Courtney M. Kay-Decker, Director, Iowa Department of Revenue v. Iowa State Board of Tax Review and Cable One, Inc. , 2014 Iowa Sup. LEXIS 111 ( 2014 )

IN THE SUPREME COURT OF IOWA
No. 13–0925
Filed December 19, 2014
COURTNEY M. KAY-DECKER, Director, Iowa Department of Revenue,
Appellant,
vs.
IOWA STATE BOARD OF TAX REVIEW and CABLE ONE, INC.,
Appellees.
Appeal from the Iowa District Court for Polk County, Michael D.
Huppert, Judge.
The director of the department of revenue appeals a district court
ruling affirming a decision of the board of tax review that a company
providing voice over internet protocol telephone service was not subject
to central assessment for property tax purposes. JUDGMENT
REVERSED AND CASE REMANDED WITH INSTRUCTIONS.
Thomas J. Miller, Attorney General, Donald D. Stanley Jr., Special
Assistant Attorney General, and James D. Miller, Assistant Attorney
General, for appellant.
Bryan S. Witherwax of Witherwax Law, P.C., West Des Moines, for
appellee Iowa State Board of Tax Review.
2
Chérie R. Kiser of Cahill Gordon & Reindel, LLP, Washington, D.C.,
and Christopher E. James of Davis, Brown, Koehn, Shors & Roberts,
P.C., Des Moines, for appellee Cable One, Inc.
3
MANSFIELD, Justice.
This administrative review proceeding requires us to decide
whether a company providing Voice over Internet Protocol (VoIP) service
on cable wires in Iowa is subject to central assessment as a “telephone
company operating a line in this state” or, otherwise stated, a company
“that . . . operates . . . any . . . telephone line.” Iowa Code §§ 433.1, .12
(2007). In making this determination, we consider both the language of
the statute and how it has been historically interpreted. Based on that
review, we conclude that wiring installed originally for cable television
purposes but now also used to provide VoIP service is, indeed, a
“telephone line.” Therefore, the company operating these lines is subject
to central assessment for property tax purposes as a telephone company.
We also reject the company’s alternative arguments that the primary use
test prevents it from being assessed as an operator of telephone lines and
that federal law preempts state taxation of VoIP providers as telephone
companies. For these reasons, we reverse the judgment of the district
court and remand for further proceedings consistent with this opinion.
I. Background Facts and Proceedings.
Cable One, Inc. is an Arizona-based company operating in nineteen
states, including Iowa. In the Sioux City area, it offers cable television,
internet access, and VoIP, the subject of the present dispute.
VoIP is a service that enables two-way voice communications over
a broadband Internet connection. Cable One’s VoIP service is “fixed,”
meaning, as with a traditional landline, the customer must make the call
from a telephone permanently located in his or her residence. This is in
contrast to “nomadic” VoIP, in which the customer is free to make the
call from any location, much like a cellular telephone.
4
With both Cable One’s VoIP and traditional landline telephone
service, the customer dials a seven- or ten-digit phone number from his
or her home telephone and is connected to a person on the receiving end.
Both VoIP and traditional phone service offer features such as voicemail,
caller ID, call waiting, call transfer, call blocking, and conference calling.
Cable One’s VoIP service is “interconnected,” meaning its customers can
send and receive calls to customers of other telephone companies, not
just to and from other Cable One subscribers.
The difference between Cable One’s VoIP and traditional phone
service lies in the manner by which the voice signal is initially
transmitted. With traditional telephone service, the voice call travels
from the customer’s phone to the telephone company’s central office via a
closed circuit of copper wire lines. More recently, fiber optic cables have
been replacing these traditional copper cables. At the central office, the
company has a switch to connect the caller to the public switched
telephone network (PSTN) (unless the call is merely going to another
customer served by the same central office).
Traditional telephone service is provided by a variety of carriers.
Traditional telephone companies frequently “hand off” calls to other
providers so they can reach their final destination. Traditional telephone
service also can involve transmissions over wireless microwave systems,
in addition to copper wire and fiber optic cable.
With VoIP, Cable One utilizes its combination of fiber and coaxial
cable, the same system over which its cable television and internet
services are deployed, to provide the first leg of its telephone service. 1
1Coaxial cable is “a transmission line that consists of a tube of electrically
conducting material surrounding a central conductor held in place by insulators and
5
Thus, a caller places a call from his or her residence using his or her
preexisting corded or cordless telephone. An embedded multimedia
terminal adaptor (EMTA) unit then translates the voice communication
into the data format necessary to transmit the signal over Cable One’s
network. The call proceeds in data packets along the coaxial cable that
runs into and out of the customer’s home. It continues on coaxial cable
until it gets to a “node,” whereupon it travels on fiber optic cable until it
reaches a “headend,” a station owned by Cable One. From the headend,
Cable One can transmit the call directly to another Cable One customer
in the Sioux City area over its hybrid fiber–coaxial network.
However, if the caller is attempting to reach someone who is not a
Cable One telephone customer in the Sioux City area, the data packets
are transferred to a third-party company, Level 3, that translates them
into a different format so they can be sent over the PSTN. Thereafter, the
voice signals proceed over the PSTN in the same manner as other
telephone calls.
A Cable One customer can also receive a call originating from
outside Cable One’s Sioux City network. In that case, the system works
in reverse with the outside caller placing the call with his or her service-
provider that transmits the call over the PSTN, ending with Level 3
transmitting the signal to Cable One for conversion and delivery to its
customer via the hybrid fiber-coaxial cable network.
VoIP is complementary to preexisting telephone service because it
permits companies like Cable One to expand access to the PSTN without
having to install dedicated copper wire or fiber optic connections. Fixed
that is used to transmit telegraph, telephone, and television signals.” Merriam-
Webster’s Collegiate Dictionary 237 (11th ed. 2003).
6
VoIP of the type Cable One offers is generally of high quality due to the
fact its calls are transmitted over physical lines just like traditional
landline calls. In contrast, wireless providers that transmit signals via
satellite frequently experience lower call quality than servicers using
wired connections.
In mid-2006, Cable One began offering VoIP service to its
residential customers in the Sioux City area, including parts of Plymouth
and Woodbury Counties. It provided a brochure to its subscribers
entitled “Your New Cable ONE Phone Service.” This stated that Cable
One’s VoIP service would operate in a similar manner to landline
services, with the same processes for dialing numbers, operating caller
ID, enabling three-way calling, and receiving voicemails. A new
subscriber of Cable One’s VoIP service would be able to transfer her or
his existing home telephone number to the new Cable One service and
could purchase Cable One’s VoIP without also buying broadband internet
or cable television services.
The Iowa Department of Revenue became aware of Cable One’s
VoIP operations and, on November 12, 2008, issued a notice of
assessment based on its authority to tax telephone property under Iowa
Code chapter 433. See Iowa Code §§ 433.1, .4. The Department
determined that Cable One should be assessed based on the January 1,
2008 value of its telephone operating property in the state, which it
determined to be $671,000. Cable One appealed the notice of
assessment to the Iowa State Board of Tax Review, claiming it was not a
telephone company subject to taxation under chapter 433 because VoIP
is not the equivalent of telephone service.
In October of 2009, the Department sent Cable One another notice
of assessment under chapter 433 for the ensuing tax year. This time it
7
valued Cable One’s telephone operating property at $830,000 as of
January 1, 2009. Cable One again appealed the assessment and the
appeals were combined and transferred to an administrative law judge in
the Iowa Department of Inspections and Appeals for a contested case
hearing.
Iowa Code chapter 433 is entitled “Telegraph and Telephone
Companies Tax.” It reads, in relevant part, as follows:
433.1 Statement required.
Every telegraph and telephone company operating a
line in this state shall, on or before the first day of May in
each year, furnish to the director of revenue a statement
verified by its president or secretary showing:
1. The total number of miles owned, operated, or
leased within the state, with a separate showing of the
number leased.
2. The average number of poles per mile, and the
whole number of poles on its lines in this state.
3. The total number of miles in each separate line or
division thereof, also the average number of separate wires
thereon.
....
6. The gross receipts and operating expenses of said
company for the year ending December 31 next preceding,
on business originating and terminating in this state.
....
8. The total capital stock of said company.
....
11. All real estate and other property owned by such
company and subject to local taxation within this state.
12. The specific real estate, together with the
permanent improvements thereon, owned by such company
and situated outside this state and taxed as other real estate
in the state where located . . . .
8
13. All mortgages upon the whole or any part of its
property, together with the dates and amounts thereof.
14. The total length of the lines of said company.
15. The total length of the lines of said company
outside this state.
....
433.4 Assessment.
The director of revenue shall on the second Monday in
July of each year, proceed to find the actual value of the
property of these companies in this state, taking into
consideration the information obtained from the statements
required, and any further information the director can
obtain, using the same as a means for determining the
actual cash value of the property of these companies within
this state. The director shall also take into consideration the
valuation of all property of these companies, including
franchises and the use of the property in connection with
lines outside the state, and making these deductions as may
be necessary on account of extra value of property outside
the state as compared with the value of property in the state,
in order that the actual cash value of the property of the
company within this state may be ascertained. The
assessment shall include all property of every kind and
character whatsoever, real, personal, or mixed, used by the
companies in the transaction of telegraph and telephone
business; and the property so included in the assessment
shall not be taxed in any other manner than as provided in
this chapter.
....
433.12 Definitions.
....
“Company” as used in this chapter means any person,
copartnership, association, corporation, or syndicate that
owns or operates, or is engaged in operating, any telegraph
or telephone line, whether formed or organized under the
laws of this state or elsewhere. “Company” includes a city
that owns or operates a municipal utility providing local
exchange services pursuant to chapter 476.
Id. ch. 433.
 9
Both parties moved for summary judgment, and the ALJ issued a
proposed decision on June 24, 2011, to enter judgment in Cable One’s
favor. The ALJ stated,
Cable One does not fit the historical context of a
“telephone company.” Cable One built its network of cable
in order to provide cable television services. It is undisputed
that Cable One’s network of cable lines was not subject to
chapter 433 prior to offering telephone services in the second
quarter of 2006. Cable One has been subject to property tax
and locally assessed since the time it began operation in
Iowa. Cable One has not built a second system of cable or
wires to offer telephone services — rather, it is offering
telephone services on the same cable network it uses to offer
television services. Cable One has only connected with the
PSTN by contracting with Level Three. Level Three is a
telephone company that is subject to chapter 433.
(Footnote omitted.)
The ALJ went on to conclude,
The [D]epartment spent considerable time and effort in
its brief trying to convince me that Cable One’s phone service
is not fundamentally different than phone services provided
by traditional telephone companies. I do not disagree with
that point, but believe that the point misses the mark. I
agree that, no matter what technology is used, Cable One
offers a service by which its customers talk [to] others by
telephone. Traditional telephone companies have used
different and enhanced technologies to provide services over
the years, but the nature of [a] telephone call has not really
changed. Cable One is similarly offering a telephone service,
even though its technology is different. Notwithstanding this
finding, the focus of the statute is whether Cable One is a
“telephone company,” as that term is used in chapter 433.
For reasons stated above, I find it is not.
The Department appealed the proposed decision to the Iowa State
Board of Tax Review. On its review, the Board agreed with the ALJ that
Cable One was not subject to assessment under chapter 433:
In considering both the Department and Cable One’s
arguments, the Board analyzed the applicable case law
provided by both parties. The Board determined that unlike
the telegraph and telephone cases that had been previously
litigated, there is such a substantial difference between
10
traditional telephone and VoIP that Iowa precedent allowing
for the inclusion of emerging technologies into existing law
could not be properly applied in this instance. The Board
concluded that the service provided by Cable One is
sufficiently distinct from the phone services described in
§ 433 that it cannot properly be taxed under the existing law
as written. The Board agrees with Cable One that the
language of § 433 is too narrowly written to impose a tax on
their VoIP service.
The Board also stated the primary use test would apply to
determine the manner of assessment even if Cable One were subject to
taxation as a telephone company. The Board further declined to find
that federal law preempted taxation of VoIP service.
The Department petitioned for judicial review of the Board’s order.
After a hearing, the Polk County District Court issued a ruling on May 9,
2013, affirming the Board’s decision. The court stated,
In this case, the intent of the legislature as to what
constitutes a telephone company is clear: it requires that
whatever entity is in question own or operate, or be engaged
in the operation of, a telephone line. It is undisputed on this
record that Cable One undertakes none of these required
activities. The provision of the services in question is not
through a network of lines, but rather through a cable
broadband network which is completely independent of the
PSTN. This distinction is best highlighted by the fact that
Cable One must contract with a third-party in order to
connect to the PSTN. Based on a plain reading of §433.12[]
and the undisputed record before this court, Cable One does
not come within the statutory classification of a “telephone
company” for purposes of the assessments in question.
....
The Department has repeatedly urged that Cable One
is subject to taxation as a telephone company because it
provides a “telephone service.” As the Board concluded, that
fact is essentially undisputed, but irrelevant. The legislature
has chosen to classify what a telephone company is not by
reference to the services it provides, but the infrastructure
through which those services are provided. Had the
legislature chosen to use such a service-focused
methodology in the classification of telephone companies,
the Department’s argument would most likely have merit.
Based on the unambiguous wording of chapter 433,
11
however, the Department’s argument is lacking; any relief
consistent with its position on assessment as applied to the
present case should be directed to the legislative rather than
the judicial branch.
(Citation omitted.)
Having found that chapter 433 did not apply to Cable One, the
district court declined to rule on the whether the primary use test would
control the manner of assessment and whether the taxation of VoIP was
federally preempted. 2 The Department timely appealed to this court. We
retained the case.
II. Standard of Review.
Judicial review of agency decisions is governed by Iowa Code
section 17A.19. Naumann v. Iowa Prop. Assessment Appeal Bd., 791
N.W.2d 258, 260 (Iowa 2010). “We will apply the standards of section
17A.19(10) to determine if we reach the same results as the district
court.” Renda v. Iowa Civil Rights Comm’n, 784 N.W.2d 8, 10 (Iowa
2010). We defer to the agency’s interpretation of law when the legislature
has clearly vested that interpretation in the agency’s discretion. Iowa
Code § 17A.19(11)(c). Otherwise, we do not defer to its view and will
instead review for correction of errors at law. See id. § 17A.19(11)(b);
Iowa Network Servs., Inc. v. Iowa Dep’t of Revenue, 784 N.W.2d 772, 775
(Iowa 2010).
We are not aware of any provision of Iowa law granting the Iowa
Department of Revenue authority to interpret chapter 433. Cf. Iowa
Code § 422.68(1) (conferring authority on the director of the Department
to prescribe rules for the administration of chapter 422); Sherwin–
Williams Co. v. Iowa Dep’t of Revenue, 789 N.W.2d 417, 420, 423–24
2The district court also did not rule on Cable One’s argument that centrally
assessing its VoIP service would violate the Equal Protection Clauses of the United
States and Iowa Constitutions. Cable One does not advance this argument on appeal.
12
(Iowa 2010) (finding that the Department was not clearly vested with
authority to interpret the term “manufacturer” as used in Iowa Code
section 428.20). The Department does not contend it has been vested
with interpretive authority. 3 Accordingly, we will not defer to the
agency’s interpretation of the relevant statutory terms and will substitute
our own judgment for that of the Department if we conclude it erred. See
Sherwin–Williams Co., 789 N.W.2d at 424.
III. Analysis.
A. Applicability of Chapter 433 to Cable One’s VoIP Service.
We now address Cable One’s claim that it should not be centrally
assessed under chapter 433 for operation of its VoIP service in the state.
When engaging in statutory interpretation, we first examine the language
of the statute and determine whether it is ambiguous. Rolfe State Bank
v. Gunderson, 794 N.W.2d 561, 564 (Iowa 2011). “If the statute is
unambiguous, we look no further than the statute’s express language.
If, however, the statute is ambiguous, we inquire further to determine the
legislature’s intent in promulgating the statute.” Id. (citations omitted).
“When the legislature has not defined words of a statute, we look to prior
decisions of this court and others, similar statutes, dictionary definitions,
and common usage.” Gardin v. Long Beach Mortg. Co., 661 N.W.2d 193,
197 (Iowa 2003). “[W]e must read a statute as a whole and give it ‘its
plain and obvious meaning, a sensible and logical construction.’ ” Id.
(quoting Hamilton v. City of Urbandale, 291 N.W.2d 15, 17 (Iowa 1980)).
3The Department argues at considerable length that the district court applied
the improper burden of proof when it did not presume the correctness of the
Department’s initial assessment. See Iowa Code § 429.2(2)(a) (“The [D]epartment’s
assessment shall be presumed correct and the burden of proof shall be on the taxpayer
. . . .”). This argument strikes us as off the mark. Since the underlying issue is one of
statutory interpretation, which this court renders de novo, the burden of proof is of little
moment in this case.
13
“Generally, we presume words used in a statute have their ordinary and
commonly understood meaning.” McGill v. Fish, 790 N.W.2d 113, 119
(Iowa 2010).
Finally, a statute can encompass technologies not in existence at
the time of its promulgation. See Bruce Transfer Co. v. Johnston, 227
Iowa 50, 52–53, 287 N.W. 278, 280 (1939) (“[L]egislative enactments in
general and comprehensive terms, prospective in operation, apply alike
to all persons, subjects and business within their general purview and
scope coming into existence subsequent to their passage.” (Internal
quotation marks omitted.)); accord Kruck v. Needles, 259 Iowa 470, 477,
144 N.W.2d 296, 301 (1966). For example, in Bruce Transfer Co., we
were charged with interpreting an 1872 statute that authorized lawsuits
against, among others, “ ‘any railway corporation, the owner of stages, or
other line of coaches or cars.’ ” 227 Iowa at 52, 287 N.W. at 279. Noting
that automobiles did not exist at the time the statute was written, we
nevertheless interpreted the statute to apply to the trucking operation in
that case. Id. at 53, 287 N.W. at 280 (“Thus, an automobile may come
within the provisions of an act relating to vehicles generally, although the
statute was passed before the invention of automobiles.”). Similarly, in
Kruck, we interpreted a statute banning tire protuberances to apply to
safety spike winter tires, even though “tires of this particular type were
not produced in 1937 when this statute was enacted and the legislature
. . . may not have had in mind prohibition of their use.” 259 Iowa at 477,
144 N.W.2d at 301.
We begin with the actual wording of chapter 433. See, e.g., State v.
Iowa Dist. Ct., 812 N.W.2d 1, 4 (Iowa 2012) (observing that legislative
intent usually “is determined from the language of the statute”). Section
433.1 applies to “[e]very . . . telephone company operating a line in this
14
state.” Iowa Code § 433.1. Section 433.12, while largely reiterating the
wording of section 433.1, is similarly expansive in tone. See id. § 433.12.
It makes clear that “ ‘[c]ompany’ . . . means any person, copartnership,
association, corporation, or syndicate that owns or operates, or is
engaged in operating, any telegraph or telephone line, whether formed or
organized under the laws of this state or elsewhere.” Id.
Cable One concedes that it provides telephone service, but
disputes that it owns or operates a telephone line. 4 Yet chapter 433 does
not require that the company operate a specific type of telephone line or
use any particular technology. Nor does it require that the telephone line
have been built originally for that purpose. Giving these words their
ordinary and commonly understood meaning, it would appear that a
cable or wire used for telephone service is, indeed, a telephone line. See
McGill, 790 N.W.2d at 119.
This is supported by a dictionary definition of “line.” Merriam-
Webster’s preferred definition of line in this context is “a wire or pair of
wires connecting one telegraph or telephone station with another or a
whole system of such wires.” Merriam-Webster’s Collegiate Dictionary
723 (11th ed. 2003); see also Schaefer v. Putnam, 841 N.W.2d 68, 78
(Iowa 2013) (noting that we may refer to dictionary definitions when the
legislature leaves a term undefined). 5 Cable One’s connections to its
telephone service subscribers meet this definition. There is no
4At oral argument, Cable One’s counsel characterized its connection to its
residential customers as a “pipe.”
5This definition is similar to one that would have been current around the time
the legislature enacted the original version of chapter 433. An 1898 edition of Webster’s
Dictionary included the following definition of “line”: “The wire connecting one
telegraphic station with another, or the whole of a system of telegraph wires under one
management and name.” Webster’s International Dictionary of the English Language
855 (unabr. ed. 1898).
15
requirement in chapter 433 that the wire be made of a given material or
assembled in a given way—e.g., traditional telephonic copper wire as
opposed to coaxial or fiber optic cable. Indeed, traditional telephone
companies are using fiber optic cable as well.
The Board decision, as we read it, never confronts these points.
The Board asserts that “the language of § 433 is too narrowly written to
impose a tax on . . . VoIP service,” but it never explains why.
In contrast, the district court’s judicial review decision does
articulate a reason why, in the court’s view, Cable One does not own or
operate telephone lines. According to the district court, Cable One
provides its service “through a cable broadband network which is
completely independent of the PSTN. This distinction is best highlighted
by the fact that Cable One must contract with a third-party in order to
connect to the PSTN.”
But this observation does not seem to us dispositive. Iowa Code
sections 433.1 and 433.12 by their terms cover any telephone lines, not
merely the PSTN. Would a company that provided a closed-circuit
telephone service connecting its customers to each other without using
the PSTN be exempt from central assessment? We think not. As a
practical matter, all companies providing common carrier wireline
telephone service must interconnect with other telephone companies to
provide that service. The statute does not suggest we should treat a
traditional cable company that also provides phone service on its
broadband network any differently from a traditional phone company
that also provides internet service on its broadband network. Both
entities are supplying telephone services, plus other services, via lines.
Both are therefore telephone companies operating lines within the
meaning of chapter 433.
16
While we are inclined to the view that Iowa Code sections 433.1
and 433.12 are unambiguous on their face, some older caselaw also
supports the notion that Cable One is a telephone company operating a
line. Chapter 433’s predecessor was promulgated in 1878, around the
time Alexander Graham Bell was developing the telephone. See 1878
Iowa Acts ch. 59 (reported in Miller’s Revised and Annotated Code of
Iowa, tit. X, ch. 6 (1880)). The law initially pertained only to “every
telegraph company operating a line in this state.” Id. Nevertheless, just
a few years later, as the telephone was coming into use, we interpreted
the statute to include telephone lines even though it expressly covered
only telegraph lines at that time. See Iowa Union Tel. Co. v. Bd. of
Equalization, 67 Iowa 250, 251, 25 N.W. 155, 155–56 (1885). We
reasoned, “Both the telephone and telegraph are used for distant
communication by means of wires stretched over different jurisdictions.
The fundamental principle in each by which communication is secured is
the same.” Id., 25 N.W. at 155. 6
We similarly found a statute authorizing lawsuits against telegraph
companies to apply to telephone companies. Franklin v. Nw. Tel. Co., 69
Iowa 97, 98–99, 28 N.W. 461, 462 (1886). We deemed telephone
companies to be included in the statute, “based upon the substantial
6Following our decision in Iowa Union Telephone, the statute was amended to
expressly include telephone companies as well. See Iowa Code § 1328 (1897); see also
Report of the Code Commission, 26th G.A., at 49 (Iowa 1895), available at
https://www.legis.iowa.gov/docs/shelves/code/ocr/1896%20code%20commission%20
report.pdf. In 1900, the legislature added what is now section 433.12 defining
“company.” See 1900 Iowa Acts ch. 42, § 7 (then codified at Iowa Code § 1330-f (Supp.
1902)). Since then, the legislature has not made any substantive changes to the
portions of chapter 433 at issue in this case. Compare Iowa Code § 1330-f (Supp.
1902), with Iowa Code § 433.12 (2007).
17
identity of telegraphic and telephonic modes of communication.” Id. at
99, 28 N.W. at 462.
These cases underscore the importance of functionality. In them,
we focused on the fact that both the telegraph and the telephone
achieved distant communication through wires, not on the methods of
signal transmission.
As with automobiles in Bruce Transfer Co., 227 Iowa at 53, 287
N.W. at 280, and spiked snow tires in Kruck, 259 Iowa at 477, 144
N.W.2d at 301, the technology at issue here did not exist when the
legislature enacted the statute. However, in both cases, we applied the
language of the statute in a common-sense manner rather than
assuming the legislature intended to capture only technologies that
existed when the law was enacted. 7
7Additionally, the Iowa attorney general has issued an opinion consistent with a
broad, purpose-based construction of chapter 433. See Op. Iowa Att’y Gen. No. 71-3-5
(Mar. 25, 1971), 1971 WL 240716, at *4. The attorney general concluded “the
transmission distance between microwave relay stations [should] be regarded as a
telegraph or telephone ‘line’ for the purposes of Chapter 433,” despite the fact no
physical wires connected one microwave station to another. Id. In reaching this
conclusion, the attorney general relied on a functional rather than a literal
interpretation of the statute:
Towers like the one in the instant case make it unnecessary to have a
row of poles carrying wires from one point to another. They transmit by
means of electronically induced waves in the air rather than physical
lines, but the result is the same. . . . Obviously [the term ‘lines’] means
more than just wires, for it includes poles and supports, etc., or in other
words, a transmission system.
Id. (quoting Brannan v. Am. Tel. & Tel. Co., 362 S.W.2d 236, 239 (Tenn. 1962)). The
attorney general concluded, “ ‘Line’ is not the physical wire, but the transmission
system or line of communication used by the company. As such, any substitutes for
the wire-and-pole combination first used [are] to be included under the term ‘lines.’ ”
Id. at *3.
 18
Cable One and the district court reason that chapter 433 can only
apply to telephone services operated over traditional telephone lines. 8 We
do not find such a limitation in the statute. Chapter 433 applies to
“[e]very . . . telephone company operating a line in this state” and defines
“company” as “any . . . corporation . . . that owns or operates, or is
engaged in operating, any . . . telephone line.” Iowa Code §§ 433.1, .12
(2007). The foregoing cases support the view that the definition of
“telephone line” adapts with changing technology, so long as there is a
line and a comparable service is being provided. Cable One operates a
transmission system to carry voice signals from one fixed location to
another over a series of wires; therefore, it operates a telephone line
within the meaning of chapter 433.
The conclusion that Cable One operates a telephone line is further
bolstered by Cable One’s own marketing material. Cable One’s brochure,
entitled “Your New Cable ONE Phone Service,” nowhere mentions the
term “VoIP” but instead portrays Cable One’s service as a standard
telephone operation. The publication discusses features like caller ID,
three-way calling, and voicemail. It states that “[p]hone service with
Cable ONE should be similar to other landline services.” It advises
customers that they will still operate their phone by dialing a seven- or
ten-digit number from a traditional, landline phone console. Thus, for
the subscriber of Cable One’s VoIP service, there is little discernible
difference between VoIP and traditional telephone service.
Cable One notes that it contracts with a third party, Level 3, to
provide transmission over the PSTN. Yet traditional landline telephone
8But what is traditional? The record indicates that traditional telephone
companies now employ numerous technologies that did not exist in the nineteenth
century such as fiber optic cable, digitization, and microwave relay stations.
19
companies frequently contract with one another to send and receive
signals to and from customers of other service-providers. These
interconnection agreements, like Cable One’s contract with Level 3,
govern the financial and technical aspects of the relationships between
companies, but do not affect their status as taxable telephone
companies.
In a recent thorough and persuasive decision, the Arizona Court of
Appeals held that Cable One should be centrally assessed for its VoIP
service in that state, despite paying Level 3 to transmit signals over the
PSTN. Cable One, Inc. v. Ariz. Dep’t of Revenue, 304 P.3d 1098,
1099–1100 (Ariz. Ct. App. 2013). The Arizona statute in question
permits central assessment of telecommunications companies. Id. (citing
Ariz. Rev. Stat. § 42-14401 (2006)). It defines “telecommunications
company” to include “any person that owns communications
transmission facilities and that provides public telephone . . . access for
compensation to effect two-way communication.” Id. (quoting Ariz. Rev.
Stat. § 42-14401). Cable One argued there, as it does here, that it did
not meet the statutory requirements because it contracted with Level 3
whenever a communication needed to be transmitted over the PSTN. See
id. at 1100–01. The court rejected this argument, noting the statute
does not distinguish between a person who provides long-
distance service directly to the end user and a person who
provides long-distance service to the end user through its
own technology and technology it obtains from a third party.
Id. at 1106. It analogized the situation to a wholesaler–retailer
relationship and concluded,
Cable One provides its customers with access to the PSTN.
To assert otherwise . . . “misstates the reality of the
situation.”
20
. . . [T]hrough its VoIP service, it provides
“telecommunications exchange or inter-exchange access,”
which, using more familiar terms, is what it is advertising to
the public: “[p]hone service” with “UNLIMITED local & long-
distance calling in the continental U.S.” Cable One is,
therefore, a “telecommunications company” under A.R.S.
§ 14-14401 and subject to central assessment by the
Department.
Id. at 1107 (alteration in original) (quoting Mayor of Balt. v. Vonage Am.
Inc., 544 F. Supp. 2d 458, 472 (D. Md. 2008)).
Like the Arizona court, we find that the fact Cable One uses a
third-party for access to the PSTN does not affect its status as a
telephone company for property tax purposes. Just as Cable One owns
“communications transmissions facilities” and provides “public telephone
. . . access” in Arizona, thereby subjecting itself to central assessment
there, so too Cable One “operates [a] telephone line” in Iowa, thereby
subjecting itself to central assessment here. Neither statute requires the
company to own or operate the entire line.
Other courts have also determined that VoIP providers should be
treated as telephone or telecommunications companies under their
respective state taxation schemes. See, e.g., Vonage Am., Inc. v. City of
Seattle, 216 P.3d 1029, 1033, 1036 (Wash. Ct. App. 2009) (holding
Vonage was subject to telephone utility tax for its VoIP service and was
not exempt as an internet provider). The Montana Supreme Court held
that a cable company providing VoIP service should be centrally assessed
under a statute allowing taxation of “telecommunications services
companies.” Bresnan Commc’ns, LLC v. State, 315 P.3d 921, 924 (Mont.
2013) (quoting Mont. Code Ann. § 15-6-156(1)(d) (2001)). The lower
court had concluded that the company did not qualify as a
telecommunications company because it relied on its preexisting cable
television network to provide, among other things, VoIP service. See id.
21
at 926. The Montana Supreme Court criticized the lower court’s
emphasis on the “physical attribute of Bresnan’s property.” Id. at 927.
Instead, the court examined the “use and productivity of Bresnan’s entire
network” to conclude it provided a telecommunications service. Id. at
928.
Perhaps the most direct analogue to the present case comes to us
from the United States District Court for the District of Maryland. Mayor
of Balt., 544 F. Supp. 2d at 472. The federal court there held that
Vonage’s VoIP service was subject to the city’s telecommunication tax.
Id. The Baltimore City Code provision permitted a tax on “each person
who leases, licenses, or sells a telecommunications line to any
customer.” Id. at 461 (quoting Baltimore, Md. City Code art. 28, § 25–2).
Vonage contended that it did not sell telecommunication lines to its
customers because its VoIP service relied on contracts with third-party
carriers to transmit calls over the PSTN. Id. at 469. The court rejected
this argument and focused instead on the nature of the service Vonage
provided to its customers. See id. at 472. “Although these third-party
carriers provide the wired connection to Vonage, it is Vonage, not these
carriers, which provides this connection to Vonage’s customers.” Id.
“Selling a telecommunication line” in the Baltimore provision and
“operating . . . [a] telephone line” in chapter 433 are comparable in that
they both focus on the service being provided rather than the technology
being used. 9 Compare Baltimore, Md. City Code art. 28, § 25–2, with
Iowa Code § 433.12.
9Additionally, Comcast Corporation has apparently conceded that its VoIP
service is subject to taxation in Oregon. See Comcast Corp. v. Dep’t of Revenue, 20 Or.
Tax 319, 333–34 (T.C. 2011) (“One corporate member of the Comcast family of
companies already reports as a centrally assessed taxpayer in respect of its ‘voice over
internet’ or VOIP services.”), rev’d on other grounds, 337 P.3d 768 (Or. 2014) (en banc).
22
Finally, it should be noted to the extent Cable One’s property is
centrally assessed, it cannot be taxed twice. “[T]he property so included
in the assessment shall not be taxed in any other manner than as
provided in this chapter.” Iowa Code § 433.4.
For the foregoing reasons, we conclude Cable One is a “telephone
company operating a line in this state” and “operates . . . [a] telephone
line.” Iowa Code §§ 433.1, .12. Hence, it falls under the purview of
chapter 433.
B. Primary Use. Cable One argues that even if its VoIP service
qualifies as a telephone line, the Department may not centrally assess
Cable One because it primarily uses its hybrid fiber–coaxial network to
provide cable television service, not VoIP.
We believe a primary use test does not apply to chapter 433. First
and foremost, chapter 433 does not refer to such a test. Its coverage
extends to any company that operates a “telephone line,” regardless of
whether the line is used for something else as well. Id. § 433.12. The
Department is supposed to include in the assessment “all property of
every kind and character whatsoever . . . used by the companies in the
transaction of telegraph and telephone business.” Id. § 433.4. This
language is not qualified by a term such as “primarily.” See id.
Furthermore, long ago, under chapter 433’s predecessor, we
declined to apply a primary use test to a railroad’s lines that were “used
in the ordinary manner for the transaction of railroad business” and only
The Oregon Supreme Court, in reversing the tax court decision with respect to cable
and internet services, noted that taxation of VoIP service was not at issue on appeal
because Comcast had already conceded it qualified as a communication service.
Comcast Corp., 337 P.3d at 770 n.1.
23
secondarily for “commercial telegraph business.” Chi., Burlington &
Quincy R.R. v. Rhein, 135 Iowa 404, 404–05, 112 N.W. 823, 824 (1907).
The Arizona Court of Appeals similarly rejected a primary use test
in its recent decision involving Cable One, observing, “Predominant or
primary use is not an element of [the statutes] pertaining to central
assessment of telecommunications companies . . . .” Cable One, Inc.,
304 P.3d at 1107.
C. Preemption. Finally, Cable One argues that federal law
prevents the Department from taxing it as a telephone company. It cites
to a number of FCC decisions and federal statutes and cases governing
the regulation of VoIP providers and distinguishing them from traditional
telephone companies. See, e.g., In re Vonage Holdings Corp., 19 FCC
Rcd. 22404, 22404–05 (Nov. 12, 2004) (preempting Minnesota telephone
regulations of Vonage’s VoIP service because the interstate and intrastate
elements could not be separated due to the mobility of nomadic VoIP
callers). But these authorities pertain only to regulation of VoIP, not its
taxation. See id. at 22405 (“We express no opinion here on the
applicability to Vonage of Minnesota’s general laws . . . , such as laws
concerning taxation . . . .”).
It is well established that federal regulation of an activity does not
generally preempt state taxation of companies operating in that area.
The United States Supreme Court has said, “No general principles of law
are better settled or more fundamental than that the legislative power of
every state extends to all property within its borders . . . .” Pullman’s
Palace Car Co. v. Pennsylvania, 141 U.S. 18, 22, 11 S. Ct. 876, 877, 35
L. Ed. 613, 616 (1891). In a more recent case, the Supreme Court held
that a state was not preempted from taxing airline property despite the
fact interstate air travel was federally regulated. Braniff Airways, Inc. v.
24
Neb. State Bd. of Equalization & Assessment, 347 U.S. 590, 597, 74
S. Ct. 757, 762, 98 L. Ed. 967, 975 (1954). The Court said,
Federal regulation of interstate land and water carriers
under the commerce power has not been deemed to deny all
state power to tax the property of such carriers. We
conclude that existent federal air-carrier regulation does not
preclude the Nebraska tax challenged here.
Id.; see also U.S. Transmission Sys., Inc. v. Bd. of Assessment Appeals,
715 P.2d 1249, 1250, 1254–55 (Colo. 1986) (en banc) (distinguishing
between regulation and taxation and permitting the state assessment
board to tax a utility’s property despite the fact it was regulated by the
FCC); Post-Newsweek Cable, Inc. v. Bd. of Review, 497 N.W.2d 810, 816,
818 (Iowa 1993) (holding that where federal law preempted local
regulation of cable television rates, the state was nevertheless permitted
to tax the cable company on its tangible property located in the state).
The Arizona Court of Appeals addressed a similar argument and
declined to find federal law preempted taxation of VoIP providers:
[C]iting a host of federal statutes and FCC orders pertaining
to a variety of telecommunications services, including VoIP
service, and federal case law interpreting or applying these
statutes, Cable One argues classifying it as a
telecommunications company . . . is contrary to these
authorities. We reject this argument. These authorities
concern regulation, not taxation.
. . . Although Congress and the FCC have imposed
various regulations on VoIP providers and have preempted a
variety of efforts by the states to regulate VoIP providers,
neither Congress nor the FCC has taken any action to
preempt state taxation of VoIP providers.
Cable One, Inc., 304 P.3d at 1108.
The parties cite no additional authority that would indicate
Congress has preempted taxation of VoIP providers in the time since the
Arizona court addressed the issue. We therefore agree with its reasoning
25
and conclude that federal law does not preempt state taxation of VoIP
providers.
IV. Conclusion.
For the foregoing reasons, we reverse the judgment of the district
court and remand for further proceedings consistent with this opinion.
JUDGMENT REVERSED AND CASE REMANDED WITH
INSTRUCTIONS.
All justices concur except Zager, J., who takes no part.