{"id":266,"date":"2019-02-12T14:14:21","date_gmt":"2019-02-12T20:14:21","guid":{"rendered":"https:\/\/mitchellhamline.edu\/law-journal\/?p=266"},"modified":"2019-03-26T17:33:49","modified_gmt":"2019-03-26T22:33:49","slug":"some-history-behind-the-tax-vs-fee-issue-in-phone-recovery-services","status":"publish","type":"post","link":"https:\/\/mitchellhamline.edu\/law-journal\/2019\/02\/12\/some-history-behind-the-tax-vs-fee-issue-in-phone-recovery-services\/","title":{"rendered":"Some History Behind the \u201cTax vs. Fee\u201d Issue in Phone Recovery Services"},"content":{"rendered":"
\"\"

Walter A. Pickhardt<\/strong>*<\/p><\/div>\n

The Minnesota Supreme Court, in Phone Recovery Services v. Qwest Corporation<\/em>, 919 N.W.2d 315 (2018), held that fees and surcharges imposed by statute for 911 services,[i]<\/a> the Telecommunications Access Minnesota (TAM) program,[ii]<\/a> and the Telephone Assistance Plan (TAP) program,[iii]<\/a> were \u201cportions of Minnesota Statutes relating to taxation,\u201d within the meaning of the \u201ctax bar\u201d of the Minnesota False Claims Act (the \u201cMFCA\u201d).[iv]<\/a>\u00a0<\/p>\n

What that means is that a qui tam plaintiff (a so-called \u201cprivate attorney general\u201d) cannot sue a telephone company for failing to collect the fees that the plaintiff alleges were owed but not paid.\u00a0 Enforcement is delegated to the appropriate state agency, in this case the Department of Public Safety.\u00a0 The policy behind Minnesota\u2019s tax bar (which is similar to the tax bar in the federal false claims act[v]<\/a>) is that the enforcement of taxes should be left to agencies with the expertise to apply the law.\u00a0 The tax bar recognizes that taxpayers should not have to defend lawsuits brought by private litigants to collect the greatest amount of personal compensation possible,[vi]<\/a> with little regard for the interest of the State in resolving a tax dispute.<\/p>\n

The 911, TAM and TAP fees are required to be paid by telephone customers (as part of their bills) to offset the government\u2019s cost for providing certain specialized telecommunication services.\u00a0 Payment is required even though the customer may never use the relevant services.\u00a0 In addition, the services in question are available regardless of whether the person using the service paid the fee.\u00a0 For example, if a nonresident visiting Minnesota calls 911 on a wireless phone, he will receive 911 services even though he never paid a 911 fee.\u00a0 Although these are called \u201cfees,\u201d they certainly look like \u201ctaxes\u201d in that they are mandatory impositions that fund governmental services that are generally available to the public.<\/p>\n

The court applied the following rule of construction in Minnesota law:<\/p>\n

Fee and tax. (a) “Tax” means any fee, charge, exaction, or assessment imposed by a governmental entity on an individual, person, entity, transaction, good, service, or other thing. It excludes a price that an individual or entity chooses voluntarily to pay in return for receipt of goods or services provided by the governmental entity . . . .<\/p>\n

(b) For purposes of applying the laws of this state, a “fee,” “charge,” or other similar term that satisfies the functional requirements of paragraph (a) must be treated as a tax for all purposes, regardless of whether the statute or law names or describes it as a tax . . . .<\/p>\n

Minn. Stat. \u00a7 645.44, subd. 19 (\u201cSubdivision 19\u201d).\u00a0 The Court held that the 911, TAM, and TAP fees were \u201ctaxes\u201d within the meaning of Subdivision 19.<\/p>\n

The Court\u2019s conclusion was clearly correct.\u00a0 Some historical background reinforces this conclusion.\u00a0 The legislature enacted Subdivision 19 in 2006.\u00a0 It was part of a bill that was presented to Governor Pawlenty on May 22, 2006 which was signed by him on June 1, 2006.[vii]<\/a>\u00a0 The enactment of Subdivision 19 was almost certainly a reaction to arguments made in a highly publicized \u201ctax vs. fee\u201d case.[viii]<\/a><\/p>\n

In the Phillip Morris<\/em> case, cigarette and other tobacco product manufacturers challenged a Health Impact Fee imposed by Minn. Stat. \u00a7 256.9658 (2005).[ix]<\/a>\u00a0 The cigarette manufacturers had entered into a 1998 settlement agreement of a suit brought by the State against them and they claimed that the Health Impact Fee violated the release in that agreement and that it was unconstitutional.[x]<\/a> The manufacturers conceded that the release did not prevent the State from raising cigarette taxes<\/em>, but they argued that the State could not impose fees<\/em> on cigarette smokers, and the district court agreed.[xi]<\/a>\u00a0 The Pawlenty administration was strongly opposed to raising taxes, but it supported the imposition of the Health Impact Fee, which looked like a tax, so long as it was labelled a fee.<\/p>\n

The cigarette manufacturers lost on appeal before the Minnesota Supreme Court.\u00a0 The Supreme Court was able to avoid deciding the \u201ctax vs. fee\u201d issue, ruling for the State.\u00a0 The legislature, however, wanted to avoid any future ambiguity resulting from the use of a label (such as fee, charge, exaction, or assessment) to disguise what was in reality a tax.\u00a0 Thus, it enacted Minn. Stat. \u00a7 645.44, subd. 19, to say that any such term \u201cmust be treated as a tax for all purposes\u201d in applying Minnesota Statutes.[xii]<\/a><\/p>\n

An exception exists for fees that a person chooses voluntarily to pay in return for receipt of goods or services provided by the governmental entity.\u00a0 For example, a fee to camp at a state park is really a fee and is not a tax.\u00a0 However, the 911, TAM, and TAP fees do not fall within that exception, as the Supreme Court properly held.<\/p>\n

\n

[i]<\/a> \u00a0\u00a0\u00a0\u00a0\u00a0 Minn. Stat. \u00a7 403.11, subd. 1(c) (2016).<\/p>\n

[ii]<\/a> \u00a0\u00a0\u00a0\u00a0 Minn. Stat. \u00a7 237.52, subd. 2(a) (2016).<\/p>\n

[iii]<\/a> \u00a0\u00a0\u00a0 Minn. Stat. \u00a7 237.70, subd. 6 (2016).<\/p>\n

[iv]<\/a> \u00a0\u00a0\u00a0 See Chapter 15C of Minnesota Statutes.\u00a0 The tax bar is at Minn. Stat. \u00a7 15C.03: \u201cThis chapter does not apply to claims, records, or statements made under portions of Minnesota Statutes relating to taxation.\u201d<\/p>\n

[v]<\/a> \u00a0\u00a0\u00a0\u00a0 The federal false claims act \u201cdoes not apply to claims, records, or statements made under the Internal Revenue Code.\u201d\u00a0 31 USC \u00a7 3729(d).\u00a0 Federal law has a separate \u201cwhistleblower\u201d statute.\u00a0 I.R.C. \u00a7 7623.\u00a0 It is possible for a whistleblower to receive a recovery for providing information about tax evasion but the information must be provided to the IRS, which itself undertakes (or declines to undertake) the normal IRS audit, assessment, and other administrative procedures.<\/p>\n

[vi]<\/a> \u00a0\u00a0\u00a0 A Minnesota qui tam plaintiff can receive up to 30 percent of any recovery.\u00a0 Minn. Stat. \u00a7 15C.13.<\/p>\n

[vii]<\/a>\u00a0\u00a0\u00a0 2006 Minn. Laws ch. 259, art. 13, sec. 15<\/p>\n

[viii]<\/a>\u00a0\u00a0 See<\/em> State ex rel. v. Philip Morris USA, Inc., 713 N.W.2d 350 (Minn. 2006).<\/p>\n

[ix]<\/a> \u00a0\u00a0\u00a0 The Health Impact Fee was imposed as a charge on the sale of cigarettes and other tobacco products \u201cto recover for the state health costs related to or caused by tobacco use and to reduce tobacco use, particularly by youths.\u201d\u00a0 Minn. Stat. \u00a7 256.9658, subd. 1 (2005).\u00a0 The revenues raised were to be deposited in a special health impact fund.\u00a0 Minn. Stat. \u00a7 256.9658, subd. 9 (2005); see also<\/em> Minn. Stat. \u00a7 16A.725 (2005) (statute creating the health impact fund).\u00a0 The legislature repealed the Health Impact Fee in 2013.\u00a0 2013 Minn. Laws ch. 143, art. 5, sec. 28.<\/p>\n

[x]<\/a> \u00a0\u00a0\u00a0\u00a0<\/em>Philip Morris USA, Inc., 713 N.W.2d at 353<\/p>\n

[xi]<\/a>\u00a0\u00a0\u00a0 Id.<\/em> at 350<\/p>\n

[xii]<\/a>\u00a0 \u00a0See <\/em>Minn. Stat. \u00a7 645.33, subd. 19(b) (2018).<\/p>\n","protected":false},"excerpt":{"rendered":"

The Minnesota Supreme Court, in Phone Recovery Services v. Qwest Corporation, 919 N.W.2d 315 (2018), held that fees and surcharges imposed by statute for 911 services,[i] the Telecommunications Access Minnesota (TAM) program,[ii] and the Telephone Assistance Plan (TAP) program,[iii] were \u201cportions of Minnesota Statutes relating to taxation,\u201d within the meaning of the \u201ctax bar\u201d of … <\/p>\n

Some History Behind the \u201cTax vs. Fee\u201d Issue in Phone Recovery Services<\/a><\/p>\n","protected":false},"author":3,"featured_media":350,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-266","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-the-quadriga","8":"entry"},"acf":[],"_links":{"self":[{"href":"https:\/\/mitchellhamline.edu\/law-journal\/wp-json\/wp\/v2\/posts\/266","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mitchellhamline.edu\/law-journal\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mitchellhamline.edu\/law-journal\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mitchellhamline.edu\/law-journal\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/mitchellhamline.edu\/law-journal\/wp-json\/wp\/v2\/comments?post=266"}],"version-history":[{"count":0,"href":"https:\/\/mitchellhamline.edu\/law-journal\/wp-json\/wp\/v2\/posts\/266\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/mitchellhamline.edu\/law-journal\/wp-json\/wp\/v2\/media\/350"}],"wp:attachment":[{"href":"https:\/\/mitchellhamline.edu\/law-journal\/wp-json\/wp\/v2\/media?parent=266"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mitchellhamline.edu\/law-journal\/wp-json\/wp\/v2\/categories?post=266"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mitchellhamline.edu\/law-journal\/wp-json\/wp\/v2\/tags?post=266"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}