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Washington Supreme Court Holds that Cable Internet Service
May Not Be Taxed as Telephone Service
By Randy Gainer
[June 2008]
The Washington Supreme Court ruled in a unanimous decision today that the City of Seattle may not tax Comcast's cable Internet service as a telephone business. The decision, Community Telecable of Seattle et al. v. City of Seattle, reverses a 2006 decision by the Washington Court of Appeals. The lower court had ruled that the City could tax Comcast's cable Internet service at the telephone business rate because cable Internet service includes a data transmission component and the definition of “telephone business” includes, among other things, data transmission over cable and telephone lines. The Supreme Court rejected the lower court's reasoning, observing that Comcast transforms and manipulates data rather than merely transmitting it and holding that the transmission component of Internet service cannot be separated from the other parts of the service.
The Washington Supreme Court decision was based on a 1997 Washington statute. The Court observed, however, that both the Federal Communications Commission and the United States Supreme Court have held that “transmission is a necessary component of Internet access . . . ‘telecommunications is part and parcel of cable modem service.'” The Court stated: “It is appropriate that our state statute, consistent with federal and other state laws, disfavors the kind of artificial division of Internet service components the City advocates.”
Directly at issue in the case was the two million dollar difference between the tax Seattle collected from Comcast in 2001-2002 at the city's 6 percent telephone tax rate and the amount it should have collected at its 0.415 percent general business tax rate. The city would have assessed tax at its telephone business rate from 2003 forward if it had prevailed. Several other Washington cities had notified Comcast that they, too, intended to collect taxes at their telephone business tax rates if Seattle won the case.
Davis Wright Tremaine attorneys Randy Gainer and Dirk Giseburt represented Comcast.
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Copyright © 2008, Davis Wright
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