MCI Commc'ns Servs., Inc. v. Cal. Dep't of Tax & Fee Admin.
239 Cal. Rptr. 3d 241
| Cal. Ct. App. 5th | 2018Background
- MCI purchased completed telephone cables, conduit, and poles (ready for installation) from vendors and affiliates between 2006–2011 and used them in its California telecommunications network.
- MCI paid use tax on those purchases, then sought a refund under Rev. & Tax. Code § 6934, arguing the items were not "tangible personal property" because § 6016.5 excludes "telephone and telegraph lines" from taxation.
- CDTFA demurred to MCI’s first amended complaint; the trial court sustained the demurrer without leave to amend, ruling § 6016.5 does not apply to pre-installation component parts.
- MCI appealed; the appellate court reviewed the demurrer de novo and considered statutory text, canons, legislative history, and controlling precedent.
- The court concluded § 6016.5 excludes only completed, installed telephone/telegraph lines (and related installed poles/towers/conduit), not uninstalled component parts, and affirmed the dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 6016.5's phrase "telephone and telegraph lines" excludes uninstalled component parts (cable, conduit, poles) from sales/use tax | "Lines" = "cables"; uninstalled cables/conduit/poles are "lines" and thus excluded | "Lines" means a completed, installed system; component parts pre-installation are taxable tangible personal property | § 6016.5 applies only to completed, installed lines; pre-installation components are taxable |
| Whether ambiguity requires construing § 6016.5 for the taxpayer | If ambiguous, statute should be read to favor MCI | Statute plain; no ambiguity to apply taxpayer-favoring rule | Court found statute unambiguous and adopted CDTFA's reading |
| Whether default tense rule (Rev. & Tax. Code § 11) makes § 6016.5 cover future/assembled lines | Present tense should be read to include future; covers parts that will become lines | Context (absence of component exemption and legislative purpose) overrides § 11; present tense means already supported/contained | Context controls; present-tense phrasing indicates completed/installed lines only |
| Whether interpreting § 6016.5 to exclude only completed lines renders other statutes superfluous or makes § 6016.5 surplusage | MCI: other provisions (occasional sales, real property definitions) would make § 6016.5 redundant | CDTFA: other provisions do not render § 6016.5 redundant; statutory scheme treated divisions separately; factual record doesn't show reliance on occasional-sales exemption | Court held § 6016.5 is not surplusage and the interpretation is reasonable and consistent with the statutory scheme |
Key Cases Cited
- Chula Vista Electric Co. v. State Bd. of Equalization, 53 Cal.App.3d 445 (Cal. Ct. App.) (§ 6016.5 excludes completed lines, not component parts)
- King v. State Bd. of Equalization, 22 Cal.App.3d 1006 (Cal. Ct. App.) (contractor held title only to components, not a completed line; relevant to distinction between a line and its parts)
- Wallace Berrie & Co. v. State Bd. of Equalization, 40 Cal.3d 60 (Cal. 1985) (overview of sales and use tax principles)
- Searles Valley Minerals Operations, Inc. v. State Bd. of Equalization, 160 Cal.App.4th 514 (Cal. Ct. App.) (use tax purpose and complement to sales tax)
- McCall v. PacifiCare of Cal., Inc., 25 Cal.4th 412 (Cal. 2001) (standard of review for demurrer)