” States and the mobile-phone industry differ on the interpretation of the reserve clause.
The cellular industry and FCC filed briefs with the 11th Circuit last week. NASUCA and the Vermont PSC are expected to respond at the end of the month. No date has been set for oral argument.
But the truth-in-billing controversy is not apt to end when the 11th Circuit rules.
The FCC is said to be getting closer to ruling on other wireless truth-in-billing issues not settled in the March decision.
At that time, the FCC tentatively concluded non-tax line items must be located in a section of a wireless bill separate from government-imposed charges and that carriers must disclose to consumers the full rate-including any non-mandated line items as well as an estimate of government-imposed surcharges. The agency also said that state-based truth-in-billing regulations inconsistent with federal guidelines are pre-empted. However, the FCC said future pre-emption would not limit the ability of states to enforce their own consumer-protection laws.
Looming large is industry’s victory last year in 8th Circuit litigation in which wireless carriers convinced a three-judge panel to throw out Minnesota’s wireless consumer-protection law. The court said Minnesota’s law requiring cellular carriers to give subscribers 60 days written notice of proposed contract changes is pre-empted by federal statute.
