Arizona Court Rules a Phone Call is a Phone Call - No Matter How it's Made

By Peter Bernstein July 01, 2013

It is unusual that a tax case in the U.S. could end up having some interesting repercussions for the structure of the telecommunications and cable TV industries nationwide. This may be an instance where a spark in Arizona ignites a firestorm. 

When a cable company is a telephone company is a taxing matter

The Arizona Court of Appeals, in their opinion in “Cable One, Inc., v. Arizona Department of Revenue, et al,” ruled as follows: “For the foregoing reasons, we hold Cable One is a telecommunications company under A.R.S. § 42-14401 and therefore subject to central assessment by the Department. We reverse the tax court’s judgment in Cable One’s favor…”

Image via Shutterstock

This issue was that, if the courts felt Cable One was a cable company under the law, it would be subject to paying property taxes based on local assessments. If, however, it was found to be offering regulated telecommunications phone call services, under Arizona law they would be classified correctly as a telecom company and thus be subject to much higher centralized taxes assessed by the Arizona Department of Revenue (DoR). Interestingly, the DoR in earlier proceedings sided with Cable One on this issue. 

To put this simply, what the Arizona Court of Appeals said was that, despite the technology used – in this instance, as part of its service Cable One provides VoIP calling – a phone call is a phone call. And, if you are offering phone calling services, you are subject to the taxing regime under which telecom common carriers have their taxes assessed.  

Why is this potentially significant? 

For those of you who follow the communications and cable industry’s public policy issues, you know that near the top of the heap of Federal and state issues at the moment is if, when, how and by whom to regulate VoIP services. The traditional network operators believe and have argued that under FCC rules VoIP is an information service and hence not subject to traditional common carrier regulation at any level. It is a stance that has also helped them in buttressing deregulation in the states as well. The problem is that the classification of VoIP as not being a phone call raises big and complicated concerns. For example, if all telephone calls are on a path to be VoIP calls, what is the role of regulation? What are the universal service obligations of carriers? What are the obligations in the brave new world for mobile service providers and oversight of what to do about E-911? 

And, that is just in many ways the tip of the iceberg on the challenges, particularly as the FCC itself has said the PSTN as we have known it is being retired in the next few years.

The Arizona Court of Appeals did not worry about the necessities in its ruling. It resonated with the old saying, “If it looks like a duck, walks like a duck and quacks like a duck, it is a duck!” It did not go into the questions regarding jurisdictional issues in the regulatory area, and rightly looked at this as a tax issue only. That said, the finding that a phone call is a phone call regardless of the technology used to originate, carry and terminate it, has more than a bit (pardon the pun) of appeal.   A nice piece of possible pre-July Fourth fireworks.

Edited by Alisen Downey
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