Courtney M. Kay-Decker, Director, Iowa Department of Revenue v. Iowa State Board of Tax Review and Cable One, Inc.
857 N.W.2d 216
| Iowa | 2014Background
- Cable One, a cable operator in Iowa, began offering fixed, interconnected VoIP in 2006 over its existing hybrid fiber–coaxial network; calls originate/terminate at a fixed home phone and interconnect with the PSTN via a third party (Level 3).
- Iowa Department of Revenue issued central-assessment notices under Iowa Code chapter 433 for 2008 and 2009, valuing Cable One’s in-state telephone operating property; Cable One appealed.
- The Iowa Department of Inspections and Appeals ALJ and the Iowa State Board of Tax Review held Cable One was not a "telephone company" under chapter 433 because its network was built for cable TV and it relied on a third party to access the PSTN.
- Polk County District Court affirmed the Board, reasoning chapter 433 requires ownership/operation of a PSTN line and declined to address primary-use or federal preemption claims.
- Iowa Supreme Court reviewed de novo, concluding that lines used to provide telephone service (regardless of original purpose or wire type) constitute "telephone lines" under chapter 433, and Cable One is subject to central assessment; it also rejected a primary-use limitation and federal preemption argument.
Issues
| Issue | Plaintiff's Argument (Dept. of Revenue) | Defendant's Argument (Cable One) | Held |
|---|---|---|---|
| 1. Whether Cable One is a "telephone company operating a line" under Iowa Code ch. 433 | Cable One operates lines used to provide telephone service and thus falls within chapter 433 | Cable One contends it does not own/operate telephone lines; its network was built for cable TV and it uses third-party interconnection | Held: Yes. Lines used to transmit voice (coax/fiber) are "telephone lines"; Cable One is a telephone company subject to central assessment |
| 2. Whether the statute should be limited to traditional telephone technologies | Statute language is broad and adapts to changing technology; focus is on function (transmission of voice) | Cable One urges a technology-based, historical limitation because its network was not originally for telephony | Held: Statute interpreted functionally; technology/original purpose is not limiting |
| 3. Whether a primary-use test prevents central assessment when network primarily provides cable TV | Dept. argues chapter 433 contains no primary-use qualification and covers any property used in telephone business | Cable One argues its network’s primary use is cable TV, so it should remain locally assessed | Held: No primary-use test applies; chapter 433 covers property used in telephone business regardless of other uses |
| 4. Whether federal law (FCC decisions/statutes) preempts state taxation of VoIP providers | Dept. contends federal regulation does not preempt state taxation | Cable One contends FCC actions and federal cases distinguishing VoIP regulation preempt state taxation | Held: No preemption; federal regulation of communications does not by itself preclude state taxation |
Key Cases Cited
- Iowa Union Tel. Co. v. Bd. of Equalization, 67 Iowa 250, 25 N.W. 155 (telephone and telegraph statutes interpreted by functionality)
- Franklin v. Nw. Tel. Co., 69 Iowa 97, 28 N.W. 461 (statute for telegraph applied to telephone companies)
- Chicago, Burlington & Quincy R.R. v. Rhein, 135 Iowa 404, 112 N.W. 823 (rejecting primary-use limitation for assessment)
- Braniff Airways, Inc. v. Neb. State Bd. of Equalization & Assessment, 347 U.S. 590 (federal regulation does not automatically preclude state taxation)
- Mayor of Balt. v. Vonage Am. Inc., 544 F. Supp. 2d 458 (VoIP provider liable for local telecommunications tax; focus on service provided)
- Cable One, Inc. v. Ariz. Dep’t of Revenue, 304 P.3d 1098 (Arizona Ct. App. holding Cable One subject to central assessment for VoIP)
- Bresnan Commc’ns, LLC v. State, 315 P.3d 921 (Mont. 2013) (VoIP provider centrally assessed under telecommunications statute)
- Vonage Am., Inc. v. City of Seattle, 216 P.3d 1029 (VoIP subject to municipal telephone utility tax)
- Post-Newsweek Cable, Inc. v. Bd. of Review, 497 N.W.2d 810 (federal preemption of regulation did not bar state taxation)