WASHINGTON-The Supreme Court asked the Bush administration for guidance on Minnesota Attorney General Mike Hatch’s appeal of an 8th U.S. Circuit Court of Appeals decision striking down the state’s wireless consumer law, a development that could make prospects for a high court review even dimmer.
That the Supreme Court has reached out to U.S. Solicitor General Paul Clement is a potentially positive development for the mobile-phone industry, otherwise invested in a major campaign to have a 1993 federal pre-emption law expanded so it will not have to do battle with Minnesota and other states whose legislatures and public utility commissions are attempting to impose new regulations on wireless carriers.
Bush administration lawyers have been sympathetic to the wireless industry pre-emption arguments in consumer and health litigation.
At the heart of Hatch’s Supreme Court appeal is a Minnesota law requiring wireless carriers to alert subscribers of changes to service contracts that could result in increased rates. In December, the 8th Circuit overturned a U.S. district court ruling that had upheld Minnesota’s wireless consumer-protection law. The 8th Circuit sided with the mobile-phone industry in concluding the state statute amounted to rate regulation and therefore was pre-empted by federal law.
The cell phone industry argued that the 8th Circuit correctly interpreted a 1993 law prohibiting states from regulating rates of mobile-phone operators, while allowing states to oversee other terms and conditions of wireless service.
Hatch disagrees.
“There is not a single piece of legislative history that shows that Congress intended to adopt an exceedingly broad definition of the scope of pre-emption of state regulation of `rates charged,”‘ Hatch told the Supreme Court.
Hatch said 36 states and six national consumer groups filed briefs supporting his request to have the Supreme Court review the 8th Circuit decision.
“This court should not defer consideration of the questions in this case until other lower courts have ruled,” stated Hatch, a Democrat running to unseat Republican Gov. Tim Pawlenty in November. “Indeed, it is possible that a split in authority may never exist, as the erroneous ruling of the 8th Circuit may be relied upon by courts throughout the country, resulting in a Pac-Man-like consumption of states’ rights.”
Hatch said wireless carriers already have highlighted the 8th Circuit decision in an 11th Circuit case in which an FCC’s decision pre-empting state regulation of line items on wireless bills has been challenged.
Pre-emption and taxes
On a related front, the question of federal pre-emption surfaced last week at a House hearing on state taxation of interstate telecom services-including wireless.
“Every month we all receive at least one bill from a telecommunications company, and some receive many more. These bills are for our home phone, cell phone, cable TV, DSL, cable Internet and other services. Whenever I look at mine, the one thing I keep thinking is: How much do I have to pay in taxes, just to be able to communicate with others?” stated Rep. Chris Cannon (R-Utah), chairman of the House Judiciary subcommittee on commercial and administrative law.
“We should be finding ways to encourage these innovations and expansions [of communications], not discourage them with excessive taxes,” added Cannon. “Higher taxes on any given product or service in our economy today generally ensures that we will see less of that service. When we levy high taxes on telecommunications services, we stymie the technological progress by creating huge disincentives to purchasing these services.”
But Rep. Melvin Watt (D-N.C.), ranking member of the subcommittee, questioned whether the federal government has any business meddling in state taxation even if there is wide acknowledgement telecom taxes are unfair and discriminatory around the country.
David Quam, director of federal relations for the National Governors Association, agreed. “Congress … can best support state tax modernization by avoiding federal action that will restrict the ability of states to craft meaningful reforms.”
Steven Rauschenberger, a Republican state senator in Illinois, argued federal guidance is needed, but would oppose blanket pre-emption of state taxing authority. “We can no longer hide from the fact that discriminatory taxation of telecommunications is a direct tax on our constituents,” Rauschenberger said.
Rauschenberger pointed to a 2004 report showing the average rate of state and local telecom taxes was 14.17 percent compared to 6.12 percent for taxes on general business.
Scott Mackey, an economist at Kimbell Sherman Ellis L.L.P and a past consultant to major wireless carriers, told lawmakers the wireless industry is particularly hit hard. “A national policy that requires state and local government to tax communications services at the same rate as general businesses will have important benefits for consumers and the United States economy,” he said.
Earlier this year, legislation was signed into law creating a 5-percent flat tax on all communications services in Virginia. The wireless industry supported the bill, since the tax rate is lower than in other states and is stable.
