TITLE:  Telephone Charges – State of Utah, B-283464, February 28, 2000
BNUMBER:  B-283464
DATE:  February 28, 2000
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Telephone Charges – State of Utah, B-283464, February 28, 2000

Decision

Matter of: Telephone Charges – State of Utah

File: B-283464

Date: February 28, 2000

DIGEST

The federal government is constitutionally immune from paying telephone
charges imposed by the state of Utah because the charges are vendee taxes,
the legal burden of which falls directly on the federal government as a user
of telephone services.

DECISION

An authorized certifying officer of the Department of Agriculture's National
Finance Center has requested an advance decision under 31 U.S.C. sect. 3529 on
the propriety of paying the 911 emergency services telephone charge and the
hearing impaired surcharge assessed against federal agencies in the state of
Utah. [1] For the reasons set forth below, both the 911 charge and the
hearing impaired surcharge are vendee taxes, the legal burden of which falls
directly on the federal government as a user of telephone services.
Accordingly, the federal government is constitutionally immune from these
taxes.

Background

Under section 69-2-5(3)(a) of the Utah Code, any public agency [2] providing
911 emergency telephone service may levy an emergency services telephone
charge on each "local exchange service switched access line." [3] The charge
may not exceed fifty-three cents per month for each access line. Utah Code
Ann. sect. 69-2-5(3)(c). The local exchange telephone company is required to
bill telephone customers for the charge and remit the amount collected to
the public agency. Utah Code Ann. sect. 69-2-5(3)(e). The money received by the
public agency must be deposited in a special emergency telephone service
fund. Utah Code Ann. sect. 69-2-5(4)(a). The money in the fund is available only
to pay the costs of establishing, installing, maintaining and operating a
911 emergency telephone system. Utah Code Ann. sect. 69-2-5(4)(b).

Under section 54-8b-10(4) of the Utah Code, the Utah Service Commission may
impose a surcharge on each residence and business access line to cover the
costs of providing low-income hearing and speech impaired persons with
telecommunication devices. The surcharge may not exceed twenty-five cents
per month for each access line. The local exchange telephone company is
required to bill telephone customers for the surcharge and remit the amount
collected to the Commission. Id. The amount collected is to be used for
certain designated purposes in administering the program. Utah Code Ann. sect.
54-8b-10(5). If the anticipated collection is less than the actual
administrative costs of collection, the local exchange telephone company
does not have to collect the surcharge. Utah Code Ann. sect. 54-8b-10(6).

Analysis

It is an unquestioned principle of constitutional law that the United States
and its instrumentalities are immune from direct taxation by state and local
governments. [4] McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819).
Direct taxation occurs where the legal incidence of the tax falls directly
on the United States as the buyer of goods, Kern-Limerick, Inc. v. Scurlock,
347 U.S. 110 (1954), or as the consumer of services, 53 Comp. Gen. 410
(1973), or as the owner of property, United States v. County of Allegheny,
322 U.S. 174 (1944). These direct taxes, known as "vendee" taxes, are not
payable by the federal government unless expressly authorized by Congress.

64 Comp. Gen. 655, 656-57 (1985).

We have examined telephone charges in several states, including Alaska,
B-2590029, May 30, 1995; Wyoming, B-255092, Feb. 14, 1994; and Indiana,
B-248363, Apr. 17, 1992. [5] We held, in these cases, that the telephone
charges at issue were vendee taxes not payable by the federal government.
Under these state statutes, the telephone companies were merely collection
agents, i.e., required to collect the charges from their customers and then
remit the amount collected to the state taxing authorities. Cf. B-238410,
Sept. 7. 1990.

The Utah statute is not materially different from these state statutes.
Under Utah's statute, the telephone company acts merely as a collection
agent. The telephone company collects the 911 emergency telephone services
charge and the hearing impaired surcharge and remits the amounts collected
to the public agency or Utah Service Commission. Also, with respect to the
911 emergency telephone services charge, section 69-2-7 of the Utah Code
provides that there is no liability imposed on the telephone company related
to the 911 service. The public agency, and not the telephone company,
administers the 911 emergency telephone system. Utah Code Ann. sect. 69-2-4.
With respect to the hearing impaired surcharge, the telephone company is not
required to collect the surcharge if the anticipated collection is less than
the actual administrative costs of collection. Utah Code Ann. sect. 54-8b-10(6).

Conclusion

Utah's 911 emergency telephone services charge and hearing impaired
surcharge are vendee taxes, the legal incidence of which falls directly on
the federal government as a user of telephone services in the state.
Consequently, the United States is constitutionally immune and the taxes are
not payable by the federal government.

Comptroller General
of the United States

Notes

1. The request letter was initially sent to the General Services
Administration's Board of Contract Appeals (BCA) and transferred by the BCA
at the request of the Department.

2. "Public agency" is defined to mean any county, city, town, special
service district, or public authority located within the state which
provides fire fighting, law enforcement, medical, or other emergency
services. Utah Code Ann. sect. 69-2-2(4).

3. "Local exchange service switched access line" means "the transmission
facility and local switching equipment used by a wireline common carrier to
connect a customer location to a carrier's local exchange switching network
for providing two-way interactive voice, or voice capable, services." Utah
Code Ann. sect. 69-2-2(2).

4. Although Utah has enacted a 911 "charge" and a hearing impaired
"surcharge," they are both, nonetheless, taxes. In 65 Comp. Gen. 879, 881
(1986), we identified the characteristics of telephone charges which make
them taxes. First, a local government or a quasi-governmental unit provides
the telephone service. Second, public funding of the service requires legal
authority, e.g., an ordinance or referendum. Third, the service charge is
actually based on a flat rate per telephone line and is unrelated to levels
of service. The 911 charge and the hearing impaired surcharge assessed under
the Utah statute satisfies all these criteria. For further discussion of the
characteristics of taxes, see, e.g., In Re Mytinger, 31 F. Supp. 977 (N.D.
Tex. 1940); Mich. Employment Sec. Comm'n v. Pratt, 144 N.W. 2d 663, 664-65
(Mich. App. 1966).

5. See also 66 Comp. Gen. 385(1987) (Florida); 65 Comp. Gen. 879 (1986)
(Maryland); 64 Comp. Gen. 655 (1985)(Texas); B-249007, Jan. 19, 1993
(Nebraska); B-253695, July 28, 1993 (Pennsylvania); B-246517, Apr. 17, 1992
(Kentucky).