Before the Federal Communications Commission Washington, DC ) ) ) ) ) )

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1 Before the Federal Communications Commission Washington, DC Jn the Matter of TRACFONE WIRELESS, INC. Petition for Declaratory Ruling Docket No SUPPLEMENT TO EMERGENCY PETITION FOR DECLARATORY RULING AND, IN THE ALTERNATIVE, PETITION FOR RULEMAKING TracFone Wireless, Inc. ("TracFone" hereby supplements its emergency petition for declaratory ruling filed with the Commission on October 23, Introduction In that Emergency Petition, TracFone asked that the Commission preempt state laws which impose state 911 fees and taxes on no charge Lifeline services, funded entirely by the federal Universal Service Fund ("USF" such as TracFone's SafeLink Wireless Lifeline service. As described in that Emergency Petition, such state Jaws undermine the goals and purposes of the federal Lifeline program by reducing the amount of the Lifeline benefit available to qualified low-income households below the level mandated by the Commission's rules. The Emergency Petition described how the Commission could lawfully exercise its authority to preempt such state laws under the Supremacy Clause of the Constitution of the United States, and under Section 253 of the Communications Act of 1934, as amended. 1 I 47 U.S.C. 253.

2 The Emergency Petition described how several states, including Alabama and Indiana, have attempted to construe and enforce state 911 tax laws in a manner which requires Lifeline service providers either to collect from their Lifeline customers state 911 taxes or to pay those state taxes themselves on behalf of their Lifeline consumers out of the service providers' own resources. As noted in the Emergency Petition, the Alabama 911 tax of $ per customer per month constitutes a tax of nineteen percent on the federally-mandated $9.25 Lifeline benefit provided to that state's Lifeline customers. The Indiana monthly 911 tax of $0.50 results in a tax of six percent on federal Lifeline service benefits in that state. Although a state-imposed tax of six percent is less burdensome on low-income Lifeline households and on the providers who serve those low-income households than is a state tax of nineteen percent, it is no less unlawful and is no less improper. Moreover, in both situations, the ultimate result is to reduce the amount of the federal Lifeline benefit available to the enrolled Lifeline households below the support amount codified in the Commission's rules. Irrespective of whether such state-imposed taxes and fees are paid by Lifeline customers or are paid by providers, the consequence is the same: the amount of Lifeline support from the USF provided to enrolled customers and actually received by those enrolled customers is reduced below the prescribed monthly Lifeline support amount codified in the Commission's rules, specifically Section (a(l. 2 By public notice, the Commission invited comment on TracFone's Emergency Petition. 3 Comments were filed both in support of the Emergency Petition and in opposition thereto. Not surprisingly, several of the most vociferous opposing parties were state 911 authorities from the 2 47 C.F.R (a(l. 3 Public Notice - Wireline Competition Bureau Seeks Comment on TracFone Wireless, Inc. Emergency Petition for Declaratory Ruling, WC Docket No , DA , released November 7,

3 states which have sought to impose 911 taxes on no charge Lifeline service. Much of the basis for that opposition focused on whether the Commission has the authority to preempt state tax laws in these circumstances. TracFone continues to believe that both the Supremacy Clause and Section 253 of the Communications Act afford the Commission more than ample authority to preempt those state laws which undermine the federal Lifeline program and that preemption would be appropriate and fully justifiable in these circumstances. Nonetheless, TracFone is mindful of the fact that any attempt to preempt state laws invites challenge and that the Commission may be reluctant to exercise its preemption authority in this situation. For that reason, TracFone, in this supplement/petition for rulemaking, proposes an alternative course for ensuring that Lifeline consumers in all states receive the full amount of federal Lifeline support from the USF which the law requires, and that telecommunications carriers providing Lifeline service not be forced by state govenunents to bear an undue economic burden in order to provide federally-supported Lifeline service in any state, including Alabama and Indiana. Petition for Rulemaking As an alternative to preempting state tax laws, TracFone respectfully proposes that the Commission exercise its rulemaking authority and promulgate appropriate rule revisions. Such rule revisions would prohibit any state from requiring Eligible Telecommunications Carriers ("ETCs" operating in that state to collect from their Lifeline customers state or local taxes where such tax collection would result in Lifeline customers having to contribute any portion of their federally-mandated Lifeline benefit to pay any state or local tax or fee where the effect of such taxation would be to reduce the net Lifeline support received by the Lifeline customer below the support level mandated by the Commission. A parallel Commission rule would also prohibit any state from requiring any ETC to pay any state tax or fee on behalf of the ETC's 3

4 Lifeline customers where the effect would be to place additional financial requirements on the ETC's provision of federally-funded Lifeline service. Specifically, TracFone proposes the following additions to the Commission's rules: 1. At the end of Section (a(l, insert the following language: No State may require an ETC either to collect from any Lifeline subscriber any state or local tax or fee or to pay on behalf of any Lifeline customer any state or local tax or fee that has the direct or indirect effect of decreasing the amount of Lifeline support received by a qualified enrolled Lifeline subscriber for the provision of voice telephony service. 2. Add new subsection (b(3 which would state as follows: All Lifeline subscribers must receive a Lifeline discount equal to $9.25 per month, or such other amount as the Commission sets forth in its rules. Lifeline service may not be subject to state or local taxes or fees that directly or indirectly decrease the amount of the Lifeline discount below the amount required by the Commission's rules. For those Lifeline subscribers who receive their Lifeline benefit in the form of no charge service, any requirement that such subscribers pay any State or local tax or fee constitutes a prohibited decrease in the amount of the Lifeline discount without regard to whether the tax or fee is paid by the subscriber or by an ETC on behalf of the subscriber. The purpose for the proposed rule revisions set forth above is limited. That purpose would be to preclude states from imposing state and local taxes and fees on a federal benefit where the result of such state or local taxation would be to reduce that benefit below the federally-mandated level. These rule revisions, though modest, are necessary and appropriate to ensure that qualified low-income households enrolled in the federal Lifeline program receive the full federal Lifeline benefit to which they are entitled without regard to which state in which they reside, and that no state may reduce federal Lifeline benefits received by Lifeline consumers in that state by taxing those benefits. There is precedent for federal governmental departments promulgating regulations which forbid state and local taxation of federal program benefits. For example, the United States Department of Agriculture (USDA has promulgated a regulation which explicitly prohibits state 4

5 and local taxation of Supplemental Nutrition Assistance Program ("SNAP" - formerly known as the Food Stamp Program benefits. That USDA regulation provides that a "State shall not participate in the Food Stamp program if State or local sales taxes or other taxes or fees, including but not limited to excise taxes, are collected within the State on purchases made with Food Stamp coupons." 4 That USDA rule was promulgated pursuant to 7 U.S.C. 2013(a. That statute prohibits states from participating in SNAP if State or local sales taxes are collected on food purchases made with program benefits. Alabama - one of the two states which are now attempting to tax federal Lifeline benefits - challenged the constitutionality of the prohibition on state taxation of federal benefits. The United States Court of Appeals for the Eleventh Circuit rejected Alabama's challenge to that prohibition. 5 Like SNAP/Food Stamps, Lifeline is a federal benefit program available in all fifty states (including Alabama and Indiana as well as in the District of Columbia and Puerto Rico. The court of appeals in State of Alabama v. Lyng concluded correctly that subjecting Food Stamp purchases to state tax would result in an indirect subsidy by the federal government to the states. As with Food Stamps, Lifeline providers receive federal funds in the form of support from the USF. ETCs are required by Commission rule to pass through to enrolled Lifeline households the entirety of that federal support amount. No portion of that federal support may be diverted from Lifeline recipients or providers to subsidize state or JocaJ governmental activities, no matter how important or worthwhile those state or local activities may be in the eyes of state or local governments or anyone else. 4 7 C.F.R State of Alabama v. Lyng, 811 F. 2d 567 (1l1h Cir

6 Additional authority for the Commission to promulgate rules prohibiting state taxation of federal Lifeline benefits is found at other provisions of the Communications Act, including Section 254, Section 201 (b, and Section 4(i. Section 254 Section 254 of the Act 6 authorizes the Commission, subject to referral to a Federal-State Joint Board on Universal Service, to establish rules to implement the universal service provisions of the Act. Those provisions include the rules governing the federal Lifeline program - a program funded by the federal USF. Section 254(b(7 empowers the Commission to add to the universal service principles codified in the Act. Notwithstanding the references to a Joint Board in Section 254, the Commission has the authority to promulgate universal service rules, including Lifeline rules, without Joint Board referrals and, in fact, has done so on various occasions. For example, in 2000, the Commission proposed a rule which would impose time limits on requests for state commission designation of ETCs. 7 Therefore, the Commission has authority under Section 254 to promulgate universal service rules, including rules to govern the Lifeline program. Section 201(b Additional authority for the Commission to promulgate rules preventing state taxation of federal Lifeline benefits is contained at Section 201 (b of the Act. 8 That section provides, in part, that "[t]he Commission may prescribe such rules and regulations as may be necessary in the public interest to carry out the provisions of this Chapter." Those provisions include the 6 47 u.s.c Federal-State Joint Board on Uni versnl Service (Twelf!h Report and Order. 15 FCC Red (2000. Although the Commission indicated that it would consult with the Joint Board, it did not issue a referral order and was not required to do so u.s.c. 201(b. 6

7 Universal Service sections of the Act such as Section 214(e and Section 254. The Commission's broad authority under Section 201(b to promulgate rules to implement the universal service portions of the Act added by the Telecommunications Act of 1996, 9 has been affirmed by the Supreme Court. See AT&T Corp. v. Iowa Utilities Board, 525 U.S. 366 (1999. Section 4(i Finally, Section 4(i of the Act confers additional rnlemaking authority on the Commission. Section 4(i provides that "[t]he Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with the chapter, as may be necessary in the execution of its functions." 10 This explicit grant of rulemaking authority in Section 4(i, generally referred to as "ancillary authority," may be exercised provided that two conditions are met: 1 the subject of the regulation must be covered by the Commission's general grant of jurisdiction under Title I of the Communications Act; 11 and 2 the subject of the regulation must be "reasonably ancillary to the effective performance of the Commission's various responsibilities. " 12 Title I of the Act confers upon the Commission broad jurisdiction over communications by wire or radio and the availability of such services. Section 1 of the Act, entitled Purposes of Act, Creation of Federal Communications Commission, states, in relevant part, as follows: For the purpose of regulating interstate and foreign commerce in communication by wire or radio so as to make available, so far as possible, to all the people of the United States, without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nation-wide, and world-wide wire and 9 Pub. L , 110 Stat. 56 ( U.S.C. 154(i (emphasis added. 11 /\merjcan Library Association v. F.C.C F.3d 689 (D.C. Cir (quoting United States v. Southwestern Cable Co. 392 U.S. 157 ( Id, at

8 radio communication service with adequate facilities at reasonable 13 c h arges... There is no doubt that the federal Lifeline program falls within the ambit of the Commission's statutory responsibility to make available to all the people of the United States a rapid, efficient, Nation-wide and world-wide wire and radio communication service with adequate facilities at reasonable charges. As such, the rule revisions proposed herein are within the scope of the Commission's Title I jurisdiction. The second prong of the two-pronged ancillary jurisdiction test also is met. Promulgation of a rule which would ensure that low-income households receiving federal Lifeline-supported service in all states and which would prohibit states from directly or indirectly reducing those benefits through taxation is not only reasonably ancillary to the effective performance of the Commission's statutory responsibilities; it is critical to the effective performance of those responsibilities. Universal Service has been a public interest goal since the enactment of the Communications Act of In 1996, universal service became explicit statutory requirement, primarily through the addition of Section 254 to the Act. If there was ever any doubt that universal service extended to making available affordable telecommunications service to lowincome Americans, that doubt was removed by the enactment of Section 254(b. That section includes among the statutory universal service principles that consumers throughout the nation, including low-income consumers, have access to affordable telecommunications service. While the Commission's Lifeline program dates back to 1987, that Commission-established policy became a statutory responsibility in Accordingly, promulgation of rule revisions which would ensure that uniform federal Lifeline benefits be available in all states and that states U.S.C

9 not be permitted to reduce those benefits through taxation would be essential to the Commission's performance of those statutory responsibilities. Conclusion For the reasons set forth in this Supplement to Emergency Petition for Declaratory Ruling and, in the Alternative, Petition for Rulemaking, as well as those set forth in TracFone's previously-filed Emergency Petition for Declaratory Ruling and reply comments in this matter, TracFone respectfully requests that the Commission promptly commence a rulemaking proceeding for the purpose of considering promulgation of the rule revisions proposed herein. Whether achieved through preemption or through promulgation of appropriate rules, the continued national availability of federal Lifeline benefits to low-income households in all states in a nationally-uniform manner compels that states by precluded from interference with those federal benefits through slate or local taxation. March 13,2015 Respectfully submitted, TRACFONE LESS, INC. y ~::~, / / - "' Mitchell F. Brecher Debra McGuire Mercer GREENBERG TRAURIG, LLP 2101 L Street, N.W., Suite 1000 Washington, DC ( Its Attorneys 9

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