State Court Rules that USAC is Tax-Immune in Lifeline Case

On March 7, the Washington State Supreme Court issued its decision in Assurance Wireless USA, LP v. State of Washington Department of Revenue (2024). At issue in the case is whether funds received by telecommunications carriers participating in the federal Lifeline program are subject to Washington's retail sales tax. In a unanimous 9-0 decision, the Washington Supreme Court concluded that because the Universal Service Administrative Company (USAC) operates as an instrumentality of the federal government, imposition of the retail sales tax violates the intergovernmental tax immunity doctrine. The effect of the court's decision is that it ensures that tax burdens are not saddled on Lifeline program providers and low-income beneficiaries.

The USAC is the FCC's appointed non-profit entity for administering the Universal Service Fund and the Lifeline program. The Washington Supreme Court determined that the USAC is the "buyer" from whom telecommunications carrier and Lifeline program participating provider Assurance Wireless should have been collecting the tax. That is to say, the court determined that the incidence of the state retail sales tax falls on the USAC.

Under the intergovernmental immunity doctrine, the federal government and instrumentalities closely connected to it are immune from all forms of taxation absent express Congressional waiver of immunity. The Washington Supreme Court determined that provisions contained in Section 254(e) and 254(f) of the Communications Act do not constitute Congressional waivers. Looking to factors identified in U.S. Supreme Court jurisprudence for determining whether an instrumentality is closely related to governmental activity and therefore tax-immune, the Washington Supreme Court wrote: 

Weighing all the factors, we conclude that USAC is an instrumentality of the federal government. It exists solely to carry out the FCC's mission of advancing universal service, which includes the Lifeline program, and USAC pursues no independent business objectives. Congress has acknowledged the FCC's reliance on USAC and approved of their relationship as the means of implementing universal service programs. Further, although USAC is nominally an independent nonprofit, the FCC's regulatory control over USAC's operations, leadership composition, and finances have produced an entity so closely related to the FCC that we conclude it operates as an instrumentality of the federal government for purposes of the intergovernmental tax immunity doctrine. 

In a November 9, 2024 FSF Blog post, "State Court Weighing USAC on Tax Immunity for Lifeline," I previewed this case. I suggested that Assurance Wireless USA had a stronger position on the tax immunity of the USAC. Former FCC Commissioners Robert McDowell and Mignon Clyburn were among those who filed amicus curiae briefs favoring tax immunity for the USAC. The effect of such immunity is that it better enables Lifeline to serve its programmatic purpose of providing telecommunications services to qualifying low-income individuals. 

 

Universal service reform and the Lifeline program were topics for discussion during the hot topics in communications law and policy panel at the Free State Foundation's 16th Annual Policy Conference held on March 12.

 

 

Video of that panel and former FCC Commissioner Mignon Clyburn in discussion with former Commissioner Mike O’Rielly and two current Commission members can be found on FSF's video web page.