81 N.C. App. 240 | N.C. Ct. App. | 1986
The sole question presented for review is whether the revenues received by Carolina from the sale of advertisements to appear in the “yellow page” classified directory are includable as “gross receipts” of a telephone company for franchise tax pur
G.S. 105420(b) imposes an annual franchise tax, payable quarterly, on the “gross receipts” of a telephone company. A telephone company is “[e]very person, firm, or corporation, domestic or foreign, owning and/or operating a telephone business for the transmission of messages and/or conversations to, from, through, in or across this State.” G.S. 105420(a). “Gross receipts” are defined in subsection (b): “Such gross receipts shall include all rentals, other similar charges, and all tolls received from business which both originates and terminates in the State of North Carolina.” This definitional portion of the statute determines this appeal. Our decision turns on the legislative intent and meaning of the phrase “rentals, other similar charges, and all tolls received from business.”
In construing G.S. 105420(b) we are guided by two general legal principles. First, we must determine the connotation which the legislature attached to the words used to define “gross receipts,” construing the statute as the legislature intended it to be understood when it was enacted. Cab Co. v. Charlotte, 234 N.C. 572, 68 S.E. 2d 433 (1951). Second, we must construe tax statutes strictly, resolving ambiguities against the State and in favor of the taxpayer. Watson Industries v. Shaw, Comr. of Revenue, 235 N.C. 203, 69 S.E. 2d 505 (1950).
The statute declares that gross receipts shall include rentals, other similar charges and all tolls received from business. In the only North Carolina case interpreting the statutory definition of “gross receipts,” Telephone Co. v. Clayton, Comr. of Revenue, 266 N.C. 687, 147 S.E. 2d 195 (1966), our Supreme Court held that telephone pole rentals charged by Southern Bell to electric power companies and other users of its poles were not the type of “rentals” contemplated in the statutory definition of “gross receipts.” Id. at 692, 147 S.E. 2d at 198. Therefore, the Commissioner of Revenue could not include those rentals in computing Southern Bell’s franchise tax base. Id. The Court determined that “rentals” meant rentals paid by customers for the use of telephone, i.e. local exchange rentals. Id. at 691, 147 S.E. 2d at 197. In its analysis of the statute, the Clayton court came to the following conclusions:
(2) The General Assembly used the word “include” to mean “shall consist of’ so as to not broaden the tax base but exclude interstate tolls from the tax base. Id. at 691, 147 S.E. 2d at 197.
(3) If the General Assembly had intended to tax telephone companies’ revenues from sources other than those services which telephone companies are obligated to furnish to the public, then the General Assembly would have specifically written the statute to include all receipts from any source whatsoever, excepting those expressly exempted. Id. at 691, 147 S.E. 2d at 198.
Following the analysis used by the Clayton court, we conclude that revenues received from the sale of advertisements displayed in the “yellow page” classified directory are not in-cludable in Carolina’s franchise tax base. These receipts clearly do not represent “rentals” or “tolls received from business.” “Rentals” are the amounts paid by telephone customers for local exchange rentals. 266 N.C. at 691, 147 S.E. 2d at 197. “Tolls received from business” are the revenues received by Carolina from the telephone company business. A toll is defined as a sum of money paid for the use of something. Black’s Law Dictionary 1334 (rev. 5th ed. 1979). Telephone “business” is defined in G.S. 105420(a) as “the transmission of messages and/or conversations to, from, through, in or across this State.” Therefore, “tolls received from business” are the charges paid to Carolina by its customers for the privilege of using Carolina’s message transmission and communication equipment. This definition encompasses the transmission of messages and conversations but does not include revenues received from the sale of “yellow page” advertisements.
“Gross receipts” also include “other similar charges.” This phrase appears in sequence immediately after the term “rentals”: “gross receipts shall include all rentals, other similar charges. . . .” While the Court in Clayton, supra, did not specifically define
Accordingly, we hold that the General Assembly did not intend to include as “gross receipts” revenues attributable to the sale of advertisements displayed in the “yellow page” classified directory.
We note that the legislative history of the franchise tax statute supports our holding. As early as 1911, a specific tax was levied on telephone companies although not on a gross receipts basis. N.C. Public Laws 1911, ch. 50 Section 49. By 1913, the tax was levied on “gross receipts” from all sources. There was no limitation specifying the scope or content of the receipts. N.C. Public Laws 1913, ch. 201 Section 81. In 1925 it was first provided that “gross receipts shall include all tolls received from business which both originates and terminates in the State of North Carolina . . . ,” evincing a legislative intent to restrict the tax to gross receipts arising only from the telephone business. N.C. Public Laws 1925, ch. 101 Section 88. In 1929, the tax was first denominated a “franchise tax” and in that year assumed the
We note too that the legislative policy behind franchise tax statutes generally supports our holding.
Franchise taxes are imposed for the privilege of engaging in business in this State. G.S. 105-114. The amount of the tax varies with “the nature and magnitude of the privilege taxed, the relative financial returns to be expected of the business or activities under franchise, and the burden put on government in regulating, protecting and fostering the enterprise. . . .”
Clayton, supra, 266 N.C. at 690, 147 S.E. 2d at 197 (quoting Power Co. v. Bowles, 229 N.C. 143, 147, 48 S.E. 2d 287, 290 (1948)). The annual franchise tax on telephone companies, G.S. 105420(a), by its terms applies to “[e]very person, firm, or corporation . . . owning and/or operating a telephone business for the transmission of messages and/or conversations” and is imposed “for the privilege of engaging in such business.” G.S. 105420(b). The telephone business is regulated by the North Carolina Utilities Commission pursuant to Chapter 62 of the General Statutes. G.S. 62-110 grants to a telephone company a monopoly on the rendering of telephone service within its service area. State ex rel. Utilities Comm. v. Merchandising Corp., 288 N.C. 715, 220 S.E. 2d 304 (1975). “Nothing in Ch. 62 of the General Statutes, however, confers upon a telephone company a monopoly upon advertising by its business subscribers.” Id. at 725, 220 S.E. 2d at 310.
Though we resolve the issue before us on the basis of principles of statutory construction, two opinions by our Supreme Court, each relied on by one of the parties, warrant discussion here. Appellant urges that State ex rel. Utilities Comm. v. Southern Bell, 307 N.C. 541, 299 S.E. 2d 763 (1983) (Southern Bell) requires reversal of the Superior Court’s order. Appellee contends that Gas House, Inc. v. Southern Bell Telephone Co., 289 N.C. 175, 221 S.E. 2d 499 (1976) (Gas House) supports the trial court’s position.
Gas House, supra, concerned the validity of an exculpatory clause in a contract for the publication of an advertisement within the “yellow page” classified directory. The Supreme Court opinion noted that, “[t]he business of carrying advertisements in the yellow pages of its directory is not part of a telephone company’s public utility business.” 289 N.C. at 184, 221 S.E. 2d at 505. In Southern Bell, supra, the Court’s majority opinion distinguished Gas House and specifically stated that the above-quoted language from Gas House was obiter dictum and not inconsistent with the result reached by the Court in Southern Bell, but that “[t]o the extent that the language in Gas House is inconsistent with our holding in the case sub judice that language is overruled.” 307 N.C. at 547, 299 S.E. 2d at 766. Appellant here does not argue that Southern Bell overruled the quoted language from Gas House but merely refers to Justice Exum’s dissent in Southern Bell disagreeing with the majority’s designation of the Gas House language as obiter dictum and stating that by overruling the language in Gas House the Court, in effect, overruled the entire decision. 307 N.C. at 551, 299 S.E. 2d at 768-69 (Exum, J., dissenting in part and concurring in part).
We have carefully reviewed the opinions in Gas House and Southern Bell and conclude that they are not inconsistent and may be read together. As we read it, Gas House holds that the business of carrying advertisements in the yellow pages is not part of a telephone company’s public utility business. Southern Bell holds that the classified directory in which advertising appears, is an integral part of the public utility’s function of providing adequate service to citizens of North Carolina. We read Southern Bell strictly to mean that, for ratemaking purposes, it is the furnishing of the classified directory which is integral to providing reasonable, adequate telephone service and not the addi
While we can reconcile the language of Gas House with the holding in Southern Bell, neither opinion directly addresses the issue of what constitutes Carolina’s franchise tax base. Our decision here does not conflict with the policy expressed and the result reached by the Court in Southern Bell. The inclusion for ratemaking purposes of revenues from yellow page advertisements does not require that the revenues also be included in the public utility’s franchise tax base. We note that while telephone pole rentals are included for ratemaking purposes, they too are excluded from the franchise tax base, Clayton, supra.
For the reasons stated, we affirm the trial court’s order affirming the Tax Review Board.
Affirmed.