NO. 07-07 -017 2-CV IN THE CO UR T OF APPEA LS FO R THE S EVEN TH D ISTRI CT O F TEXAS

AT AM AR ILLO PAN EL D O CTOBE R 28, 2 008

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___ SOUT HW EST ERN BELL TE LEP HONE COMPANY, APP ELL ANT V. SUSAN COMBS, SUCCESS OR-IN-INTERES T TO CAROL E KEE T ON ST RAYHORN , CO MP TROLLE R OF PU BLIC AC CO UN TS OF THE STATE OF TEX AS, AN D GR EG A BBOTT, ATTOR NE YGEN ERAL F ORTHE STATE OF TEX AS, APPEL LEES

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______ FRO M T HE 98 DIS T RI CT COU RT OF T RAVI S CO UNT Y; TH NO . D -1 -G N- 02- 004559; H ON ORABLE MA RG AR ET A. CO OPER , J UD GE

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____ Before QUINN, C.J., and CAMPBELL and PIRT LE, JJ.
OPIN ION Appel lan t, Southw est er n Bel l Telephon e C ompany (Bell ), appeal s from entr y of
sum ma ry

judgmen t in favor of Ap pellee s, Susa n Com bs, succe ssor in inter e s tto Carole Keeton Stray hor n, C omptroll er of Publ icAc count s o f the St ate of Tex as, and Greg Abbott,T he Texas T ax Code aut horizes suits to recover fra nchise taxes required to b e pa id 1 if the tax pay er

first pay s t he ta x

under protes t. Tex

. Tax Cod e Ann. § 11 2.052( a) ( Ver non 2008)

. The Tax

C ode al so re q uired Bel l to s ue bot h t h e C o mptroll er and the Attor ney General. § 112.053

. The in terest s o f the Compt ro ll er

and the Attor ney

Gene ra l do not di v e rg e i n t h i s c a s e . F o r c o n v e n i e n c e , w e w i l l re fe r t o b o t h c o l l e c t i v e l y a s “ the Com ptroller.” I n a d d it ion, p rov isions of the T exas Tax Code w ill here af ter be cite d as “§

___ __” or “Section ___

___ .” Beca use the dis puted tax es w ere i ncur re d betw een 199 6 and 2001, tax st atute s 2 and rules ex isting then are app licable to our ana ly sis. Unless oth erw ise not ed, howev er, w here there h as be en n o ma terial chan ge in the ap plicable statu tes or regulation s, w e w ill ci te t o the ir

cu rrent v ersi ons. 2 Atto rney General of

the State of T exas, on Bell’s claim seeking a ref und of f ranch ise taxes. The par ti es filed co mpeti ng moti ons for summar y jud g ment bel ow . The tr ial co urt g ra nted the State ’s motio n an d de nied Bell’s m otion

. B ell a ppe als the t rial cou rt’s ruling and se eks summar y j udg ment i n it s fav or . In suppo rt , Bel l ass erts the tr ial co urt er re d i n findi ng ( 1) Bel l ’ s e nd u s er

c om mo n l i ne c ha rg es , s pe c i al a c c es s c ha rg es , an d op erat or a s s istance charg es are Tex as re cei pts for s tate f ranchi se tax appor ti onment p ur poses ; ( 2) the Com p troller’s applicat ion of the f ranch ise tax apportio nm entstatu te an d rules to Be ll did not v iol ate e q ual protec ti on g uarante es; and (3 ) cer tai n tes ti mony

by Bel l’ s e x per

ts w as prop er l y e x c l ud ed

. W e affi r m. Back ground
In D ecember

2002, Bel l filed sui t to re cov er $43,136 ,577. 39 in franch is e tax es and int erestpai d under

protes t t o the C omptroll er . F or ca len dar

y ears 1 996- 2001, the 1 2 Com ptroller ap portio ned Bell’s charges fo r custom er access to its local teleph one network3

to c omplet e l ong di sta nce cal ls and pay -p er-u se ser v ic es suc h as operator

as si sta nce as Tex as re cei pts

. Bell ass erts thes e c harg es are ex empt from appor ti onment a s Tex as receipt s beca use they const itute “receipts from intersta te calls” or “rev enu es f rom ca lls i n intersta te com me rce.”
This ca se neces sar il y

i nv olv es tec hni cal and leg al is sues uni q ue to the t ele phone ind ust ry . Ev ents thatoc cur re d i n the tel ephone ind ust ry nati onw ide and in Tex as from the
ear ly 1980s thro u gh 2 001 c ompri se the b ack drop for understa ndi ng the is sues und erscoring this app eal. As a result, it is nece ssary tha t w e describe in gre a t e r d eta il Bell’s ope ration during the p e ri o d a t issue as w ell as the a pplicab le regulatory history und erly ing the f ranch ise tax ex em ption s sought by Bell.
I. Th e A nt it ru stC on sentD ecree Before 1982, Amer ic an Tel ephone and Tel eg ra ph C ompany ( AT&T) domina ted t he nati onal tel ecommuni cat ion s i ndust ry . AT& T Cor p. v . I owa Uti lities Bd. , 525 U .S. 366, 414, 119 S. Ct . 721 , 142 L.E d.2d 835 (1999)

. AT&T and its corpo ra te af fili ates , know n as the “B ell Sy ste m,” v ir

tual ly co ntroll ed al l lon g -d is tanc e telepho ne ser v ic e, most loc al tel ephone ser v ic e, and a subs tanti al amount o f all tel ephone eq uip ment manufact ur ing

. See U nited States v. Am er

ic an T el. & T el. C o., 552 F. Supp. 131, 222- 23 ( D. D. C. 1982) , a f f ’ d su b n o m. Ma r y la n d v . U n ite d S ta tes , 4 6 0 U.S. 10 01, 103 S.Ct. 12 40, 75 L.E d.2 d 47 2 (198 3). How ev er , i n 1982, AT&T ente re d i nto a n ant it ru st cons ent d ecree, k now n as theA LATA is a conti nuous geog ra phi c area that may co ntai n one or

more tel ephone 3 ex chang es or

area c odes. See 16 Tex . Ad min. C ode § 26.5( 116) ( 2008)

. “L ocal ex chang e c ar ri er” is defined as “a ny person that is eng ag ed i n the prov is ion 4 of tele phone e x chang e s e rvice o r ex chang e ac ces s.” 47 U. S.C . § 153 ( 26) ( 2001)

. An “e x chang e s er

v ic e” i s d efined a s “se rvice w it hin a t ele phone e x chang e, or w it hin a conne cte d s y ste m of tel ephone ex chang es w it hin the same e xch a n ge area operated to furni sh to s ubsc ri bers i ntercommuni cat ing se rv ic e of the c haract er ordin ar il y

prov ide d by the ex chan ge serv ice charge.” 47 U.S.C. § 15 3 (47) (200 1). 4 Mo dific ati on of Fi nal Ju dg ment ( MF J) thatended it s i ndust ry domi nance . 552 F .Supp. at 160- 170, 222- 234.
Und er the MFJ , AT &T w as re q uired to di v esti tse lf of loc al ex chang e s ubsi dia ri es and w as grouped into regional op eratin g com pan ies wh ic h b e cam e kno w n as the “Bell Ope rating Comp anie s (BOCs).” See 47 U. S.C . § 153 ( 4) ( 2001) ; SBC Com m unica tions, Inc . v . F.C .C ., 1 5 4 F .3 d 2 2 6 , 230 ( 5 C ir . 199 8)

. Bel l w as a BO C and prov ide d th teleco mm unica ti o n s s erv ices for custom ers physically locate d in Kan sas, Arkan sas, Okla homa, M is sour i, and Tex as. The U nit ed St ates w as then div ide d i nto 1 61 Loc al Acc es s T ra n s p o rtA re a s ( L A TA s ) w i t h i n w h i c h B O C s w e re p e r mi t t e d t o o p e ra t e and 3 p ro vide lo ca l te le p h o n e se rvice

. 1 5 4 F. 3 d a t 23 1

. W it h in ea ch LA T A wer e lo ca l e xch a n ge carriers ( LECs) thatconn ecte d the ir custom ers’ teleph one s to the i r n etworks and facilities. 4 Bel l operates as an L EC i n LATAs i n Tex as and ot her st ates

. Beca use the MF J per mitt ed BOC s and/or LEC s t o retai n the ir

st ate- re g ula ted, loc al serv ice mo nop olies, th ey beca me subjectt o v arious restriction s on the ir l ines of busine ss. T he restriction s w ere inte nde d to en sure tha t the BOCs w ould not use their mo nop oly“I nter LATA s er v ic e” means “tel ecommuni cat ion s betw een a poi nt l ocat ed i n a l ocal 5 acc ess and transpo rtarea an d a p oin t l ocat ed out si de s uch area.” 47 U. S.C . § 153 ( 21) (200 1). F oll ow ing the enact ment of the Telec ommunic ati ons Actof 1996, Pub.L. No. 104- 6 104, 110 St at. 56, i n 2000, the FC C m o d if ie d the M FJ ’s i nter LATA rest ri cti on. Sect ion 601( a) of

t h e 1 9 9 6 Act free d BO Cs from t he M FJ ’s prohi bit ion ag ain st prov idi ng l ong distan ce serv ice if the BOC com plied w ith certain provisi ons in the Act de signed to red uce compet it ion and obtai ned FC C approv al throug h a d etai led appl ic ati on proces s. See 47 U. S.C . §§ 252, 271 ( 2001)

. IX Cs are lon g dis ta n ce ca rrie rs p e rm it te d to tra n sp o rtca lls ac ro ss LA T A b o u n d a ries 7 into o the r states. During this period , LEC’s custo me rs indepe nde ntly cont racted directly w it h the ir IX C for l ong di sta nce tel ephone ser v ic e. 5 cont ro l ov er LEC s t o i mpede c ompeti ti on i n oth er mar ket s. United

S tate s v. W

este rn Elec. Co. , 12 F.3 d 22 5, 22 9 (D.C. Ci r. 199 3). For instance , an LE C might f ind it particu larly easy to attractl ocal cu sto mers to cont ra ct for its long dist ance ser v ic e and use it s c ontrol of loc al ser v ic e to pla ce it s long dist ance compet it ors a t a dis adv antag e. Iowa Ut il it ies Boar d, 525 U.S. at 4 16. Thu s, one such restriction p rohibite d LECs f ro m of fering any long distan ce ser v ic e betw een LATAs, or int er LATA ser v ic e. See I d.; SBC

C om m unicat

ion s, 154 F .3d 5 at 23 0; W

ester n Elec. C o., 12 F.3d at 22 8. Thus, dur ing the re lev ant t ime per iod , Be ll w as proh ibited f rom p rov iding any long distan ce tele pho ne se rv ices. 6
II. Lo ng D ist ance T elep ho ne Serv ice
Beca use LEC s s uch as Bel l w ere prohi bit ed f ro m prov idi ng l ong di sta nce tel ephone serv ice, long distan ce calls or int erLAT A calls w ere tran smitt ed b y interexchange carriers (IXC s). AT& T Com m unicat ion s of Texas, L.P. v. Southwes ter n Bel l Telephone Co. , 186 7“E xch a n ge a cc e ss ” is d e f in e d as “th e of fe ri n g o f ac ce ss to te le p h o n e exch a n ge 8 serv ices or facilities for the p urpo se of the o ri gina tion o r termina tion o f telep hon e toll serv ices.” 47 U.S.C. § 15 3 (16) (200 1). An “ exchange area ” is a geographic area , usua lly c o m p ri s in g o f

a ci t y a n d it s e n vir o n s , in wh ic h ca ll s t h e re in a re t re a t e d a s “l o c a l. ” 1 6 T e x. Admin . C ode § 26.5( 79) & ( 117) , as am ended, 24 Tex

. Reg

. 10056 ( 1999) ( effect iv e dat e: Nov ember

23, 2000)

. Bell’s local loop consists of a pair of copp er w ires exten ding f rom th e custo me r’s 9 premis es to t he c entral off ic e sw it ch. Bel l’ s c entral off ic e s w it chi ng faci li ti es prov ide a di al tone to t he c ust omer’s t e le p h o n e i ndi cat ing the loc al netw or k i s a v ail abl e to acc ept or ig ina ti ng ca ll s, car ry

numbers d ur ing the dia li ng proces s, transmi t v oic e c ommunic ati on, and di re ct the c all to a l ocal se rv ic e address or IX C’ s P OP to b e sw it ched out- of-st ate. Loca l sw itching sy stem s are also con nect ed to ope rator sy stem s, directory assistance sy ste ms, and 911 sy ste ms. 6 S.W .3 d 51 7, 5 21
- 22 ( Tex

. 20 06 )

. U nd er t he M F J , ea c h LE C w as a l l ow ed t o tr ansm it tel ecommuni cat ion s i nformati on onl y betw een poi nts w it hin a si ng le LATA, prov idi ng w hat is , basi cal ly , t he tradi ti onal l ocal tel ephone ser v ic e. The M FJ req uired LEC s t o prov ide the ir custom ers and I XC s e qual e x chan ge a ccess t o the ir netw ork facilities for the p urpo se 8 of permi tti ng IX Cs to car ry on t hei r lon g di sta nce tel ephone busi ness . Thus, w hen a cus tomer di ale d a n umber

i n anot her

LATA, the c ust omer’ s L EC
w ou l d fi rs t tran s mi t th e s i g na l to an IX C ’ s Po i nt of Pres en c e ( PO P)

. In a t y pi c al i nt er LATA long distan ce call, the orig inatin g caller’s LEC transp orts the sig nal f rom th e caller’s tel ephone ov er

the loc al loo p to the L EC ’s ce ntral off ic e w here the ca ll i s sw it ched and 9 t ra n s p o rt e d b y a t ru n kli n e t o t h e I XC ’s P O P

. T h is o c c u rs n e a rl y in s t a n t a n e o u s ly. Ty pic ally, th e LEC has sw it ched the c all er to thei r IX C before t he c all er has co mplet ed dia li ng the lon g di sta nce number

. Onc e the si g nal reache s the I X C’ s l ong di sta nce sw it ch, the IXC then sw it ches the si g nal to it s t ru nk facil it ies for t ra nsmi ss ion out- of-st ate t o theCompan ies prov idi ng tel ephone ser v ic e hav e tradi ti onal ly

been re g ula ted a s 10 monopol is ti c p ubl icuti li ti es. Ver izon C om m unicat

ion s, Inc . v

. F.C .C ., 535 U .S. 467, 477, 122 S.Ct . 1646, 1661, 152 L.Ed.2d 701 ( 2002)

. See 70 Tex . J ur . 3d Telecom m unicat ion s § 2 ( 1999)

. As suc h, Bel l is subj ectto federal reg ula ti on by the FC C; Telec ommunic ati ons Actof 1996, Pub. L. N o. 104- 104, 110 Stat

. 56 (c odi fied in v ar iou s s ect ion s o f tit les 15 a nd 47 of the Uni ted S tates C ode) ( “Tel ecommuni cat ion s A ct of 1996") , and s tate re g ula ti on by the Publ icUti li ti es Commi ss ion of T ex as. Publ icUti li ty

R eg ula tor

y Ac t, Tex . U ti l. C ode §§ 11. 001- 64.203. The F CC se ts lon g di sta nce ra tes in clu din g ac ces s c harg es for int ersta te l ong di sta nce ser v ic e w hil e the PU C set s a cc ess ch arg es for i ntrastate lon g dis tanc e s er

v ic e. Se e AT

&T C om m un ic at

ion s o f T exas, 1 8 6 S .W .3d a t 521 -2 2; Pub lic Ut il it y C om ’ n of Tex

as v. Al

lcom mLong Di

sta nce, Inc ., 902 S. W .2d 6 62, 6 64 (Te x .Ap p.–Aust in 199 5, w rit denied ). 7 loc al sw it ch of a sec ond LEC ser v ing the re cei v ing party

. The sec ond LEC sw it ches the si g nal to it s l ocal loop and ulti matel y the cal l is recei v ed. The sec ond LEC then rev erses the p ro ces s a nd a ci rc uiti s e sta bli shed ov er w hic h the tw o par

ti es can communi cat e. III . Access a nd Op erat or C har ges An IXC’s cost of

replicating Bell’s local network and facilities to prov ide lon g distan ce serv ice f rom th e LEC’s prem ises w as proh ibitiv e. T hus, IXC s nee ded access to Be ll’s netw ork in order to sell long d istance serv ices to the ir custom ers, and the IXC’s custom ers needed acc ess to the LEC’ s netw or k to complet e long dist ance ser v ic es purchas ed from IX Cs

. To re compens e Bel l for c ost s a ss oci ated w it h mai ntai nin g its f a cil it ies and eq u ip m ent u ti li z ed by

IX Cs and the I X Cs ’ cus tomers, the F ederal Communi cat ion s Commi ss ion ado pted uni form ac ces s c harg e r ule s. T he FCC ’s rul es req uired LEC s t o

10 record th eir revenu es in accord ance with sp ecif ied acco unt ing r ules an d de posit a ccoun ts, deter mine w hat fract ion of the L EC ’s reg ula ted e x pense s a nd inv est ments in it s faci li ti esA te lec ommunic ati on ta ri ff defines a se rvice , the ter ms and co ndi ti ons of the 11 ser v ic e, ho w

i t w il l be prov ide d, an d the ra tes ass oci ated w it h the ser v ic e to be c harg ed to the c ust omer. See 47 U .S.C . § 203 ( 2001) ; Mincron SBC Corp. v. W o rl dcom, Inc. , 994 S.W .2d 7 85, 7 89 ( Tex .App. –Ho ust on [1 D is t.] 1999, no p et.) ; Sou thwe s t ern Be ll st Telephone Co. v. Metr

o- Lin k Telecom , Inc., 919 S. W .2d 6 87, 6 91 ( Tex .App. –Ho ust on [1 4 th Di st. ] 199 6, pe t. deni ed) ( “A tar iff is a d ocumentw hic h l is ts a publ icuti li ty ’s se rv ic es and rates for those serv ices.”) The f iled tarif f governs a teleco mm unica tions se rv ice carrier’s relation ship w ith its custom ers, and s uch ta riffs have the force an d ef fect of law until sus pended or

se t as ide

. 9 9 4 S. W .2 d at78 9 ; 9 1 9 S. W .2 d at69 2 (cit in g Keogh v. Chi cago & Nor thwester n R ail way , 260 U .S. 156, 162- 63, 4 3 S. Ct . 49, 67 L .Ed. 1 8 3 ( 1922) ). I n 1995, Bel l’ s A cc ess Ser v ic e Tar iff f il ed w it h the Tex as Publ ic Ut ility C ommis si on appl ied to “ the p ro v is ion of Car ri er C ommon Li ne, E nd Us er Acc ess , Sw it ched Acc ess , and Spec ial Access services, and o the r miscellane ous serv ices. . . .” See A T&T C om m unicat

ion s o f the S outhwes t v

. Pu blic Uti

lity Com ’ n of Tex as, 906 S.W .2d 209 , 213 n.6 (T ex.App. –Au stin 1995, w ri t den ied ). LEC rev enues are recorded i n a s er ies of uni form ac count s e sta bli shed by the 12 FC C. See 47 C.F.R. § 32 .49 99(n ) ( 200 1). “Netw ork Access Revenue s” are depo sited in FC C Acc ounts 5080- 5084 an d a re “ der iv ed from t he prov is ion of ex chang e ac ces s s er v ic es to an i nterex chang e c ar ri er or to an end us er

of tel ecommuni cat ion s s er v ic es bey ond t he ex chang e c ar ri er ’s netw or k.” 47 C. F. R. § 32 .4999( i) ( 2001)

. 8 o r n e tw o r ks h o u l d b e a l l o c a t e d t o p ro v i d i n g i n t e rs t a t e a c c e s s , a n d s e tc h a rg e s o r t a r i ffs 11 Bel l coul d c harg e i ts c u stomers and IX Cs

. See Acc ess C harg e R eform, C C Doc ketN o. 96-2 62, First Repo rt and Orde r, 12 FCC R ed 1 598 2, 15 998 -9 9 ( 1 9 97) (Acc ess Char ge Ref or mOr der ), a f f ’d , South we st e rn B ell

T elephone C o. v

. F.C .C ., 153 F.3d 52 3 (8 Cir

. th 199 8). At issue, he re, a re B ell’s rev enu es de posite d in tw o FCC deno min ate d de posit accou nts for Ne tw ork A ccess Revenue s and a custom er accou nt for v arious pa y -per-use 12
ser v ic es as follo w s:The tax i n i ss ue rela ted t o Ac count5081 is $24, 115,771 .14. 13 The tax i n i ss ue rela ted t o Ac count5083 is $18, 922,278 .76. 14 9 A . End U ser Co mmo n Li ne Ch arg es The En d U se r Common Line C harg e ( EU CL) i s a flat ra te c harg e des ig ned t o re cov er a po rt ion of Bel l’ s c ostof prov idin g t h e l o cal l oop t o transpo rtcu sto mers ’ lon g dis tanc e c all s t o IX C POPs

. Be ll’s EU CL re v enues are recorded i n i ts 5081 A cc ount. 13 See 47 C .F .R . § 32.5081 ( 2001)

. The EU CL charg e is paid byl ocal su bsc ri bers w hether any l ong di sta nce cal l is ac tual ly made or recei v ed.
B. Spe cial Access C har ges Bel l als o c harg es a fix ed month ly fee for ac ces s t o dedica ted t ele phone l ine s o r ci rc uit s i nst all ed by

Bel l w it hin the loc al ex chang e netw or k t hat a re us ed to transpo rtl ong dis tanc e c all s d irect ly

from c ust o m e rs t o the ir IX C POP. D edi cat ed l ine s t ra nspor t a cus tomer ’s l ong di sta nce cal l direct ly throug h Bel l’ s c entral off ic e to the I X C’ s P OP w it hout bei ng sw it ched. Be ll ’s rev enues from c ust omer acc ess to dedi cat ed l ine s i s acc ounted for in Acc ount 5083. See 47 C .F .R . § 32.5082 ( 2001)

. 14
C. Op erat or

A ssist ance C har ges Altho ugh B ell is prohibited f rom o f fering long distan ce tele pho ne se rv ice, Bell is perm itted to of

fer directory and ope rator assista nce to custo m e rs m a k in g long distan ceThe tax i n i ss ue rela ted t o Ac count5160. 1 i s $ 98,527. 49. 15 10 cal ls

. For

i nst ance, thes e charg es occ ur w hen a cus tomer loc ated in Tex as usi ng a Tex as pho ne facility

w hile placin g an in tersta te intraL AT A call d ials a B ell o pera tor for directory assistan ce or assistan ce to com plete t he long d istance ca ll. T he charges are pa y -per-use charges. T hese rev enu es are deposite d in Accou nt 51 60. 1. 47 C.F.R. § 32.5 160 (1995 ). 15
IV. Texa s’s F ran chi se T ax an d Cu rre ntC on trov ersy Tex as’ s franchi se tax

i s i mposed upon al l domest icand forei g n c or porati ons doi ng busi ness i n Tex as. § 171.001 . The g ra nti ng of the pr iv il eg e to transact bus ine ss i n Tex as confers e conomi c b enefits , i ncl udi ng the oppor tuni ty to re ali z e gross income and th e r ig ht to i nv oke the protec ti on of loc al law

. Bul lock v . N ati onal Bancshar

es Cor p., 584 S. W .2d 268, 270 ( Tex . 197 9) , cer t. denied , 444 U.S. 1016, 100 S.Ct. 667, 62 L.E d.2 d 64 5 (198 0). The Tex as franch is e tax i s a tax on t he v alu e of thi s p ri v il eg e. Id.
Dur ing ca len der

y ears 1 995- 2001, Bel l w as an LEC in a number of states i ncl udi ng Tex as. Be caus e Bel l condu cte d bus ine ss i nsi de and outs ide of Tex as, i ts f ra n ch ise t ax w as cal cul ated by an appor ti onment formula

. Its co mpany -w ide tax abl e c api tal ( net w orth) and t ax abl e ear ned s ur plu s ( net inc ome) w ere appor ti oned betw een Bel l’ s busi ness done in Te x as an d bu siness do ne e lsew here to obt ain a correct assessm ent of T exas fran chise taxe s . This calcula tion a nd th e resulting ef fect of having a larg er propo rtion of g ross receipt s f rom b usine ss don e in T exas may be state d as follows:11

Si mply des cr ibe d, “ net t ax abl e ear ned s ur plu s” i s d eter mined by ( 1) adj ust ing the a mo unto f

a co rporate t axpayer’ s f ede ral taxable incom e to yield “tax able ear ned s ur plu s,” ( 2) “ appor ti oni ng ” or

att ri buti ng the tax abl e earned sur plu s to Tex as; and (3 ) subt ra cti n g v ar iou s a ll ow abl e deducti ons from the appor ti oned t ax abl e ear ned s ur plu s. Tex . Tax Cod e Ann. § 17 1.110( a) (W estSupp. 2004)

. . . . Unde r tax

code se ctions 1 71. 106 and 171 .11 0(2), taxable ea rned surplus is to be “ appor

ti oned” to Tex as by mult ipl y ing itby a fra cti on, t he numerator of w hic h i s t he c or porati on’ s “ g ro ss recei pts from bus ine ss done i n thi s s tate, ” as deter m in e d u nder

se cti on 171. 1032, tax

co de, a nd th e denomi nator of w hic h i s t he c or porati on’ s “ g ro ss r e ce ipt s from i ts enti re bus ine ss ,” as det er min ed u nde r section 17 1.1 051 . Id. at §§ 171 .10 6(b), 17 1.1 10(a )(2). [footnote omit ted]. Thus , t he l arg er the cor porati on’ s “ g ro ss recei pts from busi ness done in thi s sta te,” the larg er the appor ti onment factor , an d the la rg e r p e rc e n t a ge o f

it s t a xa b le e a rn e d su rp lu s is su bje c tt o t h e f ra n c h is e t a x. Ander son- Cl ayton Br

os. Funer

al Hom e, Inc. v. Str ayhor n, 149 S. W .3d 1 66, 1 69 (Te x .Ap p.–Aust in 200 4, pe t. de nied ).
As in Ander

son- Cl ayton, the cent er of the presentdi sput e i s t he appo rt ion ment of Bel l’ s recei pts as either

T ex as or non- Tex as rec eip ts. If Bel l shows that more of its recei pts in any tax y ear w ere not“ g ro ss recei pts for b usi ness done in Tex as” or w ere s ubj ectto an ex empti on from appor

ti onment as Tex as rec eip ts, then the les ser the appor

ti onment fact or and c onseq uentl y

the les ser

percen ta ge of its tax abl e ear ned s ur plu s i s s ubj ectto the Tex as franch is e tax , i. e., Bell ow es les s s tate franch is e tax es. C onv ersel y , i f the oppos it e is tr ue, then the larg er the a ppor ti onment fact or

and the g re ater

i ts tax abl e ear ned s ur plu s subje ct to the Te x as f ranch ise tax. D o in g m o re busine ss in Te x as generally results in hig her franc his e tax es.Sect ion 17 1.1 032 of the T exas Tax Code w as de lete d i n 200 8. Nevertheless, 16 becau se thi s s tatut e w as appl ic abl e duri ng the per iod at is sue, w e w il l re fer to thi s s tatut e as “S ect ion 171. 1032" or “ § 171. 1032" t hroug hout thi s o pin ion for c onv eni ence.

12 The ear ned s ur plu s a ppor ti onment s tatut e i n exist e n ce be twe e n 19 9 5 -2 0 0 1 prov ide d tha t Te x as receipt s are f rom “bu siness do ne in T exas” as fo llow s: 171 .10 32. Determina tion o f Gross Receipts From Busine ss Done in th is Stat e for Tax abl e Ear ned Su rp lus ( a ) E x c e p tfo r

t h e g ro s s re c e i p t s o f a c o r p o ra t i o n t h a ta re s u bj e c tt o t he prov is ion s o f Secti on 171. 1061, in appor ti oni ng tax abl e ear ned s ur plu s, the g ro ss recei pts of

a cor porati on f ro m it s b usi ness done in thi s s tate is the sum of t he c or po rat i on ’ s rec ei pt s from : (1 ) each sal e of

t a n gib le personal proper ty i f the proper

ty i s d eli v ered or shi pped t o a b uy er

i n thi s stat e reg ardle ss of the F OB p oin t or anot her condi t i o n o f t h e s a l e , a n d e a c h s a l e o f t a n g i b l e p e rs o n a l p ro p e rt y sh ipp ed from thi s s tate to a purchas er i n an o ther

st ate i n w hic h the se ll er i s n ot subj ectto any tax on, o r measured by , neti ncome, w it hout re g ard to w hether the t ax i s i mposed; (2 ) each ser

v ic e per formed i n thi s s tate; (3 ) each re ntal of proper ty si tuate d i n thi s s tate; (4 ) each ro y alty

for t he us e of a pat ent o r copy ri g ht i n thi s s tate; and (5 ) other bus ine ss done in thi s s tate.
Sect ion 171. 1032. 16
In ad dit ion to thi s “ g ro ss recei pts ” sta tute, the Compt ro ll er had a d o p te d r u les that ex empted c ertai n tel ephone company recei pts from appor

ti onment as Tex as re cei pts for franch is e tax

pur poses . The Co mptroll er es tabl is hed t he foll ow ing e xem pti on w henFor co nv eni ence, thi s prov is ion w il l be re ferred to as “3 4 Tex . Ad min. C ode § 3.557 17 (1 992) ” throug hout the remaind er of thi s o pin ion

. This R ule w as amended in 2 003 t o further cl ar ify the Compt ro ll er ’s ex empti on. See 34 Tex . Ad min. C ode § 3.557( e) (3 9) (2 008) , as am ended , 28 T ex. R eg. 121 8 (Ef fective: Februa ry 12, 200 3). T he new Rule is prospecti v e i n i ts applica ti on and does not a ppy here. “A dju dic ati on deal s w it h w hat t he law w as; r ule maki ng deal s w it h w hat t he l aw w il l be.” Bowen v

. G eor getown U

niv er sity Hos pit al, 488 U .S. 204, 221, 109 S. Ct . 468 , 102 L.Ed .2d 4 93 ( 1988) ( Scal ia, J. , co n c u r rin g)

. See A m ar il lo Indepen dent Scho ol Di st. v. Meno , 854 S.W .2d 9 50, 9 58 (Tex .App. –Aus ti n 1993, w ri t. deni ed)

. 13 appor ti oni ng the tax abl e capit al ( net w orth) component of the f ra nchi se tax for t ele phone com pan ies as follows: Telephon e c ompany re cei pts

. Al l re cei pts for cal ls of a tel ephone company in Tex as are Tex as re cei pts , excep t for receipts from i nte rstate calls.
34 T ex. Admin . Code § 3.54 9(e)(43) (200 8) (emp hasis ad ded ).
The Co mptro lle r al so est abl is hed t he foll ow ing ex empti on w hen app orti oni ng the ear ned sur plu s (n et inc ome) componen t of t he franc his e tax for t ele phone c ompani es as follows: Telephon e c ompani es. Al l re v enues for telephon e c all s i n Tex as are Tex as receipt s exc ept f

or r evenu es fr

omca ll s i n i nter sta te c om m er

ce. 34 Tex . Ad min. C ode § 3.557( e) (3 9) , as adopted , 17 Tex . Reg . 7667 (1991) (effect iv e dat e: Nov ember

13, 1992)

. (e mphasi s a dded)

. These Rul es req uired th at “ [s] er v ic e recei pts 17 [be] appor

ti oned t o the l ocat ion w here the se rv ic e i s per formed.” 34 Tex

. Admin

. Cod e §§ 3.5 49(e )(38) (2008 ); 34 T ex. Admin . Code § 3.55 7 (199 2).14 Discus sion
Bel l cont ends that it s a cc ess and operator as si sta nce charg es are notsu bje ct to appor ti onment as “g ro ss recei pts f ro m busi ness done in [Tex as] ” beca use thes e ac ti v it ies do not consti tute “ ser

v ic e[s ] performed in this state. See § 171. 1032. Bel l als o c ontends thes e c harg es are ex empt f ro m appor ti onment as Tex as rec eip ts beca use they co nst it ute “receipts f rom int erst a t e calls” or “rev enu es f rom ca lls i n inte rstate comm erce.” See 34 Tex . Ad min. C ode § 3.549( e) (4 3) ; § 3.557( e) (3 9)

. Bel l next as ser ts that appo rt ion ing i ts acc ess and operator

as si sta nce charg es as Tex as re ceipts v iol ates eq ual protec ti on g uarantees bec ause Bel l does not recei v e preferenti al tax treat ment rec eiv ed by

IX Cs and transpo rt ati on c ompani es under the Compt ro ll er ’s R ule s. F ina ll y , Be ll co ntends thatthe tr ial co urt i mprop er ly

ex cl uded s ome of it s s ummary j udg ment ev ide nce. I. St and ard o f Rev iew
W hen , as here , parties f il e c ro s s-mot ions for sum ma ry judgmen t, ea ch pa rty

in supp ort of

its mo tion nece ssarily

t akes the p osition t hatt here is no genuine issue of fact in the c ase and t hat i t i s e n ti tl e d t o j udg ment as a mat ter of law

. City of Pflug erville v. Cap it al Metr opol it an Tr ansp. Aut

hor it y , 123 S.W .3d 106, 109 ( Tex .App. –Aus ti n 2003, pet. deni ed)

. W hen both parti es mov e for summar y j udg ment on the s ame i ss ues and t he tr ial court grants on e mo tion a nd d enie s the oth er, the review ing cou rt co nside rs the sum ma ry jud g ment ev ide nce present ed by both sid e s, and deter mines al l q uest ion s p re sent ed. Valence Oper

ati ng Co. v. Dor

sett , 164 S.W .3d 656, 661 (Tex

. 2005)

. See Com m issioners15

Cou rt of Titus C ounty v . Ag an , 940 S.W .2d 77, 8 1 (Tex. 1997 ). W hen the trial court’s orde r g rantin g sum ma ry judgmen t doe s not spe cif y the ba sis fo r the ruling, w e mu st af f irm summar y j udg ment i f anyof the su m m a ry ju dg ment g ro unds are mer it or iou s. W este rn Inv est m ents, Inc. v. U

re na , 162 S.W .3d 5 47, 5 50 ( Tex . 200 5)

. Here, the parties rely on sta tuto ry provi sions an d ad min istrativ e rules to sup port their ent itlem entto sum ma ry judgmen t. In general , m a t t ers of statu tory const ruction are q uest ion s o f lawrather than i ss ues of fact

. City of G ar lan d v . D all as Mo rn ing

News, 22 S.W .3d 3 51, 3 57 ( Tex . 200 0) ; Ber ry v. Sta te F

ar mMut. Auto Ins . C o. , 9 S.W .3d 884, 89 0 (Tex .App. –Aus ti n 2000, no p et.)

. Acc ordin g ly , w e rev iew the tr ial court ’s dec is ion to g ra nt summar y j udg ment de n ovo . Valence Oper ati ng C om pany, 164 S.W .3d a t 661

. II. Gro ss R eceip ts F ro m B usi ness D on e In T exas
W heth e r Be ll’ s a cc ess and operator as si sta nce charg es are s ubj ectto appor ti onment a s “ g ro ss recei pts from bus ine ss do n e i n T ex as” depend s, in par t, on w het her the y

constitu te “s e rvi ce[s] p erforme d in this stat e.” See §§ 1 71.103, 171. 1032. Acc ordin g ly , w e must det er mine w hether the ter m “ ser

v ic e” i ncl udes prov idi ng a c ust omer access to a com mu nicatio ns ne tw ork for t h e p u rp ose o f

comp leting long distance calls and/or operator

as si sta nce.16

A . Statutory

Interpretation
W e i nter pret s tatut or

y prov is ion s a n d a d mi n i s t ra t i v e r u les under tradi ti onal pr inc ipl es of stat utor

y co nst ru cti on. Rod

ri quez v. Ser vice Lloyds

Ins . C o., 9 9 7 S

. W

. 2 d 2 4 8 , 2 5 4 (T e x. 1999) ; G u lf

C o a s t C o a l it io n o f C it ie sv. P u b l

ic Ut i l it y C o m’n , 161 S.W .3d 7 06, 7 12 (Tex .App. –Aus ti n 2005, no pet.)

. Our pr imar y obj ect iv e is to as cer

tai n and g iv e effectto the L eg is lat ure’s int ent. Tex . G ov ’tC ode An n. §§ 312. 005 ( Ver non 200 5)

. See T exas D ep t. o f Pr

otec ti v e an d R eg ul

ator y S e rv ic es v. Mega Child Care , 145 S.W .3d 1 70, 1 76 (Te x . 200 4).
To dis cer n the Leg is lat ure’s int ent, w e beg in w it h the p lai n and common meani ng of the s tatut e’s w ords. Tex . G ov ’t Cod e Ann. § 312.003 (V er non 2005)

. See Tex as Dep t. of T ra nsp. v. City of S unset Val ley , 146 S.W .3d 637 , 642 (Tex. 2004 ). If a sta tute uses a ter m w it h a p arti cul ar

meani ng or

as si g ns a par

ti cul ar meanin g to a ter m, w e are bound by the s tatut or

y us ag e. Tex

as Dep ’ t of T ra nspor tati on v . Needham , 8 2 S

. W

. 3 d 3 1 4 , 3 1 8 (T e x. 200 2). If a statu te i s una mb iguous, w e mu st ado pt the interp retat ion suppo rted by its plain la ng uag e unl ess su ch an i nter pretati on w oul d l ead t o abs urd resul ts. Me g a C h i ld Car e, 145 S. W .3d a t 177

. W e mustalso cons ide r the stat ute as a w hol e rather than i ts is ola ted prov is ion s. City of S unset Val ley , 146 S.W .3d at 643; City of C anyon v. F ehr , 121 S. W .3d 899, 905 ( Tex .App. –Amar il lo 2003, no pet .)

. If there is va g uenes s, ambig uity , or room for pol icy dete rmi nati ons in a s tatut e or re g ula ti on, w e nor mall y defer to t he ag ency ’s i nter pretati on unl ess i t is pla inl y er ro neousCompt ro ll er of Publ icAc counts, Sta r Sy ste m Acc ess ion N o. 83 0R0 687A12 18 (E ff ect iv e: M ar ch 30, 1983)

. The Stat e Tax Aut omated R esearch (S TAR) Sy ste m may be acc ess ed at : http ://ww

w .w indo w .stat e.tx.us/ta x info/f ranch ise

.

17 or i ncons is tent w it h the l ang u a ge of the sta tute, reg ula ti on, o r ru le. G ulf C oast C oal it ion of Cit ies v. Publ ic Uti lity Com ’ n, 161 S.W .3d 706 , 712 (Tex.App .–A u s t in 2 005 , no pe t.). If a sta tute can be re asona bly re ad as the ag ency has ru led , and thatreadi ng i s i n har mony w it h the restof

the sta tute, then w e are bound to acc ept t he ag ency ’s i nter pretati on ev en if othe r re asona ble i nterp re ta ti o n s e x is t. Ber ry , 9 S. W .3d a t 893

. Mo re ov er , rev enue measures are l ibe ra ll y

constr ued to ef

fectuate thei r pur pose w hic h i s t o s ecure the pay ment of the ta x es lev ied therein

. Isb ell v. Gul f U nio n Oi l Co. , 147 Tex. 6, 209 S. W .2d 7 62, 7 64 (1 948) ; Steak

ley v. West T

ex. Gul f Pi p e Li ne C o. , 336 S.W .2d 9 25, 9 28 (Tex .C iv .App. –Aus ti n 1960, no w ri t)

. B. Serv ice
The Franchi se Taxs ta tu tes nei ther ex pla in nor

define the a mbig uous phrase, “b usi ness done in Tex as” ; see Humble Oil & Refining Co. v. Calvert , 414 S.W .2d 1 72, 1 80 (Tex . 196 7) , or

the ter m “ ser

v ic e.” H ow ev er , reg ardin g tel ephone compani es, the Com ptroller ha s interpret ed th e ph rase “busin ess w ithin th is state” to includ e “f ix ed p eriodic acc ess and eq uip ment c harg es for eq uip ment l ocat ed i n Tex as w hether us ed for int ra sta te or i ntersta te c ommunic ati ons” ; C omptroll er Rule 3.56 ( 1983) ( emphasi s a dded) , and has 18
cons is tentl y

i nter preted acc ess ch arg es for th e use of loc al tel ephone netw or ks and facilities to be charges for rende ring a “serv ice.” See C o m ptroll er Lett er R uli ng ( 1989)ST AR Accession No. 890 1L0 929 D04 (Janu ary1, 198 9). 19 STAR Acc ess ion N o. 94 03L1354G 06 ( Ma rc h 25, 1994)

. 20 ST AR Accession No. 980 349 4L (March 6, 19 98). 21 “A lt houg h opi nio ns o f t h e A ttorney

Gene ra l are merely

adv is or y and not b ind ing 22 on the co urts, they

are ent it led to careful c onsi derati on” ; W elm aker v. C uel lar , 37 S.W .3d 550 , 552 (Te x .Ap p.–Aust in 200 1, pe t. de nied ), and a re “hig hly persu asive.” Pl ain vi ew Indepen dent Scho ol Di st. v. Edm onson Wheat Gr owers, Inc. , 681 S. W .2d 2 99, 3 02 (Te x .Ap p.–Am arillo 1984 , w rit ref ’d n.r.e. ). Bel l depos it s E UC L rev enues i n F CC denomi nated acc ounts des ig nated as 23 “network access accou nts.” 47 C.F.R. § 4 9 9 9 9 (i ) (19 95). “Netw ork Access Acco unt s” i n c l u d e “ re v e n u e s d e r i v e d fro m t h e p ro v i s i o n o f excha nge a ccess services to .

. . an end user o f t eleco mm unica tions se rv ices beyond the exchan ge carri er’s network.” Id

. (emp hasis ad ded ). 18 (a cc ess ch arg es are for int ra sta te s er v ic e- -for ac ces s t o the l ocal networ k) ; C omptroll er 19 Let ter Ruling ( 199 2) (payment s mad e in return “for a ccess to loca l networks or for the u se of l ocal facil it ies are cons ide re d Tex as re cei pts ); Compt ro ll er Lette r Ruling (1 998) 20 (p ro v idi ng faci li ti es for acce ss to compl ete l ong di sta nce cal ls i s a se rv ic e)

. I n fact, as 21
ear ly as 1952, the Atto rn ey Gene ra l re ferred to “recei pts from l oop s er v ic es and from charg es re cei v ed .

. . for t he us e of [ tel ephone] li nes, eq uip ment or facil it ies in Tex as” as “s er v ic es. ” Op. T e x. Att ’y Gen. N o. V -1 383, 7 ( 1952)

. Si mil ar ly , t he F CC cl ass ifies 22
ex chang e ac ces s a s a “ ser v ic e.” 23
I nter pretati ons of the ter m “s er v ic e” bythe Compt ro ll er comportw it h its co mmon meanin g ; M er ri am-W ebst er ’s C oll eg iat e D icti onar y 1137 (1 1 Ed. 2003) ( “d is posal for

th“D is posal ” means “t he pow er or a u thori ty

to dis pose or

make use of as one 24 choo ses.” Merri

am -W ebster’ s Collegiate Dictionary at 36 1. Tex as Publ icU ti li ty

Commis si on def ine s the term “s er v ic es, ” in per

ti nent par

t, as 25 follows: Has its broad est an d mo st inclusiv e m ean ing. The term includ es an y act per formed, a nythi ng su ppl ied , and any fa cilities used or sup plied b y a pub lic uti lity in the p er

for m ance of the util

it y’ s duties . . . to its patr

ons . . . and t

he pub lic

. The ter m also inc lud es the i nterchang e or faci li ti es betw een tw o or more publ icuti li ti es. . . . 26 Tex . Ad min. C ode § 23.3- 5 ( 2008) ( emphasi s a dded) , as adopted , 23 Tex

. Reg . 932 2 (E ff ect iv e dat e: S eptember 16, 1998)

. Similar inte rpretat ions ha v e be en a pplied bycourts in litig atio n i nvolv ing Public 26 Ut il it ies C ommis si on orders; Al lc om mLong Di

sta nce, Inc ., 902 S.W .2d at 664 (a c c ess ser v ic e i nv olv es use of t h e L EC ’s l ocal ex chang e tel ephone netw or ks to conne ct lon g dis tanc e c all s) , and tar iff li ti g ati on. See S outhwes ter n Bel l Telephone Co. v. Metr o- Lin k Telecom , 919 S. W .2d 6 87, 6 90 (Tex .App. –Ho ust on [14 Dis t.] 1996, w ri t denied) (use of th loc al netw or k t o prov ide l ong di sta nce ser v ic e ter med an a cc ess se rv ic e) ; AT& T Com m unicat

ion s o f t he Sou thwest

, 906 S.W .2d at 213 n.6 (Bell’s Sta te Acce s s S erv ice T arif f include d en d use r access charges). As direct or

of acc ess reg ula tor

y , Be ll ’s represent ati v e tes ti fied th at he deal t w it h 27 the FCC a n d va rious state pub lic serv ice com mission s on issues relat ed to “access serv ices, inte rstate , and state access servi ces.” 19 use” ), an d the defini ti on adop ted b y the Tex as Leg is lat ure reg ardin g ac ces s a cti v it ies 24 cond ucte d by pub lic utilities such as Bell. See Tex . U ti l. C ode An n. § 51.002( 5) ( Ver non 25 2007) (“ ‘Lo cal ex chang e tel ephone ser v ic e ’ means . . . conne cti ons betw een a cus tomer prem ises and a long distan ce provider serv ing the exchange.”) Moreover, t h e re c o rd 26
re flect s t hat B ell ’s co rp orate represent ati v e and direct or of acc ess reg ula tor

y tes ti fied on 27 d e p o s i t i o n t h a t“ [ a ] c c e s s i s t h e p ro v i s i o n o f ser vice g enerall y to car ri ers fo r tra n smiss ion of v oic e and data w it hin a LATA.” (e mphasi s added)

. He al so ag re ed in deposi ti on th atThe ter m “ operator se rv ic e” i s d efined as “ [a] ser v ic e us ing a l ive o p erator or 28 automate d operator functi ons to handl e tel ephone ser v ic e s uch as tol l cal li ng us ing co ll ect , thi rd number

bi ll ing , and ca ll ing ca rd se rv ic es. ” Tex . U ti l. C ode An n. at§ 55 .081. The ter ms “ tol l cal l” and “l ong di sta nce cal l” are i nterch a n gea b le. S e e Me r r i a m- W e b s te r ’s Collegiate Dictiona ry at 13 15; (“ toll: a cha rg e for a long-distance telep hon e call”). 20 all gross receipt s at issue i n the und erly ing law suit w ere revenue s Bell receiv ed a s a result
o f ha ving re gul a te d rat e s a n d pro vidi n g tar if f s er vices . Inter preti ng the ter m “s er v ic e” to inc lud e operat or as si sta nce als o c omports w it h i ts common meani ng ; Merriam -W ebster’ s Co llegiate Dictionary at 11 37 ( to he lp, us e, be nefit, cont ri buti on to the w elfare of othe rs ), as w ell as the defini ti on s uppl ied by the Tex as Leg is lat ure i n the area of publ icutil ity reg ula ti on rel ated to t ele phone c ompani es. See T e x. Util. Code An n. § 55 .08 1 (Verno n 20 07). 28
Acc ordin g ly , w e find that the t er m “ ser v ic e” i ncl udes prov idi ng ac cess to a communi cat ion s n etw or k for the pur pose of compl eti ng l ong dist ance cal ls and/ or operator assistan ce. T h is d e f inition co mp orts w ith the Comp troller and Attorn ey Gen eral’s int er pretati ons, the ter m’s co mmon meani ng and it s t echni cal meani ng , i f any ex is ts, i n the t e le p h o n e in d u s t ry. T he Com ptroller’s Franchise Ta x Rules provi de th at “[s]ervice receip ts are appor ti oned t o the l ocat ion w here the se rvice is per formed.” 34 Tex . Ad min. C ode § 3.557( e) (3 3) ( 2008)

. “W here ‘ the act i s d o n e’ deter mines the g eog ra phi cal ch aract er of
re cei pts der iv ed from t he per formance of a serv ic e.” Tex . C omp. Pu b. A cc ’t s H ear ing N o.21

1 0 ,0 2 8 , 18 0 W L 5 4 6 6 a t *5 (No v. 27 , 1 9 8 0 )(qu o ti n g Hum bleOi l, 414 S. W .2d a t 180

. And “recei pts from t he s ale of ser v ic es must be app o rt io n ed to the loc ati on of the ser v ic es. ” Wes tcot t Com m unica tions, Inc. v. Strayh orn , 1 0 4 S. W .3 d 14 1 , 1 4 6 (T e x.A p p .–Au stin 2003, pet. deni ed)

. The record es tabl is hes thatthe acc ess and operator as si sta nce ser

v ic es under ly ing thi s a ppeal w ere re q uest ed by Bel l’ s cus tomers loc ated in Tex as w ho w ere the n s er v ic ed by Be l l ’ s n etw or k , fac i l i ti es , an d/ or p ers on ne l a l s o l oc at ed i n Tex as . A s s uc h, t hese “tra nsact ions be gin and en d in T exas.” See B ull ock v. Ens er

ch, 614 S. W .2d 2 15, 2 17 (Tex .C iv .App. –Aus ti n 1981, w ri t ref’d n. r. e.) , cer t. denied, 455 U .S. 946, 102 S. Ct . 144 5, 71 L. Ed.2d 659 ( 1982)

. Acc ordin g ly , w e find as re asona ble the Compt ro ll er ’s i nter pretati on tha t the se revenues a re f rom “servi ces pe rforme d in this Sta te,” an d represe nt “gross re cei pts from busi ness done in Tex as. ” Nev erthel ess , this dete rmi nati on does not end our ana ly sis. W e mu st next det ermin e w het her the Com ptroller’s Rules exemp t Bell’s access and ope rator assista nce ch arges fro m ap portio nm entas “g ros s receipts f rom b usine ss done i n Tex as. ” W e find that they do n ot.
III. Franchis e Tax –A pportionment Exemption
Altho ugh Bell’s access an d ope rator charges are subject to ap portio nm entas “g ross receipt s f rom b usine ss don e in T exas,” they ma y be exemp t f rom su ch ap p o rt io n m e n t if they are recei pts from “ int ersta te c all s” or “ re v enues from c all s in i ntersta te c ommerc e.” See 34 T ex. Admin . Code § 3.5 49 (43) (200 8); 34 Tex. Adm in. Code § 3.55 7 (39) (199 2).22

Acc ordin g ly , w e mustnext det er mine w hether Bel l’ s a cc ess se rv ic e and operator ch arg es re present“ re cei pts from i ntersta te c all s” or “ re v enues from cal ls i n i ntersta te c ommerc e.”
A . Administra tiv e Rule Interpreta tion It is a long-standin g rule t h a te xem ption s f rom ta x ation are subje ct to strict cons tr uct ion be ca u se theypl ace a g re ater burden on other

tax -p ay ing bus ine ss es and ind iv idu als rather

than placi ng the burden on all tax pay ers e q ual ly

. Cor dil ler a R anch, Ltd. v. Kendal

l Cou nty Appr ais al Di st. , 136 S.W .3d 2 49, 2 53- 54 ( Tex .App. –San A ntoni o 2004,
n o pe t. ) (cit in g Nor

th A lam o Water Suppl

y C or p. v . Wil lac y C ounty

Appr ais al Di st. , 804 S.W .2d 8 94, 8 99 ( Tex

. 1991) ). As su ch, tax ex empti ons are “ the a nti thes is of eq ual ity and uniformity,” Hi

lltop V il lag e, Inc. v. Ker

rv il le Indepen dent Schoo l Di st. , 426 S.W .2d 9 43, 9 48 (Tex . 196 8) , and ca nnot be rai sed by i mpli cat ion

. Bul

lock v . Nati onal Bancshar

es Cor p. , 584 S.W .2d 268, 272 (Tex . 197 9) , cer t. denied 444 U .S. 1016, 100 S. Ct . 667 , 62 L.Ed. 2d 645 ( 1980)

. Ex empti ons must aff ir mati v ely appear and all doubts are resol v ed in fav or of the t ax ing auth or ity

and ag ain st the c lai mant. Id.
T he b urde n of

proof is on the pe rson cl aim ing the exemp tion to clearly show tha t it comes w it hin the sta tutor y ex empti on; id; USA W aste S e rvices of Housto n, In c. v. Str ayhor n, 150 S. W

. 3 d 4 91, 495 (Tex.App .–A ustin 2 004 , no pe t.), and , altho ugh w e are n o tb o u n d b y t h e Co m p t ro ll e r’ s i n t e rp re t a t io n , t h e Co m p t ro ll e r’ s a d m in is t ra t ive int er pretati on of ambi g uous lan g uage in a rev enue s tatut e i s e nti tl ed to our respect and due w eig ht. R

y la n de r v . F i s h e r C o n t

r o l s In t ’l , 45 S.W .3d 2 91, 2 99 ( Tex .App. –Aus ti n 2001,EU CL and Sp eci al Acc ess ch arg es are N etw or k A cc ess Rev enues ; 47 C .F .R . § 29 32.4999 (i ) (2 001 ), “ d er iv ed from t he prov is ion of ex chang e ac ces s s er v ic es to an int erex chang e c ar ri er

or to an end user

of tel ecommuni ca ti ons ser v ic es bey ond t he exchange carrier’s netw ork.” Id. As such, both EUCLs and Specia l Access charges are subj ectto the s ame anal y si s h ere. 23 no pet .) ; Quor

umSales, Inc . v

. Sh ar p, 91 0 S. W .2 d 59 , 64 ( Tex .A pp .– Au s ti n 19 95 , w rit deni ed)

. Fur

ther more, an a g ency ’s i nter pretati on of its r ule es sent ial ly bec omes a par

t of the rule i t s e lf

b ecau se the agency’ s interpret ation represen ts the v iew of the regulato ry body that drafted and admini ste rs the r ule

. BFI W aste Syste m s of North Am erica, Inc. v. Ma rt ine z Env ir onm ental

Gr oup, 93 S. W .3d 5 70, 5 75- 76 ( Tex .App. –Aus ti n 2 0 0 2, pe t. d e n ied ); H. G. Sledge, Inc . v . Pr ospec ti ve Inv

. & Tr adi ng C o. , Ltd. , 3 6 S

. W

. 3 d 5 9 7 , 604 (Te x .Ap p.–Aust in 200 0, pe t. de nied ).
B. Access S erv ice C har ges 29
Bel l ass erts that it s rev enue f ro m acc ess charg es is ex empted b ecaus e the ch arg es ar e for “ i n t e rs t a t e c a l l [ s ] ” o r “ c a l l [ s ] i n i n t e rs t a t e c o mm e r c e . ” B e l l c o n t e n d s t h at i ts inter preta tion is consiste nt w ith an alogous T exas pipeline cases inte rpreting the ph rase “b usi ness done in Tex as” and federal co mmon la w i nter preti ng the Commerce Cl ause, i. e., w hat c onst it u te s intersta te c ommerc e. Bel l als o as ser ts that prov idi ng ac ces s for an intersta te, lon g distan ce call is insep arab le f rom the call itself beca use th e call is technica lly an uni nter ru pted transmi ss ion ac ro ss st ate l ine s and Bel l’ s loc al loo p is nec ess ar y to theBel l does not c hal len g e the co nst it uti onal ity of appl y ing the franchis e tax to it s 30 acc ess ser

v ic e re v enues . The Tex as franch is e tax is consti tuti onal ; Ford Motor Co. v. B e a u c h a mp , 308 U.S. 331 , 3 3 4-35 , 60 S. Ct. 273 , 84 L. Ed. 304 (1939 ), and sta tes are p e r mi t t e d t o t a x t e l e p h o n e c a l l s t h a t o r i g i n a t e o r t e r mi n a t e w i t h i n a s t a t e . G o ldb e rgv. Sweet , 252 , 264, 109 S.C t. 582, 102 L. Ed.2d 607 ( 1989)

. See Complete Auto Transit, Inc. v. Br ady, 430 U.S. 274 , 279 -80, 97 S.Ct. 10 76, 51 L.E d.2 d 32 6 (197 7). 24 or ig ina ti on and ter minat ion of suc h c all s. Ac cordin g ly , t he v ali dity of Bel l’ s a ss erti on hi ng es upon w hether

i ts acc ess se rv ic e rev enue i s rev enue f ro m int ersta te cal ls or c ommerc e. 30
1. 1933- 1952 – Earl y A tt or ney Gen eral Op in io ns Our anal y si s b eg ins w it h tw o At tor ney Gene ra l Opi nio ns both of w hic h address the issue before us prior to the ado ption of the Com ptroller’s Rule exemp ting interstate calls in 1975. In Janua ry

1940, the Atto rn ey

Gene ra l w as ask ed for a deter minat ion w hether the g ro ss recei pts of domest ictelephon e companie s f ro m int ersta te cal ls w ere s ubj ectto the T ex as g ros s rec ei pt s t ax . O p. Te x . Att’ y G en . N o. O
- 18 78 , 1 ( 19 40 )

. Th e do me s ti c com pan ies ope rated w holly w ithin T exas and pro v ided long distance s e rvi c e to th eir cus tomers. They

transmi tted int ersta te l ong di sta nce cal ls ov er thei r li nes to the Tex as border w here the ir cal ls w ere pic ked up by another company w ho transmi tted the c all s t o an o ut-of-state recipient. The dom estic com pan y w as pa id for the u se of their lines w ithin T exas, and the ou t-of-state comp any w as pa id a com mission for com pletin g the call outs ide Tex as. Id. at 2. I n det er mini ng thatthe charg es w ere “ int ersta te” i n nat ure and not subj ectto sta te t ax , t he Attor ney Gene ra l sta ted:25

Und er the facts here, the “g ro ss recei pts ” soug ht to be tax ed, w ere der iv ed not from tol ls on c all s o ri g ina ti ng and endi ng w it hin the confine s o f the St ate of Tex as, but ra ther

from t oll s o n c all s or ig ina ti ng in Tex as and t er minat ing in other st ates , or v ic e v ersa, – in other w ords, i n i ntersta te c ommerc e. The fact th at t he te lep hone c ompany i n q uest ion recei v es onl y such p a rto f the tolls as represe nts pa y me nt for the facilities and se rv ices f urnishe d by i t in transm itting th e call f rom or t o the b orde rs of the St ate doe s not pre v entsuch re cei pts from bei ng st amped w it h the i ntersta te c ommerc e feature. Id. at 4.
In J anuar

y 1952, the Att or ney

General w as ask ed for a det er minat ion w hether the g ro ss recei pts of a domes ti c tel ephone company f ro m cal ls that w ere routed f ro m poi nts in Tex as throug h N ew

M ex ic o and back

to Tex as w ere s ubj ectto the Tex as g ro ss recei pts tax

. Op. Tex

. Att’ y Gen. No. V- 1383, 1 (1 952)

. The Atto rn ey General deter mined that the cal ls routed throug h New Me x ic o had to be “ treated as transacti ons cons ti tuti ng i ntersta te commerce” ; id. at 5, and opi ned t hat t he g ro ss recei pts tax w as ina ppl ic abl e bec ause the tax w as not appor

ti oned betw een t he i ntersta te an d i ntrast ate s eg ments of the c all

. Id. at 6- 7. T h e 1952 Opi nio n al so ind ic ated that, i f there w as appor ti onment, acc ess se rv ic es coul d be subj ectto a s tate tax as foll ow s: Al thoug h the g ro ss receip ts der iv ed from t he i ntersta te bu si ness are not subj ectto thi s t ax , t hat p orti on of the re cei pts represent ing w hol ly i ntrast ate busin ess w hich can be sep arate d or segregated f ro m t h e g ro ss receipts is subj ectto the t ax . 51 Am. Jur . 777 , 779 , 804 , Tax ati on, S ecs . 872 , 874, 907, 908 . Th erefore, th e receipt s f rom “loop serv ices” and f rom ch arges re cei ved und er contra cts or agree m ents for the use of lines, equ ipm ent o r facilities in Texas are s ubj ectto the tax ev en thoug h s uch ser v ic es maybe i nci dental to an i ntersta te c ommunic ati on. [ ci tati on omi tted]

.See also M e mph is Natur al Gas C o. v . St one , 335 U .S. 80, 9 3, 95 -9 6, 68 S.C t. 31 147 5, 92 L.Ed . 183 2 (194 8) (state f ranch ise tax on a gas pi p e li n e com pan y inv olved in int ersta te c ommerc e for loc al act iv it ies su ch as “mai ntai nin g , k eepi ng i n r epai r and mannin g faci li ti es used to transpo rtg as uphel d as “ doi ng bus ine ss ” in Mi ss is si ppi ); Ut ah Power & Light

Co. v. Pfost , 286 U.S. 165 , 182 -83, 52 S.Ct. 548 , 76 L. Ed. 103 8 (193 2) (A “t ax may ind irect ly

and inc ide ntal ly

affectsu ch commerce, j ustas any tax ati on of rail ro ad and telegraph line s doe s, butthis is not a forbidd en b urde n or interferen ce.”)
26 See i d. (Emph asis add ed). 31
The defini ng di ff erence betw een t he tw o Opi nio ns is that , i n the 1940 Opi nio n, t he At t o rn e y G e n e ra l is d e s c ri b in g a se rvi c e co n t ra c tt h a tre qu ir e s t ra n s m is s io n b e twe e n two st a te s fo r it s co m p le ti o n , a n d in th e 19 5 2 Op in io n , t h e At to rn e y Gen e ra l is d e sc rib in g a serv ice cont ract tha t is fu lly performe d w ithin T e xa s . I n the 19 40 Op inion, the do me stic tel ephone compani es offered i ntersta te lo n g di sta nce ser v ic e to thei r cus tomers a nd transm itted calls across state line s to com plete the lon g distan ce serv ice. Op. T ex. Att’y Gen . No. O-187 8, 1 (19 40). Beca use co mp le t io n o f the service ow ed b y

the do me stic tel ephone company

w as int ersta te i n nat ure, it s rev enues w ere c ons ide re d der iv ed from int ersta te c ommerc e. Id. at 4.
In th e 19 52 Op inion, the Attorne y Gene ral recogniz ed th at, a lthou gh the do me stic tel ephone company ’s ca ll s w ere int ersta te transacti ons, a por ti on of i ts re cei pts w oul d be tax abl e as Tex as re cei pts i f the s tate’ s tax apporti oned the company ’s “recei pts from ‘ loo p s e r v i c e s ’ a n d fro m c h a rg e s re c e i v e d u n d e r c o n tracts or agree m ents for the use of lines, equi pm ent or facil

it ies i n T exas .” Op. Tex . Att’ y

Gen. N o. V -1 383, 6- 7 ( 1952)

. In t he 1952STAR Acc ess ion N o. 72 08H 1005C 09 ( Febr uar y 2, 1972)

. 32 Compt ro ll er

of Publ icAc count s, STAR Acc ess ion N o. 76 03R 0198E10 ( Effect iv e: 33 March 24, 197 6). Compt ro ll er

of Publ icAc count s, STAR Acc ess ion No. 7905R1 012D 02 (Effecti v e: 34 May1, 197 9). 27 Opinio n, th e Atto rney General did n ot de scribe a con tract for a serv ice to be deliv ered in ano the r state bu t a cont ract for the u se of facilities and /or equipm entlocate d in T exas. 2. 1972- 2000 – Co mp trol ler’ s R ul es an d Pol icies
In 19 72, t he C omptroll er adopted an adj udi cat or y r ule that“ re v enues from i ntersta te toll charges are no t ‘busine ss don e in T exas.’” See Com ptroller Hearing No. 558 7 (197 2). 32 In H ear ing N o. 5587, four telephon e companie s soug ht a re fund of f ra nchi se tax pay ments deter mined by

apporti oni ng ch arg es from thei r lon g di sta nce tel ephone ser v ic e as Tex as re cei pts

. Al l the t ele phone c ompani es prov ide d bot h l o ca l a nd l ong di sta nce ser v ic e to thei r cus tomers. After

consi der ing the 1940 an d 1952 Opi nio ns and rele v ant c ase law , t he Com ptroller he ld tha t “[r]ev enu es f ro m i n t e rstate toll charges are not ‘bu siness do ne in Tex as. ’” I n 1975, the Compt ro ll er adopt ed a Franchi se TaxR ule i denti cal i n i ts impor t t o the R ule appl ic abl e here, i. e., “ [r ]ec eip ts of a telepho ne company i n Tex as from i ntersta te calls are notTe x as receipt s.” C om ptroller Rule 3.5 1 (197 6). Acc or d Com ptroller Rule 33 3.4 03(c)(2) (1979 ). 34Compt ro ll er of Publ icAc count s, STAR Acc ess ion N o . 8 3 0 R06 87A12 (E ffect iv e: 35 March 30, 198 3). STAR Acc ess ion No. 8901L0929D 04 (Ja nuar y 1, 1989) . The Comptroll er ’s Lett er 36 Rul ing al so ind ic ated that, due to prev iou s cor re spond ence from the Compt ro ll er ’s off ic e, Bel l mig ht ha v e been mis led as to w hether the Compt ro ll er

v iew ed ac ces s s er

v ic e c harg es as charg es for an int ra sta te or i ntersta te service . The Compt ro ll er made t he foll ow ing conc ess ion : T here fore, w e w ill not set up the access charges in Accou nts 50 8 or 509 in the audi ts w e hav e i n prog re ss . However, this lette r should p ut youon no tice tha t we conside r this to be a ta xable receipt, and for franch ise tax pu rpose s, includ able i n thenext t

ax re tur n due on J une 15, 1989. (e mphasi s a dded)

. 28 In 19 83, t he C omptroll er adopted a Franchi se TaxR ule si mil ar to the 1 952 O pin ion as follo w s: “ [b]us ine ss w it hin thi s sta te als o i ncl udes fix ed per iod icac ces s a nd eq uip ment charg es for eq uip ment l ocat ed i n Tex as w hether us ed fo r intrast ate o r int ersta te com mu nicatio ns.” See Compt ro ll er R ule 3.56 ( 1983)

. An d, i n c onformi ty therew it h, t he 35 Compt ro ll er

respon ded t o a req uestby Bel l for c lar ific ati on i n 1989 w it h a L etter R uli ng sta ti ng : “acc ess charg es [are] for intrast ate ser

v ic e, for ac ces s t o the l ocal networ k b y the lon g di sta nce carr ier

. These are notch arg es for i ntersta te s er v ic e prov ide d by Sou thwestern Be ll.” Com ptroller Le tter Ruling (1989). 36
In th ree succe ssiv e Le tter Rulings, t he Com ptroller adh ered t o its p olicy thataccess ser v ic e c harg es for us e of a te lep hone company ’s local netw or k and faci li ti es w ere Tex as re cei pts

. C omptroll er

Lett er R uli ng ( 1998) ; C omptroll er Lett er R uli ng ( 1994) ; C ompro ll erSTAR Acc ess ion N o. 98 03494L (M arch 6, 1998) ; STAR Acc ess ion N o. 94 03329L 37 (March 25, 19 94); ST AR Accession No. 920 3L1 230 G09 (M arch 19 , 199 2). STAR Acc ess ion N o. 20 0011027H ( Nov . 14, 2000)

. 38 Be ll co n te n d s t h e Co m p tr o lle r sh o u ld ha ve a d o p te d a ru le to th is e f fe ctth ro u gh 39 formal ru le maki ng rather than us ing an ad h oc method s uch as adj udi cat ion

. See T exas Ass ’ n of Long D is tanc e T

elephone C om

panie s (TEXA LTE

L) v. Publ

ic Uti lity Com ’ n of 29 Lette r Rul ing ( 1992)

. Thus, si nce the adopti on of Franchi se TaxR ule 3.56 i n 1983, the 37 Com ptroller con sistent ly treate d acce ss charges as intrasta te services—Te x as receipt s. How ev er , i n 2000, the C omptroll er di fferenti ated betw een t he appo rt ion ment of access ch arges paid by IX Cs and EUCLs for f ranc h is e t a x p urpo ses f inding tha t access charges paid to LECs by IX Cs w ere no n-T exas receipts w hile acce ss charges paid to LE Cs by end users, EU CLs , remaine d Tex as re cei pts

. See Tex . C omp. Pu b. A cc t’ s. Hea ri ng N o. 35,677 (2 000)

. I n an ear li er unrel ated proceed ing , H ear ing N o. 35 ,677, the Compt ro ll er 38 deter mined that, under a l ite ra l transl ati on of R ule 3.55 7( e) (3 9) , ac ces s c harg es pai d by IX Cs to LEC s w ere “rev enue fro m an i ntersta te t ele phone c all ” becau se IX Cs i ncur re d an acc ess charg e w hen an act ual i ntersta te t ele phone c all w as made, i.e., th e ac ce ss ch a rge w as based on the intersta te minutes of use of the LEC ’s netw or k by

the IX C. *19- 20. On the o ther h and, the C omptroll er

dete rmi ned EU CLs pai d by end users t o LEC s w ere not “r e v e n u e fro m a n i n t e rs t a t e t e l e p h o n e c a l l ” b e c a u s e L E C s b i l l e d E U C L s e v en i f no in t e rs t ate telep hon e call w as ma de b y or to the cu stom er, i.e., t h e E U C L w a s a fi x ed charge to all telep hon e custo me rs to co mp ensa te LECs for u se of t he netw ork t o be a ble to pl ace and recei v e i ntersta te t ele phone c all s. *19- 20. 39Texas , 7 9 8 S .W .2d 8 75, 8 87 ( Tex .App. –Aus ti n 1990, w ri t den ied ) (a n ad h oc ru le is “ an

ag ency st atement that int er prets , i mplement s, or presc ri bes ag ency law or pol icy ”)

. The Co m p tr o lle r h a s dis cre ti o n to en gage in fo rm a l ru le -m a kin g and “the pow er

to enforc e s tate tax co ll ect ion st atute s d ue to chang es in the cons ti tuti on or law s of the U nit ed St ates and jud ic ial int er pretati ons thereof.” § 11 1.002 (a ). Thus, the Compt ro ll er had dis creti on to p ro c e e d b y ge n e ra l r u le o r b y ad h oc adj udi cat ion

. S ee City of E l Pasov. P u b lic Uti

lity Com ’ n of Tex as , 883 S. W .2 d 1 7 9 , 188 ( Tex . 199 4) ; South Pl ain s L am esa Rai

lr oad, Ltd. v. Hi gh Pl ain s U nder gr ound Water

, 52 S.W .3d 7 70, 7 82 ( Tex .App. –Amar il lo 2001, no pet .) (Q uin n, J ., conc ur ri ng ) (c it in g Se curities and Exch. C om m ’ n v . Chener y C or p. , 332 U .S. 1 9 4 , 2 0 2 , 6 7 S

. Ct

. 1 5 7 5 , 9 1 L

. E d

. 1 9 9 5 (1 9 4 7 ))

. G ive n t h e n e wly cr e a t e d c o m p e t i t i ve mark ets i n the tel ephone ind ust ry i n the 1980s and 1990s l arg ely due to ev olv ing tec hnol og ic al adv ances co upl ed w it h th e c re a ti on of new federal and sta te teleco mm unica tion regulato ry r e gi m es cha rg ed wi th ba lancing com pet ing statuto ry obj ect iv es, w e c annot say the Compt ro ll er abuse d hi s d is creti on here by proceed ing on a n ad h oc or

“ cas e- by -c ase” bas is

. S e e S o u t h we s te r n B e l l T e l

. C o . v. P u b l

ic Ut i l

. C o mm ’n , 745 S.W .2d 918 , 926 -27 (Te x .Ap p.–Aust i n 19 88 , w rit denied ). M oreo v er, the Comp troller’s pol icy rela ted t o EU CLs does not re pre se n t a depar ture from pr ior

g uid ance re g ardin g appor ti onment o f LEC “a cc ess ch arg es. ” Thus, any pos si ble reli ance by

Bel l on th e Com ptroller’s pastdecision s w ould n o trequire a dif feren t result. T his is particularly so w here Bel l re cei v ed g uid ance by l etter i n 1989. Bel l’ s c ontent ion that an audi tor ’s i ncons is tent tax treatment of a tel ephone 40 company ’s EU CL charg es, as ev ide nced in the A dmini strati v e Law Ju dg e’s fact s tatement in Hea ri ng N o. 35 ,677, neg ates the Compt ro ll er ’s co nsi ste nt t ax treatment is unpersuas iv e. The Co mptroll er

ca nnot be es topped by the er ro neous o r n e gli g ent a cts of it s a g ents or e mp l o y e e s ; S& H Mark eti ng Gr oup, Inc . v

. Sh ar p, 951 S. W .2d 2 65, 2 66- 67 (Te x .Ap p.–Aust in 199 7, no w rit), and a failure to e nforce a ta x statu te or Com ptroller po licy or r ule doe s n ot est abl is h an aff ir mati v e pol icy to the c ontrar

y . Shar p v . House of Ll

oyd, Inc. , 815 S.W .2d 2 45, 2 48 ( Tex . 199 1)

. 30 Thus, in 1972, the C omptroll er i nit ial ly recog niz ed th e p o lic y t hat rev enues from int ersta te l ong di sta nce cal ls w ere not “b usi ness done in Tex as, ” and, in 1975, adopted a confor ming f ra nchi se tax R ule , i. e. , recei pts “ from i ntersta te c all s a re not Tex as re cei pts .” Si nce 1983, the Compt ro ll er cons is tentl y re cog niz ed throug h Rul e, Lette r Rulings , and adj udi cat ion thatEU CLs w ere not“ reven u e f rom an i ntersta te t ele phone c all ” but app ortion able und er the f ranch ise tax statute s as Te x as receipt s. 4031

3. In te rst

at e C om mer

ce – A nalog ous T

exas an d Fed

eral Cases Anal o g o u s c a s e l a w

a l s o s u p p o rt s t h e p ro p o s i t i o n o r i g i n a l l y s t a t e d i n t h e 1 952 Opi nio n tha t und er li es the C omptroll er ’s su bseq uent Rul es, Lett er R uli ngs, and Adj udi cat or

y R uli ng rela ted t o EU CLs

. That i s, w here a ser v ic e c ontracti s for

the use of tel ephone facil it ies l ocat ed i n Tex as, per formance of the c ontracti s i ntrast ate.
For i nst ance, i n Cl

ar k v. Atl

antic Pi pe L in e C o. , 134 S.W .2d 3 22 (Tex .C iv .App. –Aus ti n 1939, w rit re f’d) , oi l shi ppers c ontract ed di re ctl y w it h At lan ti c P ipe Lin e ( “Atl anti c” ) to s hip o il f ro m lo cat ion s i n Tex as and ot her st ates to Tex as Gul f port s w here the oi l w as to be l oaded o nto o cean- g oin g v ess els and shipp e d t o othe r sta tes or forei g n c ountr ies

. Id. at 324 -25. Altho ugh recogniz ing th at the p hrase “bu siness do ne in T exas” w as “broad eno ugh to includ e tha t segregated portio n of interstat e bu siness w hich is w ho ll y performe d w ithin th e Sta te,” the court he ld tha t Te x as cou ld nottax Atlan tic’s proceed s from shi ppi ng oi l in, or throug h, Tex as becau se the o il ’s sh ipmentw oul d notbe compl eted unti l itreache d anot her st ate o r forei g n c ountr

y . Id . at328. The cour t hel d as follows:
W e h o ld t h at th e langua ge, “business d one in Te x as,” as em ployed in this sta tute w as int ended t o mean b usi ness beg un and compl eted in Tex as, and n o t b u sin e ss be gun in T e xas an d co m p le te d in so m e ot h e r st a te or fo re ign nat ion, o r v ice v ersa. In ot her w ords, th at it me ans int rastat e bu siness.
Id.32

T hus , At l an ti c en g ag ed i n “ i nt ers ta te bu s i ne s s ” by c on trac ti ng di rec tl y w ith oil shi ppers t o s hip thei r oil throug h its pipel ine locat ed i n Tex as to an oc ean v ess el dest ine d for del iv er

y i n anot her

st ate o r forei g n countr

y . Atl anti c’ s “ busi ness ” w as not p ro v idi ng the oil sh ipp ers w it h ac ces s t o, or leasi ng , its pipel ine in order for the oi l shi ppers t o s hip the oil them selves. In the first instan ce, Atlantic is engaged in inte rstate comm erce be cause the “ busi ness ” of shi ppi ng the oil i s n ot compl ete unti l the oil is del iv ered in another st ate or co unt ry . I n th e s ec on d i ns ta nc e, Atl an ti cw ou l d be e ng ag ed i n i nt ras ta te c om me r ce b e ca u se the “ busi ness ” of prov idi ng ac ces s t o, or l easi ng , faci li ti es in Tex as beg ins and ends w it h the faci li ti es in Tex as. Bullock v. Ense rch Explorat ion, In c. , 614 S.W .2d 215 ( Tex .C iv .App. –Aus ti n 1981,
w ri t ref’d n. r. e.) , cer

t. denied , 455 U.S. 946 , 102 S.Ct. 14 45, 71 L.Ed. 2d 659 ( 198 2), is also ins tr uct iv e. In Bullock , the “ cr it ic al is sue [w as] w hether [En serch’ s] sal e of natural g as w it h del iv er ies [by

pi pel ine ] i n Tex as to i ntersta te c ompani es for resal e out si de of Tex as const itute d “busine ss don e i n Te x as.” Id. at 21 6. The cour t hel d tha t t he s ale of g as by a T ex a s g a s c o mp a n y t o a n i n t e rs t a t e p i p e l i n e c o mp a n y fo r re s a l e o u t s i d e o f Tex as re present ed “ g ro ss recei pts from i ts busi ness i n Tex as. ” 614 S.W .2d at 217. Ens erch had nei ther a c ontractfor t he s ale of g as to an out- of-st ate p urchas er nor a c ontractto shi p g as prod uced in T exas o ut of st ate

. T here sim ply w as no intersta te com pon entto Ense rch’s busin ess – T exas g as w as shipp ed a nd so ld in Te x as.33

Uni ted S ta t e s S u p re me C o u rt o p i n i o n s d e ter mini ng w hat busi ness cons ti tutes “i ntersta te c ommerc e” are al so ins tr uct iv e. See A tl antic P ipeLi ne C o. , 134 S.W .2d a t 327

. For ins tanc e, i n People of State of New Y or k ex r el. Penns

yl vani a R .R . C o. v

. Kn igh t, 192 U. S. 2 1, 24 S.C t. 202, 48 L. Ed. 325 ( 1904) , a company operati ng a fer ry

l ocat ed in New Y or k e sta bli shed a c ab stand at t he ferr y st ati on w hose sol e bus ine ss w as to br ing the company ’s pass eng ers to an d from t he ferr y . 192 U.S

. at 22 . Charges for the ta x i serv ice
w ere s eparate from the company ’s ch arg es for furt her transpo rt ati on by

ferr y ac ro ss st ate li nes, and no part of the rec eip ts from the cab serv ic e w ere rece iv ed as compensat ion for any serv ic e out si de th e St ate o f New Y or k. Id. The Kni

ght court held tha t the cab servi ce w as “an i n d e p e ndent loc al ser v ic e, preli minar

y or su bseq uent to an y

i ntersta te transpo rt ati on” consti tuti ng i ntrast ate c ommerc e. Id. at 26- 28. The Kni ght cour t reason ed as follows:
As w e hav e s een, the c ab s er v ic e i s rendered w hol ly w it hin the sta te, and has n o con tractu al or nece ssaryrelation to i n t e rs t ate transpo rtation . It is eithe r preliminary or subse quent th ereto . Itis inde pen den tly contract ed for, and not ne cessarilyconn ecte d the rew ith. Butw hen serv ice is w holly w ithin a state, it is presumabl y su bje ct to s tate cont ro l. The bu rd en i s o n hi m w ho asserts th at, th ough act ually w ithin, it is legally outsid e, th e stat e; an d un less the i ntersta te c haract er i s e sta bli shed, l ocal ity

dete rmi nes the q uest ion s o f jur is dicti on. Id. at 27.
Here, l ik e Kni

ght , Bell’s a ccess servi ces are ind epe nde ntly cont racted for and w holly per formed i n Tex as. M oreov er , bec ause Bel l w as re q uired to prov ide networ k a cc ess toThe Hen der son cour t apt ly obs er v ed: 41 Cl ear ly the tax w as not a tax

on t he i ntersta te bu si ness ca rr ied on ov er or by me ans o f

the bridge, be cause the bridge com pan y did nottransactsuch bus in ess . The busi ness w as car ri ed on by the persons and cor porati ons w hic h pai d the br idg e c ompany tol ls for t he pr iv il eg e of usi ng the br idg e. 166 U.S. at 154. In Newel l Br idg e & Rai

lway C om pany v. Dai

ley, 451 U .S. 942, 101 S. Ct

. 2026, 68 L. Ed.2d 3 3 1 (1981) , J ust ic es W hit e and Bl ack mun, di ss enti ng from a deni al of a pet it ion f o r writ o f

ce rt iorar i, opi ned t hat t he Sup re me C our t’ s h old ing i n Hen der

son Br idg e C o. w oul d l ik ely

be u phel d under

the tes t es tabl is hed i n Complete Auto Transit, In c. v. Br ady, 430 U.S. 274 , 97 S. Ct. 107 6, 51 L.E d.2 d 326 (19 77) beca use the st ate f ranch ise tax w as appor

ti oned an d i ndi cat ed t h a t, h a d the tax i n Det ro it Inter nati onal Br idg e been appor ti oned, Det

ro it Inter nati onal Br idg e w oul d hav e been uphel d as w ell

. Dai ley, 451 U .S. at 94 4- 45 ( W hit e, J ., Bl ack mun, J ., dis sent ing ). T h u s, cont ra ry to Bel l’ s a ss erti ons, our anal y si s is the same re g ardle ss w hether w e appl y Uni ted Stat es Supreme Cou rtprecede nt pr ior to, or after , adopti on of the Com ple te A uto test for dete rmining w het her T exas’s franch is e tax inc lud ing “a cc ess charg es” ru ns afoul of the C ommerc e C lau se. See fn. 32, supra . 34 al l i ts c us to me rs s ee k i ng l oc al or l on g di s ta nc e s er v i c e, i t w as l eg al l y

p roh i bi te d att he t i me from eng ag ing i n any lon g dis tanc e s er v ic e or co mpeti ng w it h any

l ong di sta nce car ri er

and charg ed i ts cus tomers EU CLs w hether they made or re cei v ed any lon g di sta nce cal ls , i ts ser v ic e di d notbear any neces sar y re lat ion or

co nnect ion to the p ro v is ion of any i ntersta te lon g d i s t a n c e t e l e p h o n e s e r v i c e . B e l l ’ s n e tw o r k fa c i l i t i e s w e re me re i n s t r u me n t a l i t i es of
commerce w hereby

Bel l ex act ed a fee for i ts cus tomers’ us e of it s l ine s a nd s w it ches loc ated in Tex as to c omplet e the ir lon g dis tanc e tel ephone busi ness w it h an IX C. As su ch, Bel l’ s ser v ic e i s i ntrast ate; see Det ro it Inter nati onal Br idg e C o. v

. C or por ati on T ax Appeal Boar d of Michigan , 294 U .S. 83, 8 5, 55 S.C t. 332, 79 L. Ed. 777 ( 1935) ( tol l br idg e i s a n “i nst ru mental ity

w hic h oth e rs m ay

us e i n c onduc ti ng forei g n c ommerc e” ); Hen der son Bridge Co. v. Kent ucky , 166 U.S

. 1 5 0 , 153 -54, 17 S.Ct. 53 2, 41 L.Ed . 953 (1897 ), i. e. , 41T elep hon e servi ce con tracts be tw een the sub scriber and an LE C, su ch as Be ll, are 42 anal og ous to eq uip ment l easi ng ar ra ng ements

. See 70 Tex . J ur . 3d Telecom m unicat ion § 11 8 (1 9 9 9) (“The usua l contract for telep hon e servi ce am oun ts to a lea se of certain instrum ent alities to the subscribe r in considerat ion of a prescribed sum e ach m ont h.”) See gener all y K ell y v . So uthwester

n Bel l Telephone Co. , 248 S.W . 658 , 659 ( T e x. Comm ’n App. 1923, jud g m’t. adopted ). Suc h c ontract s a re i ntrast ate i n nat ure. See P uget Sound Stev edor ing C o. v . T ax Com ’ n St ate o f Washi

ngton , 302 U .S

. 9 0 , 9 4 , 5 8 S. Ct . 72, 82 L.Ed. 2d 68 (1 937) ( if a c ompany ac ts as a lab or

or empl oy ment bureau and su ppl ies l abor for th e us e of a s hip ow ner to loa d a v ess el, i t is no par t of i ntersta te c ommerc e ev en “t houg h transacti ons of such co mmerc e w ere i ncreased thereby ”) ; Young & C om pany of Ho u s to n v. Calvert , 405 S.W .2d 1 74, 1 75 ( Tex .C iv .App. –Aus ti n 1966, w ri t ref’d) , c e rt

. denied , 398 U .S. 914, 87 S. Ct . 866 , 17 L.Ed. 2d 786 (1 967) ( eq uip ment l easi ng co ntract s for mac hin er

y uti li z ed by

st ev edores to l oad oc ean- g oin g v ess els represent s a n “i ndependen t tran sac ti on preparator y to” eng ag ing in foreig n c ommerc e–l eases are l ocal transacti ons)

. See Atty . G en. O p. No. C- 86 (M ay 30, 1963) (rental rev enue de ri v ed from aut om obiles, t ru c k s , tow boa ts, an d ba rg es is “g ross receipts f rom b usine ss don e w ithin Tex as, ” re g ardle ss w hether the v ehi cl es are us ed by the les sees outs ide of Tex as – to be int ersta te, les so rs must per form se rv ic es w it h respect t o the rental eq uip ment out si de of Tex as)

. 35 Bel l’ s loc al ser

v ic e c ust omers and IX Cs m erely paid Bell for t he pr iv il eg e of usi ng i ts Tex as facilities so tha t the y , in turn, cou ld engage in intersta te com me rce . Id. A c c o rd in gl y, we 42 f ind as rea sona ble th e Com ptroller’s ad h oc ru le re cog niz ed i n th e 2 0 0 0 H ear ing and appl ied here. In ad dit ion , w here, as here, the Comptroll er has adopt ed an ad h oc rule tha t has a
re troact iv e effect , Gr

ocer s S up p ly Company, Inc . v . Sh ar p, 978 S. W .2d 6 38, 6 43- 44 (Tex .App. –Aus ti n 1998, pet. deni ed) , “t h e rev iew ing co urt mus t al so deter mine w hether app lication o f the new policy to a party w ho relied on the old is so un fair as to be a rbitrary and capricious.” Micr

ocom puter T echno log

y Inst itute v . Riley , 139 F.3d 10 44, 105 0 (5 Cir

. th 199 8) (citing 1 K. Davi s & R. Pierce, Jr., Adm inistrative Law Trea tise § 3.5 at 120 (1994 )).36

Beca use th e Co m ptroller’s ad h oc rule is consisten t w ith the Attorn ey Gen eral’s lon g sta ndi ng i nter pretati on rendered i n the 1952 Opi nio n, ag ency pol icy i nter pretati ons si nce 1983 an d appl ic abl e s tate and federal cas ela w , w e find the retroact iv e appl ic ati on of the ad h oc rule regarding LECs non-exem pt sta tus for access cha rg es is not “so un fair as to be arbitrary

and capricious.”
Bel l cont ends the acc ess ch arg es are “ re v enues from i ntersta te c all s” bec ause an int ersta te long dist ance cal l canno t ori g ina te or ter minat e w it hout acc ess to Bel l’ s l ocal l oop and long distance calls are by natu re unint errupte d transm issions of a n elect ronic signal. How ev er , und er

thes e ci rc umstan ces , w hether a v oic e transmi ss ion may be u nin ter ru pted is a distinction w ithou t a dif feren ce . See K

night , 192 U .S. at 26 -2 8; Bullock , 613 S.W .2d at 21 6- 17. W hen sta te tax ati on of acti v it ies or proper ty w it hin a sta te is at is sue, “[ i] t is no lon g er a q uest ion of act ual i nter ru pti on of the operati on of

commerc e,” and the factthat the int ersta te acti v it ies co uld not be c onduc ted w it hout the l o ca l a ct iviti es is not conc lus iv e. Me m phi s N atur al Gas C o. v . Stone, 335 U .S. 80, 9 5- 96, 6 8 S. Ct . 147 5, 92 L.E d.2d 1832 (194 8). “Rathe r, a proh ibited tax exaction i s one beyond th e po w er of the sta te be cause the taxable even ti s o utside its boun daries or for a priv ilege the stat e can notg rant. ” Id

. Here, th e p rivileg e to condu ct busi ness i n Tex as is a pr iv il eg e Tex as can g ra nt an d the tax abl e ev ent i s c onfined t o Tex as – pay ment of a s er v ic e c harg e to Be ll b y a Tex as cus tomer

for t he us e of, or

ac ces s t o, B ell ’s faci li ti es loc ated in Tex as.This transmi ss ion i s e xtremely l imi ted. Ex per

t t est imony

i n the record ind ic ates 43 that, before the cal ler compl etel y dia ls the lon g dis tanc e number , the c all has reache d the IX C’ s l ong di sta nce sw it ch. 37 M oreov er , t he F CC ’s inter pretati on of the nature of

the “ int erconne cti on” prov ide d by Bell w hen g rantin g access to its network also sup ports th is result. As discussed earlier, dur ing the re lev ant time per iod , Bell w as req uired to prov ide local telephon e serv ic e and/ or o f f er l ocal ac ces s for

l ong -d is tanc e s er

v ic e. See 4 7 U

. S

. C

. § 1 5 3 ( 2 0 0 1 )

. This duty inc lud ed prov idi ng for a n “ int er conne cti on” betw een Be ll ’s networ k and the “ facil it ies and eq uip ment” of IX Cs

. See id. at § 15. The FC C has int er preted the t er m “ int erconne cti on” to be the “ph y sical linking of tw o netw orks for the m utu al exchange of traf f ic.” Compet

itive Teleco m m un ic a t

io n sAss’

n v. F.C.C. , 117 F .3d 1 068, 1071- 72 ( 8 C ir . 199 7)

. See th S o u t h we s te r n B e l l T e lep h o n e , L

. P

. v

. M i s s o u r i P u b l ic S e r v ic e C o m’n , 530 F. 3d 676, 684 (8 C ir . 200 8)

. The FC C’ s i nter pretati on of the ter m “ int erconne cti on” does not inc lud e the th transmi ss ion or

routi ng of tel ephon e ca ll s. Com petiti ve Telecom m unicat ion s A ss ’

n, 117 F. 3d at1071- 72. Th u s, B e ll offers I X Cs ac ces s t o i ts tel ephone ex chang e s er v ic e or facil it ies “ for th e purp ose of or ig ina ti on and ter minat ion of tel ephone tol l ser v ic e.” 47 U. S.C . § 153( a) (1 6) (2001) (emphasi s added)

. Al thoug h the acc ess se rv ic e Bel l offers t o its lo cal custo me rs may also include th e transm ission of their calls ov er its local network to t he IX C’ s P OP, for practi cal and busi ness pur poses , Be ll ’s transmi ss ion ce ases w hen 43 it s s er vice i s compl eted at t he IX C’ s P OP w here Bel l “i nterconne cts ” w it h the IX C’ s l ong distan ce facilities. T hus, t he EUCLs and sp ecial access charges are local charges for a38

serv ice tha t begins at th e local custo me rs’ premises an d en ds at th e IXC’s POP in T exas, i. e ., beg ins and ends in Tex as. Al thoug h the par

ti es ack now led g e tha t an “i ntersta te t ele phone c all is a c omplet e end- to- end communic ati on that cross es stat e lin es, ” Bel l’ s acc ess serv ic e is not a par t of the i ntersta te s er

v ic e prov ide d bythe IX C. I n a b usi ness and pract ic al sens e, B ell l eases its network to its custom er for the p urpo se of o riginatin g and termin ating long distance cal ls . M oreov er , Be ll su ppl ies no m o re than an “ int erconne cti on” at the I X C’ s P OP a nd doe s not t ransm it or share in the IXC ’s transm ission of the call across sta te lines. Bell’s acc ess se rv ic e i s c omplet ed w hen i ts loc al cus tomer ’s ca ll reache s t h e I XC’s POP , and ag ain , w hen Be ll ’s l ine s p ic k u p the re tur n si g nal at the I X C’ s P OP a nd transpo rt s t he s ig nal to t he c ust omer’ s p re mis es. As su ch, Bel l’ s role i s p re pator y an d i nci dental to any int ersta te c o m m er ce bei ng co nduct ed betw een t he IX C and i ts cus tomer

. Al thoug h the tel ecommuni cat ion s i ndust ry i s h ig hly

tec hni cal , w e mustnot los e s ig ht o f the fact that “t ax a t i o n i s a p ra c t i c a l ma t t e r , a n d t h a t w h a t c o n s t i t u t e s c o mm e r c e , ma n u fa c t u re , or prod uc ti on i s to be de te r mi ne d up on prac ti c al c on s i de rat i on s.” Uta h P o wer & Li ght C o. , 286 U .S. at 17 8- 79.
Bell also asse rts the acce ss charges are intersta te rath er t han intrastat e be cause access ch arges are fede rally tariff ed ch arges created und er the a uspice s of the FCC. How ev er , there is no federal mandate g iv ing the FC C ex cl usi v e jur is dicti on o ver the regulation or tax ation of teleco mm uni c a t io n s comp anie s. Simply becau se the FCCSTAR Acc ess ion N o. 20 0011027H ( Nov . 14, 2000)

. 44 39 re g ula tes tel ephone compani es does not mean thatthe re g ula ted a cti v it ies are s ole ly , or neces s a r i l y , i n t e rs t a t e . C o n g re s s ma y re g u l a t e p u re l y i n t ra s t a t e t e l e p h o n e a c t i v i t yto protec t i ntersta te c ommerc e. See U nited St ates v. Lopez , 514 U .S. 549, 558, 115 S. Ct

. 1624, 131 L. Ed.2d 626 ( 1995) ; United State s v. Gilbert , 181 F .3d 1 52, 1 58 ( 1 C ir . 199 9) st (discussing the “long stand ing” line of cases ho lding Congr e s s m a y regulat e pu rely int ra sta te t ele phone a cti v ity under the Commerce Cl ause)

. Mo re ov er , t he F ederal Telec ommunic ati ons Act of 19 96 dis cl aims author ity ov er st ate t ax ati on. 110 St at. 56, 1 44 (“ nothi ng in thi s Act

. . . shal l be cons tr ued to modify , impai r, or supersede

. . . any Sta te or l ocal l aw

per tai nin g to tax ati on” ). “F ederal re g ula ti on does not precl ude s tate tax ati on and state taxation do es no t preclud e fede ral reg ulatio n.” Pol is h Nat. Al

li ance of U

nited States v. N. L.R .B. , 3 2 2 U. S

. 6 4 3 , 6 4 9 , 6 4 S

. Ct

. 1 1 9 6 , 8 8 L

. E d

. 1 5 0 9 (1 9 4 4 ). T h u s , we decl ine to dis tur b the C omptroll er ’s dete rmin ati on th at, w hil e the F CC ’s reg ula ti on and cla ss if ica ti on of acc ess ch arg es is i nformati v e, i t i s n ot de ter minat iv e. See Comp. Pub. Acct’s Hearing No. 35,6 77, *20 (200 0). 44
C. Op erat or

A ssist ance Ser

v ice C har ges Bel l als o ass erts that it s rev enues from ope ra tor as si sta nce charg es are rev enues f ro m “i n t e rs t a t e ca ll s ” o r “c a ll s i n i n t e rs t a t e c o m m e rc e . ” T h e s e se rvi c e s p ri m a ri ly i n vo lve direct or y as si sta nce, bus y

i nter ru pt, and z ero transfer operator as si sta nce. As desc ri bed by Bel l’ s c or porate represent ati ve on depo si ti on, t hese “mi sc ell aneous se rv ic es [are]“E nabl e” i s d efined as “ to prov ide w it h the means or oppor tuni ty ; t o make pos si ble , 45 practica l, or easy.” Merriam -W ebster’ s Collegiate Dictionary at 40 9. The req uirements for e q ual protec ti on unde r the Uni ted State Con sti tuti on and the 46 Tex as Cons ti tuti on are subs tanti all y the same. Ry

lan der v. 3 B eal l Br os. , 3, Inc ., 2 S. W .3d 562, 567 ( Tex .App. –Aus ti n 1999, no p et.)

. See Tex . C onst . ar t. VIII , § 1. 40 associa ted w ith [a cust om er] try ing to make or place an inte rstate call.” T hey are pay-peruse ch arges for t he use of B ell’s facilities and p erson nel locate d in T exas. As such, these ser v ic e c harg es do notrepresentrev enue fro m a “ cal l, ” eit her i ntrast ate o r int ersta te.
Bel l urg es th is Cour

t t o adopta r ule w hereby i ts acc ess se rv ic e and operator ass is tanc e re cei pts w oul d be ex cl uded from appor ti onment as Tex as re cei pts so lon g as t h e y ena ble custom ers to ma ke “intersta te calls” or “calls in in tersta te com me rce.” Bell’s 45 propose d r ule w oul d req uire an amendment to the C omptroll er ’s R ule and ev is cerate t he existin g exemp tions –“receip ts that enable in t e rs t a t e ca ll s ” i s a fa r m o re e xp a n s ive exemp tion th an “receip ts fr omi ntersta te c all s.” Be ll has fail ed to m eet its burden of proof in est abl is hin g thatthes e ac ces s a nd operator as si sta nce ch arg es are ex empt from app ortion me nt as T exas receipts.
Acc ordin g ly , Be ll ’s first is sue is ov er ru led

. IV. Equal Protec tion
Bel l arg ues that appor

ti oni ng i ts acc ess and operator assi sta nce charg es as Tex as re cei pts for franchi se tax pur poses v iol ates t h e Equal Protec ti on C lau se of the U nit ed Sta tes C on s ti tu ti on . U .S

. C on s t. a me nd

. X IV

. B el l a s s er ts t ha t, a l th ou g h i t i s s i mi l ar ly 46An I X C’ s rev enue fro m in tersta te, lon g di sta nce s e rvi ces i s c lea rl y ex empt from 47 appor ti onment a s a Tex as re cei pt under franch is e tax ru les

. For pur poses of appor

ti oni ng ear ned s ur plu s u nder

the franch is e tax , t ra nspor tati on c omp a nie s mus t “ re por t Tex as re cei pts from t ra nspor

tati on s er

v ic e s in i n tr ast ate c ommerc e.” 34 Tex . Ad min. C ode § 3

. 5 5 7 (d )( 4 1 ) ( 1 9 9 2 ). Fo r pu rp o s e s o f a p p o rt io n in g t a xa b le ca p it a l u n d e r t h e f ra n c h is e t a x, transpo rt ati on c ompani es must re por t Tex as re cei pts from t ra nspor tati on s e rv ic es by “i ncl u d i n g re c e i p t s d e r i v e d fro m t h e t ra n s p o rt a t i o n o f g o o d s o r p a s s e n g e rs i n i n t ra s t ate commerce. ” 34 Tex . Ad min. C ode § 3.549 (1 998)

. 41 situat ed, IXCs and transp ortat ion compa nies receive preferen tial treatm entbeca use th eir re cei pts from i ntrast ate “ leg s” of int ersta te tele phone ser v ic e and/or

transpo rt ati on are not app ortion ed a s Te x as receipt s. Bell also cont end s t hatL ECs are similar to IXCs because 47 they both parti ci pate in the transmi ss ion of an int ersta te ph one c all uti li z ing l ik e eq uip ment and facilities locate d in T exas. Altho ugh state s g ene rally have broad powers to imp o s e a n d co llect taxes, classif ication s amo ng tax payers may not be a rb itrary , unrea sona ble, o r capricious. Se e Hur t v . C ooper , 130 Tex . 433 , 110 S.W .2d 8 96, 9 0 1 ( 1937) ; Upj ohn C o. v

. R yl ander , 38 S.W .3d 600 , 609 (Te x .Ap p.–Aust in 200 0, pet. denied ). Altho ugh all person s falling w ithin the s ame cl ass mustbe t ax ed al ik e, a cl ass ific ati on w il l not b e found defic ien t unl ess i t has no ratio nal ba sis. U

pjo hn , 38 S.W .3d a t 609

. Despite thatLECs and IXC s ma y utiliz e similar equipm ent and facilities to tran smit tel ephone cal ls , Be ll has fail ed to establ is h the lack of anyrati onal basis for d is ti ng uis hin g betw een LECs and IXC s for tax purp oses. Th e bu siness act iv ities of LECs and IXC s are dis si mil ar

bec ause each operates i n s eparate a nd di sti nctareas. LE Cs c h a rg e l ocalBel l attempt s t o draw an anal og y

betw een EUC Ls and c harg es by transpo rt ati on 48 compani es shi ppi ng i ntersta te w hen t here i s a n i ntrast ate l eg i nv olv ed w it h the i ntersta te shi pment. Suc h an anal og y fail s, how ev e r, b e ca u se Bell i s n ot i nv olv ed i n i ntersta te “busine ss,” i. e., an E UCL is a se rv ic e c harg e for acc ess to it s e q uip ment and faci li ti es 42 custo me rs and IXCs for ac cess to , o r use of, it s i ntrast ate faci li ti es and eq uip ment t o transmi t t he cal l from the cus tomer ’s premis es to an IX C’ s P OP. Onc e the ca ll reache s t he IXC’ s POP, th e IXC the n utiliz es its facilities and e quipme nt to transm it its custom er’s call out o f state . The c ust omer cont ra cts w it h the L EC for l ocal se rv ic e and acc ess se rv ic e to com plete long distance c a ll s a nd ind epe nde ntly cont racts w ith an IXC for long distance ser v ic e. That Bel l prov ide s a different ser v ic e than the IX C and Bel l’ s ser v ic e i s i ntrast ate ra ther than i ntersta te es tabl is hes ra ti onal bas es for di sti ng uis hin g an LEC such as B ell from IX Cs for franch is e tax cl ass ific ati on pur poses . See W estco tt Com m unica tions, Inc. , 104 S. W .3 d 14 1 , 1 5 0 ( T e x.A p p .–Au st in 2 0 0 3 , p e t. de n ie d ). More o ver, an LE C ca n n o t e n gage in the serv ice supp lied by the IXC. Beca use Bell w as perm itted to m ainta in its mon opo ly on “ loc al” tel ephone ser v ic e , it w as leg all y

prohi bit ed from p ro v idi ng any i ntersta te l ong dis tanc e s er

v ic e to it s l ocal cu sto mers . Reg ardin g transpo rt ati on c ompani es, the differenc es are ev en more str ik ing . Not onl y do t he tw o indus tr ies of fer different ser

v ic es that nei ther

ca n eng ag e i n on thei r ow n, they do n ot ut il iz e s imi lar

eq uip ment or facil it ies

. Mo re ov er , that tel ephone ser v ic es may be anal og ous to t ra nspor tati on s er

v ic es in the a bst ra ct is an i nsuffici ent b asi s for cont endi ng there i s n o rat io n a l basi s for di ffer ing tax

cl ass ific ati ons. See Westc ott, 104 S.W .3d a t 150

. 48locate d in T exas. As stated earlier, the re is simp ly no interstate com pon entto the serv ice

Bel l is offer ing

. 43 To the e xtent Bel l cont ends itis treated differentl y from I X Cs bec ause thes e s er v ic es ar e cla s s i fi e d b y

t h e C o mp t ro l l e r

a s i n t ra s t a t e ra t h e r

t h a n i n t e rs t a t e , w e h a v e a l ready address ed th e i ss ue. Acc ordin g ly , Be ll has fail ed to es tabl is h tha t t he Comptroll er makes an a rbitrary

and unrea sona ble distinction between the se taxpayers and issue tw o is also ov er ru led

. V. Sum mar

y Ju dg men t Ev id ence Bel l cont ends the t ri al cour t i mprop er ly

ex cl uded no n- expe rtt est imony i n the summar y j udg ment proceed ing s b elo w . W hile Be ll n o tes the Compt ro ll er obj ect ed to “s ele cte d tes ti mony ” of tw o w it ness es, Bel l does not i denti fy th e sp eci fic t est imony improper ly

ex cl uded by

the tr ial c o u rta n d s tates , “ [t] he tr ial co urt i mprop er ly su sta ine d s o me of these object ions.” Bell did no t f ile a w ritt e n r e s pon se to th e Com ptroller’s
o bj e c t i o n s n o r mo v e fo r re c o n s i d e ra t i o n o f t h e t r i a l c o u rt ’ s d e c i s i o n t o s u s t a i n the Compt ro ll er ’s obj ect ion s t o the aff ida v it s o f the tw o w it ness es. An app ell ant b ears t he burden of br ing ing forth a re cord that demonstrates the tr ial court ab used its discretion w hen it sustaine d an app ellee’s objection s t o the summ ary judgme nt evidence

. Can tu v . Hor any, 195 S.W .3d 8 67, 8 71 ( Tex .App. –Da llas 2006, no pet.) W here the record fail s t o s how thata pa rty

obj ect ed to th e t ria l cour t’ s r uli ng44

sus tai nin g an o pponent ’s obj ect ion to his or her summar

y jud g ment ev ide nce, the par ty has not p re ser

v ed th e r ig ht t o c omplai n on appeal aboutthe tr ial co urt’ s r uli ng . Id

. Beca use Be ll objects to “some ” bu t nota ll of t he possib le groun ds for the trial cou rt’s ru li ng that s ust ain ed th e obj ect ion , Be ll has w aiv ed th e i ss ue. See M alo ne v . F oster , 956 S.W .2d 5 73, 5 79 ( Tex .App. –Da ll as 1997) , a f f ’d , 977 S.W .2d 562 (1998 ). M oreo v er, the re is noth ing i n the record to sho w thatBell f iled a wr it t e n r e s pon se to th e Com ptroller’s
w ri tten Obj ect ion s t o Pl ain ti ff ’s Summar y Ju dg ment Ev ide nce norf ile d a mot ion for
re cons ide ra ti on of the tr ial court ’s order sustai nin g the Compt ro ll er ’s object ion s. N eit her
w ere Bel l’ s i ss ues preser v ed. Bel l’ s t hird i ss ue i s a ls o ov er ru led

.

CO NC LU SION
Havi ng ov erruled So uth w este rn Bell Te leph one Comp any’s issue s, the trial court’s jud g ment i s a ff ir med.

Pat rick A. Pirtle Justice Qu in n , C. J. , c o n cu rrin g.