WASHINGTON-Mobile-phone carriers’ tax lawsuit against Kentucky is back on track, giving center stage to a federal pre-emption argument that’s also at the heart of industry efforts to prevent states from meddling in line-item billing and early termination fees.
Cingular Wireless L.L.C., Verizon Wireless, Sprint Nextel Corp. and T-Mobile USA Inc. filed the lawsuit in November 2005, challenging on federal pre-emption grounds a 2005 Kentucky law prohibiting carriers from passing onto subscribers a 1.3-percent gross receipts wireless tax. Cellular operators said the law amounts to illegal wireless rate regulation. Congress in 1993 said states could not regulate wireless rates, but left to states jurisdiction of “other terms and conditions” of wireless service.
Industry’s lawsuit and the tax itself have been on hold since December 2005 when the U.S. District Court in Frankfort, Ky., granted industry’s motion for preliminary injunctive relief and suspended legal proceedings, pending the outcome of a truth-in-billing case in the 11th U.S. Circuit Court of Appeals. The 11th Circuit last July overturned a Federal Communications Commission’s ruling that pre-empted states from regulating line items on consumers’ bills. The court later rejected FCC and industry requests for the case to be reheard.
With the 11th Circuit case final-though industry next month will ask the Supreme Court to review the appellate decision-the cellular operators’ suit against Kentucky can now proceed.
The carriers also argued that under their nationwide price plans the anti-pass through provision for the 1.3 percent gross receipts wireless tax would force non-Kentucky customers to pick up most of the tab.
The wireless industry hopes to get help from Congress this year on the tax front. Sens. John McCain (R-Ariz.) and Jim DeMint (R-S.C.) introduced legislation in the new Congress that would mandate a three-year moratorium on new discriminatory wireless taxes by states. Reps. Mary Bono (R-Calif.) and George Radanovich (R-Calif.) introduced a similar bill last Thursday.
ETF ruling in the wings
Meantime, wireless carriers are anxiously awaiting an FCC ruling on whether early termination fees charged to subscribers who break their service contracts are ‘rates charged’ within the meaning of the 1993 law and thus pre-empted by federal law.
FCC Chairman Kevin Martin last week said the agency is close to deciding the matter. The FCC chief signaled the agency may well grant the mobile phone industry’s petition.
Consumer groups generally oppose pre-empting states from involvement in ETF disputes, some of which have escalated into lawsuits around the country.
“The issues of jurisdiction do not necessarily dictate whether the steps the commission takes would be pro-consumer or not,” Martin said. “I actually think the commission has a strong track record of taking steps to protect consumer interests and I think that they would in this area as well, if we end up saying that this is more appropriately done at the federal level.”
