TITLE: �911 Emergency Surcharge and Right-of-Way Charge, B-288161, April 8, 2002
BNUMBER: B-288161
DATE: April 8, 2002
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911 Emergency Surcharge and Right-of-Way Charge, B-288161, April 8, 2002
B-288161
April 8, 2002
Mr. James M. Eagen, III
Chief Administrative Officer
Office of the Chief Administrative Officer
House of Representatives
Subject: 911 Emergency Surcharge and Right-of-Way Charge
Dear Mr. Eagen:
By letter dated June 18, 2001, you asked whether the United States House
of Representatives and its respective offices are responsible for paying
the 911 emergency surcharge and the right-of-way charge to local carriers
within the District of Columbia. Both charges are itemized on the monthly
statement from the local carrier, Verizon. As set forth more fully below,
we find that the District of Columbia's 911 emergency surcharge is a tax,
the legal incidence of which falls directly on the federal government as a
user of telephone services in the District of Columbia. Consequently, the
United States is constitutionally immune and the tax is not payable by the
federal government. However, the right-of-way charge is a rental fee
imposed upon the telecommunications companies and other utilities that use
public property. Since it is not a tax that falls on the federal
government as a vendee, the federal government may pay the right-of-way
charge.
Background
The House of Representatives receives a monthly statement from Verizon,
its local carrier for telephone services. Among the itemized charges are
two specific fees which are the subject of your letter: a 911 emergency
surcharge and a right-of-way charge. You note that the federal government
is constitutionally immune from taxation by the states and where a state
tax is imposed directly on the purchaser, and the purchaser is the United
States, the United States is not required to pay the tax pursuant to
principles of sovereign immunity. McCulloch v. Maryland, 17 U.S. (4
Wheat.) 316 (1819). You asked us whether the House of Representatives and
its respective offices are responsible for paying the 911 emergency
surcharge and right-of-way charge.
The two relevant statutes to the inquiry are the Emergency and
Non-Emergency Number Telephone Calling Systems Act of 2000 for the 911
emergency surcharge (D.C. Code Ann. S: 34-1801 (2001)) and the Fiscal Year
1997 Budget Support Act of 1996 (D.C. Law 11-198, April 9, 1997), which
authorized the Mayor to issue permits and charge rent for use of public
rights of way. D.C. Code Ann. S: 7-1076 (2001). We will describe each in
turn below.
Emergency and Non-Emergency Number Telephone Calling Systems Act of 2000
In 2000, the District of Columbia enacted the Emergency and Non-Emergency
Number Telephone Calling Systems Fund Act of 2000 (fund) (D.C. Law 13-172,
Oct. 19, 2000) which is to be used to defray the 911 emergency system
costs incurred by the District of Columbia. Under this law, *[a]ll
subscribers shall contribute to the Fund through a user fee to be
collected by each local exchange carrier.* D.C. Code Ann. S: 34-1803(a)
(2001). User fees collected under the statute are not *considered revenue
of a local exchange carrier for any purpose.* D.C. Code Ann. S:
34-1803(c) (2001). These fees must be deposited in the fund and used
solely to defray the costs incurred by the District of Columbia in
providing a 911 emergency system. D.C. Code Ann. S: 34-1802 (2001). The
law explains that the 911 charges are *user fees imposed on [telephone]
subscribers* and that the law *remove[s] the 911 system costs currently
embedded in the base rates charged by the [telephone companies] for local
telephone services.* Emergency and Non-Emergency Number Telephone Calling
Systems Fund Act of 2000, D.C. Law 13-172, Oct. 19, 2000.
Fiscal Year 1997 Budget Support Act of 1996
The Fiscal Year 1997 Budget Support Act of 1996 (D.C. Law 11-198, April 9,
1997) authorizes the Mayor to issue permits and charge rent for the
occupation and use of public space, public rights of way and public
structures. Part of the law deals with the area below the surface of any
public street or sidewalk. D.C. Code Ann. S: 10-1141.01 (2001). The
Mayor is empowered to issue permits for use of the public rights of way,
to issue regulations, and to provide for the payment of a
nondiscriminatory, fair and equitable fee for use of the space. D.C. Code
Ann. S: 10-1141.03-.04 (2001).
By regulation, no person may use the below ground right of way without an
occupancy permit and paying the rental fee. D.C. Mun. Regs. Tit. 24, S:
3302.1 (2001). The rental fee for pipes below the surface is $.14 per
linear foot of public right-of-way occupied. D.C. Mun. Regs. Tit. 24, S:
3302.8 (2001). The law also requires each public utility company
regulated by the Public Service Commission to recover from its utility
customers all lease payments through a surcharge mechanism applied to each
unit of sale, and separately state the surcharge amount on each customer's
monthly billing statement. D.C. Code Ann. S: 10-1141.06 (2001).
Discussion
The question of whether the United States and its instrumentalities must
pay these charges turns on whether the 911 emergency surcharge and
right-of-way charge are taxes imposed on the federal government. It is
well established that the United States and its instrumentalities are
immune from direct taxation by state and local governments. Direct
taxation occurs where the legal incidence of a tax falls directly on the
United States as the buyer of goods, Kern-Limerick, Inc. v. Scurlock, 347
U.S. 110 (1954), as the consumer of services, 53 Comp. Gen. 410 (1973), or
as the owner of property, United States v. Allegheny County, 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).
Generally, when a statute states that the tax must be passed on to the
purchaser, the legal incidence of the tax falls on the purchaser. See,
e.g., 57 Comp. Gen. 59 (1977) (tax statute states that the tax must be
passed on to the consumer and government therefore immune from payment).
In these instances, the business enterprise (the *vendor*) passing the tax
on to vendees is really the collection agent for the state. On the other
hand, if the legal incidence of the tax falls directly on a vendor, which
is supplying the federal government as a customer with goods or services,
immunity does not apply. 61 Comp. Gen. 257 (1982) (requirement that a
utility tax be passed on to the user must be part of the taxing statute
for the government to invoke the principles of sovereign immunity).
Whether the federal government reimburses the vendor when it pays for the
goods or services supplied by the vendor is determined by the government's
contract or other agreement with the vendor. 61 Comp. Gen. 257, 258
(1982); B-211093, May 10, 1983.
A fee charged by a state or political subdivision for a service rendered
or convenience provided, however, is not a tax. See Packet Co. v. Keokuk,
95 U.S. 80, 84 (1877) (wharf fee levied only on those using the wharf is
not a tax); 49 Comp. Gen. 72 (1969) (a claim for an amount representing
the fair and reasonable value of services provided in rehabilitation of a
drainage ditch is payable, while an invoice assessing the government a fee
for the drainage ditch calculated in the manner that taxes are assessed is
a tax and may not be paid). Distinguishing a tax from a fee requires
careful analysis because the line between *tax* and *fee* can be a blurry
one. Collins Holding Corp. v. Jasper County, South Carolina, 123 F.3d
797, 800 (4th Cir. 1997). Taxation is a legislative function while a fee
*is incident to a voluntary act, e.g., a request that a public agency
permit an applicant to practice law or medicine or construct a house or
run a broadcast station.* National Cable Television Ass'n v. United
States, 415 U.S. 336, 340 (1974).
In determining whether a charge is a *tax* or *fee,* the nomenclature is
not determinative and the inquiry must focus on explicit factual
circumstances. Valero Terrestrial Corp. v. Caffrey, 205 F.3d 130, 134
(4th Cir. 2000). One court described a *classic* tax as one imposed by a
legislature upon many, or all, citizens, raises
money, and is spent for the benefit of the entire community. San Juan
Cellular Tel. Co. v. Public Service Comm'n of Puerto Rico, 967 F.2d 683,
685 (1st Cir. 1992). On the other hand, a classic *regulatory fee* is
imposed by an agency upon those subject to its regulation, may serve
regulatory purposes, and may raise money to be placed in a special fund to
help defray the agency's regulation related expenses. [1] Id.
911 Emergency Surcharge Is a Vendee Tax and Government is Immune
The 911 emergency surcharge has attributes of a *classic* tax described in
San Juan: it is levied by the D.C. Council on all citizens with telephone
service, it raises money, and the money is spent to provide emergency
service for the benefit of the entire community. Although the District of
Columbia statute terms it a *user fee,* it is clear that the service
provider is not the telephone company but rather the District of Columbia
government. The amount of the surcharge, $.56 per access line, $.07 per
centrex line, and $.56 per wireless telephone service for each telephone
number, is set by statute for all persons with local exchanges. D.C. Code
Ann. S: 34-1803(a)
(2)(2001). The revenue raised is placed in a special fund to be used to
defray the costs of the 911 emergency system. D.C. Code Ann. (2)(2001).
The revenue raised is placed in a special fund to be used to defray the
costs of the 911 emergency system. D.C. Code Ann. S: 34-1802(a)(2001).
We have examined telephone charges in several states, including Utah,
B-283464, February 28, 2000; Illinois, B-265776, November 29, 1995; and
Alaska, B-259029, May 30, 1995. In each of these cases, we held that the
state emergency telephone surcharges were vendee taxes not payable by the
federal government because the telephone companies had merely collected
surcharges for submission to the state taxing authorities. The District
of Columbia statute is not materially different from the statutes of these
states. Utah, for example, had many provisions similar to the D.C.
statute: the local exchange carrier was required to collect the money and
remit it to the public agency, the public agency must deposit the money in
a special fund available only to pay the costs of the 911 emergency phone
system, and the public agency, not the telephone company, administers the
911 telephone emergency system. Utah, B-283464, February 28, 2000.
In this instance, the District of Columbia statute clearly assesses the
911 charges directly against the users and specifically removes it from
the telephone company's base rate. Like Alaska's statute, District of
Columbia law states that the fees
collected are not considered revenue to the telephone company. D.C. Code
Ann. S: 34-1803(c) (2001). The local exchange carrier is required to
collect the fees and remit the proceeds to the Mayor on a quarterly
basis. D.C. Code Ann. S: 34-1802 (2001). As was true in Illinois, the
local exchange carrier may deduct a fee (up to 2% in the District of
Columbia) to cover administrative costs of the collection. D.C. Code Ann.
S: 34-1803(b)(2) (2001). The fact that the charge is called a *user fee*
rather than a tax is legally irrelevant if, as is true here, the charge is
really a vendee tax imposed by the District of Columbia government on a
class of residents--telephone users--who receive certain emergency
services which the District of Columbia government and its
instrumentalities provide.[2]
It is our opinion that the District of Columbia's 911 emergency surcharge
is a tax, the legal incidence of which falls directly on the federal
government as a user of telephone services in the District of Columbia.
Consequently, the United States is constitutionally immune and the tax is
not payable by the federal government.
Right-of-Way Charge Is a Rental Fee Imposed on Vendors, not Vendees, and
May Be Paid by the Government
The right-of-way charge presents a different situation. Here, the
District of Columbia is imposing a rental fee on the telecommunications
company (and other utilities) for the use of public space. The statute
deals with the rental of public space, and the payments are based on the
amount of underground space the company uses. The utility company
proposing to use public space for company purposes is required to apply
for a permit to occupy the public rights of way, and if the permit is
granted, the company must pay a fee.
It is clear from the statute that the fee is being imposed on the entity
that wishes to occupy or otherwise use public rights of way. No permit is
issued unless the party applying for the permit, that is, the company,
pays the fee, D.C. Ann S: 10-1141.04(1); the permit is held in the name of
the company, see generally, D.C. Code Ann. S:S: 10-1141.03 - .05; and, any
failure to comply with the terms of the permit may result in costs charged
to the company. D.C. Code Ann. S: 10-1141.03(e). Unlike the 911
emergency surcharge statute, there is no language that indicates that the
telecommunications company is collecting the fee from its subscribers for
the benefit of the District of Columbia government. Nothing in the
statute excludes any collection the telecommunications company may receive
from its customers from being considered revenue to the company.
The fee is part of a regulatory framework that requires a permit and
posting of a bond, and that regulates work done in public space and the
rental of that public right of way. While a statute authorized a fee, it
is the Mayor, through regulation, that sets the fee. The Mayor has issued
regulations implementing the statute that sets the fee at $.14 per linear
foot. The first $30 million of annual revenue derived from the collection
of the public rights-of-way user fees, charges, and penalties *shall be
dedicated to the Department of Public Works for expenditures related to
street and alley repairs and maintenance that would otherwise be paid out
of the General Fund.* D.C. Code Ann. S: 10-1141.04(5) (2001). Excess
revenues are dedicated to the District of Columbia Highway Trust Fund.
Id. The rental fee thus fulfills a purpose of helping to regulate work
done in public rights of way, and establishes a funding stream for repairs
and maintenance on roads and alleys that may be subject to excavation by
the telecommunications companies and other utilities. Here, the rental
fee is *incident to a voluntary act* as the Supreme Court in National
Cable Television, 415 U.S. at 340, described a fee. Thus we find that the
right-of-way fee is a rental fee that is part of a regulatory framework
for use of public space and is not a tax.
Even if one were to conclude that the rental fee is a *tax,* our result is
the same, since the legal incidence of the fee falls on the
telecommunications company, not on the end user. Your letter quotes the
section of the statute that requires each *public utility company
regulated by the Public Service Commission* to recover all lease payments
it pays to the District of Columbia through a surcharge mechanism. D.C.
Code Ann. S: 10-1141.06 (2001). This provision does not shift the legal
incidence of the payment from the telecommunications company to the
company's customers but instead is part of the regulatory structure of a
utility regulated by the Public Service Commission.
Some of our decisions have held that when a statute requires a vendor to
pass on a tax to its customers, the legal incidence of the tax falls on
the customer, and the United States, as a customer, is legally immune from
paying the tax. See 57 Comp. Gen. 59, 61 (1977); 55 Comp. Gen. 1358, 1359
(1976). However, this is only one consideration in analyzing a statute to
determine where the legal incidence of a tax falls. We have also
explained that the fact that a utility may increase its rate to pass on
the tax and itemizes it on the statement does not necessarily mean that
the legal incidence falls on the vendee. B-144504 (June 9, 1970);
B-211093 (May 10, 1983). A utility, for example, may pass on the economic
burden of a tax assessed against it to its customers as part of its
rates. 61 Comp. Gen. 257, 260 (1982). Here, the language of the District
of Columbia statute makes clear that payment of the right-of-way fee is
the responsibility of the entity that applies for and receives the
permit.
In summary, it is our opinion that the right-of-way charge is a rental fee
imposed upon the telecommunications companies that use public property.
Since it is not a tax that falls on the federal government as a vendee,
the federal government may pay the right-of-way charge.
Conclusion
We find that the District of Columbia's 911 emergency surcharge is a tax,
the legal incidence of which falls directly on the federal government as a
user of telephone services in the District of Columbia. Consequently, the
United States is constitutionally immune and the tax is not payable by the
federal government. However, the right-of-way charge is a rental fee
imposed upon the telecommuni-cations companies and other utilities that
use public property. Since it is not a tax that falls on the federal
government as a vendee, the federal government may pay the right-of-way
charge.
We trust this is responsive to your query. Copies of this opinion are
being provided to the District of Columbia Corporation Counsel, the Office
of the Secretary of the Senate, and interested Congressional committees.
If you have any further questions, please contact Susan A. Poling,
Associate General Counsel, at 202-512-2667.
Sincerely yours,
/signed/
Anthony Gamboa
General Counsel
------------------------
[1] This formulation for distinguishing taxes from fees in the context of
the Tax Injunction Act (TIA) has found favor in a number of circuits.
Cumberland Farms Inc. v. Tax Assessor, 116 F.3d 943, 946 (1st Cir. 1997);
Collins Holding Corp. v. Jasper County, South Carolina, 123 F.3d 797, 800
(4th Cir. 1997); and Bidart Bros. v. California Apple Comm'n, 73 F.3d 925,
930 (9th Cir. 1996). Under the TIA, federal courts lack jurisdiction to
enjoin, restrain, or suspend the assessment or collection of any state tax
if the state courts have a speedy and efficient remedy. Thus the federal
courts have had ample opportunity to analyze the differences between taxes
and fees. See also Union Pacific R.R. Co. v. Public Util. Comm'n, 899
F.2d 854 (9th Cir. 1990), and Chicago and N.W. Transp. Co. v. Webster
County Board of Supervisors, 880 F. Supp. 1290 (N.D. Iowa 1995), which use
a similar formulation of the meaning of *tax* and *fee* in the context of
the U.S. Constitution and the Railroad Revitalization and Regulatory
Reform Act of 1976 (4R Act).
[2] Compare the District of Columbia 911 statute with that of Arizona
(B-238410, September 7, 1990). In Arizona, the statute requires that
telephone companies, or vendors, pay an amount based on a percentage of
sales or gross income derived from providing telephone exchange access
service. Although the vendors pass the burden of the tax imposed on to
their customers, the legal incident of the tax falls on the vendor. It is
a *transaction privilege tax,* which is an excise tax on the privilege of
doing business in the state. We found that the Arizona 911 statute
imposed a tax on the vendors and the amounts passed on to the customers
were not taxes and were payable by the federal government.