Title: MCI Telecommunications Corporation v. The State of Wisconsin
Citation: N/A
Docket Number: 1995AP000915
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: May 13, 1997

SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
95-0915 
 
 
Complete Title 
of Case: 
 
MCI Telecommunications Corporation, 
 
Plaintiff-Respondent-Petitioner, 
 
v. 
The State of Wisconsin, Cathy S. Zeuske, in her 
capacity as the Treasurer of the State of 
Wisconsin; and the Public Service Commission of 
Wisconsin, 
 
Defendants-Appellants. 
 
 
REVIEW OF A DECISION FROM THE COURT OF APPEALS 
Reported at:  203 Wis. 2d 392, 553 N.W.2d 284 
 
 
(Ct. App. 1996) 
 
 
PUBLISHED 
 
 
Opinion Filed: 
May 13, 1997 
Submitted on Briefs: 
 
Oral Argument: 
April 8, 1997 
 
 
Source of APPEAL 
 
COURT: 
Circuit 
 
COUNTY: 
Dane 
 
JUDGE: 
George Northrup 
 
 
JUSTICES: 
 
Concurred: 
 
 
Dissented: 
 
 
Not Participating:  
 
 
ATTORNEYS: 
For the plaintiff-respondent-petitioner there 
were briefs by Niles Berman, Janet L. Kelly and Wheeler, Van 
Sickel & Anderson, S.C., Madison and of counsel Matthew H. Berns 
and MCI Telecommunications Corporation, Chicago, IL and oral 
argument by Niles Berman. 
 
 
 
 
 
For the defendants-appellants the cause was argued by Steven 
Levine, legal counsel with whom on the brief was Steven M. Schur, 
chief counsel for the Public Service Commission of Wisconsin. 
 
 
 
No.  95-0915 
 
 
1 
 
NOTICE 
This opinion is subject to further editing 
and modification.  The final version will 
appear in the bound volume of the official 
reports. 
 
 
No. 95-0915 
 
STATE OF WISCONSIN               :        
        
 
 
 
 
IN SUPREME COURT 
 
 
MCI Telecommunications Corporation, 
 
  
Plaintiff-Respondent-Petitioner, 
 
 
v. 
 
The State of Wisconsin; Cathy S. Zeuske, 
in her capacity as the Treasurer of the 
State of Wisconsin; and the Public Service 
Commission of Wisconsin, 
 
 
Defendants-Appellants. 
 
FILED 
 
MAY 13, 1997 
 
Marilyn L. Graves 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
 
 
Review of a decision of the Court of Appeals.  Affirmed. 
¶1 
DONALD W. STEINMETZ, J.
  The issue in this case is 
whether the Public Service Commission's ("PSC") interpretation 
of Wis. Stat. § 196.85(2),
 1 specifically its interpretation of 
                     
1 Wis. Stat. § 196.85(2) provides as follows:     
   The commission shall annually, within 90 days of 
the commencement of each fiscal year, calculate the 
total of its expenditures during the prior fiscal year 
which are reasonably attributable to the performance 
of its duties relating to public utilities, sewerage 
systems and power districts under this chapter and 
chs. 66, 184, and 198 . . . . The commission shall 
deduct from this total all amounts chargeable to 
public utilities, sewerage systems and power districts 
under sub. (1) and s. 184.10(3).  The commission shall 
assess a sum equal to the remainder plus 10% of the 
remainder to the public utilities and power districts 
in proportion to their respective gross operating 
revenues during the last calendar year, derived from 
intrastate operations.  If, at the time of payment, 
the prior year’s expenditures made under this section 
 
 
No.  95-0915 
 
 
2 
the phrase "revenues . . . derived from intrastate operations," 
is a correct interpretation that is consistent with the language 
of the statute.  We hold that the interpretation of the phrase 
"revenues . . . derived from intrastate operations" by the PSC 
to 
include 
revenues 
from 
interstate 
telecommunications 
originating in Wisconsin is a correct interpretation.  We 
therefore affirm the court of appeals' decision reversing the 
circuit court.  
¶2 
The 
facts 
in 
this 
case 
are 
undisputed. 
 
MCI 
Telecommunications Corporation ("MCI") is a public utility that 
provides 
telecommunications 
services. 
 
MCI 
provides 
interexchange 
(long-distance) 
services 
that 
originate 
in 
Wisconsin and terminate both within and outside the state.
2  MCI 
owns or leases equipment in Wisconsin which it uses to provide 
these services.  MCI also advertises to customers in Wisconsin. 
                                                                  
exceeded the payment made under this section in the 
prior year, the commission shall charge the remainder 
to the public utilities and power districts in 
proportion to their gross operating revenues during 
the last calendar year.  If, at the time of payment it 
is determined that the prior year’s expenditures made 
under this section were less than the payment made 
under this section in the prior year, the commission 
shall credit the difference to the current year’s 
payment.  The assessment shall be paid within 30 days 
after the bill has been mailed to the public utilities 
and power districts.  The bill constitutes notice of 
the assessment and demand of payment.  Ninety percent 
of the payment shall be credited to the appropriation 
account under s. 20.155(1)(g) (emphasis added). 
2 A telecommunication that originates in one state and 
terminates 
in 
another 
is 
classified 
as 
an 
"interstate 
telecommunication" and is regulated exclusively by the Federal 
Communications Commission ("FCC").  See 47 U.S.C. §§ 153(e) and 
152(a).  A telecommunication that both originates and terminates 
in 
the 
same 
state 
is 
classified 
as 
an 
"intrastate 
telecommunication," the regulation of which is entrusted to the 
states.  See 47 U.S.C. § 152 (b).   
 
 
No.  95-0915 
 
 
3 
¶3 
The PSC is the state agency charged with regulating 
all 
utilities, 
including 
telecommunications 
utilities, 
in 
Wisconsin.  Interexchange carriers such as MCI are subject to 
less regulation by the PSC than local exchange companies.  
However, as authorized by Wis. Stat. § 196.02(12), the PSC does 
participate in some activities involving nationwide utility 
issues.  The PSC regularly participates in proceedings before 
various federal regulatory agencies including the FCC and FCC 
joint boards, the Federal Energy Regulatory Commission, and the 
Nuclear Regulatory Commission.  The PSC is also a member of 
several national and regional regulatory associations to which 
it pays dues.   
¶4 
Wisconsin Statutes § 196.85(2) authorizes the PSC to 
annually assess public utilities to recover expenses reasonably 
related to the performance of its regulatory duties.  This 
statute applies equally to utilities providing water, energy, 
and telecommunications services.  To recover expenses not 
attributable to a specific utility, the PSC assesses each 
utility's share of the costs based on the utility's "gross 
operating revenues . . . derived from intrastate operations."  
Wis. Stat. § 196.85(2).  This statute is referred to as 
Wisconsin's "remainder assessment" statute. 
¶5 
The PSC interprets the term "intrastate operations" 
from Wis. Stat. § 196.85(2) to include revenues from all 
telecommunications made from a telephone located within the 
state, regardless of whether the call terminates within or 
outside Wisconsin.  Revenues generated from telecommunications 
made by MCI customers located outside Wisconsin to a telephone 
 
 
No.  95-0915 
 
 
4 
in Wisconsin are not included in the assessment.  The PSC has 
interpreted the statute in this manner since the breakup of the 
Bell System in 1984.  The PSC re-examined and re-affirmed this 
interpretation in 1989. 
¶6 
In 1984, MCI began doing intrastate business which was 
subject to regulation in the state of Wisconsin by the PSC.  MCI 
brought this lawsuit challenging the PSC's interpretation of 
Wis. Stat. § 196.85(2) in September of 1993.  It specifically 
challenged assessments from fiscal years 1990-91, 1991-92, and 
1992-93.  MCI argued that the statute is plain on its face and 
that "revenues . . . derived from intrastate operations" do not 
include revenues from telecommunications that originate in 
Wisconsin but terminate outside the state.  In an order and 
decision dated December 22, 1994, the Circuit Court for Dane 
County, Judge George W. Northrup, granted plaintiff MCI's motion 
for summary judgment and denied the defendants' motion for 
summary judgment.  The trial court found that the statute was 
unambiguous and that the term "intrastate operations" is 
synonymous with the term "intrastate telecommunications." 
¶7 
The 
court 
of 
appeals 
reversed 
the 
trial 
court 
decision.  It held that the statute is indeed ambiguous and that 
the PSC's interpretation of the statute is reasonable.  MCI 
Telecommunications Corp. v. State, 203 Wis. 2d 392, 553 N.W.2d 
284 (Ct. App. 1996).  The court of appeals accorded great weight 
deference to the interpretation of the PSC.  Id.   
¶8 
Upon review, this court finds that the statutory 
provision at issue, Wis. Stat. § 196.85(2), is ambiguous.  We 
also find that the interpretation by the PSC is correct no 
 
 
No.  95-0915 
 
 
5 
matter what level of deference this court applies.  We therefore 
adopt the PSC's interpretation of this statute and affirm the 
court of appeals' decision. 
¶9 
The issue presented in this case is primarily one of 
statutory interpretation.  In interpreting a statute, "[t]he 
threshold question must be whether or not the statute in 
question is ambiguous."  Harnischfeger Corp. v. LIRC, 196 Wis. 
2d 650, 662, 539 N.W.2d 98 (1995).  "It is axiomatic in this 
state that a statutory provision is ambiguous if reasonable 
minds could differ as to its meaning."  Id., citing Hauboldt v. 
Union Carbide Corp., 160 Wis. 2d 662, 684, 467 N.W.2d 508 
(1991); Girouard v. Jackson Circuit Ct., 155 Wis. 2d 148, 155, 
454 N.W.2d 792 (1990).  This court has recognized that "the 
ability of a statute to support more than one reasonable 
interpretation[ ] is the hallmark of ambiguity."  Id., citing 
Girouard, 155 Wis. 2d at 155.   
¶10 If a court determines that a statute is ambiguous, 
then it "must look beyond the statute's language and examine the 
scope, history, context, subject matter, and purpose of the 
statute."  UFE Inc. v. LIRC, 201 Wis. 2d 274, 282, 548 N.W.2d 57 
(1996) (citation omitted).  "Furthermore, if an administrative 
agency has been charged with the statute's enforcement, a court 
may also look to the agency's interpretation."  Id. (citation 
omitted).  This court has noted that, in reviewing a statutory 
interpretation, "[a]n interpretation is unreasonable if it 
directly contravenes the words of the statute, it is clearly 
contrary to legislative intent or it is without rational basis." 
 
 
No.  95-0915 
 
 
6 
 Harnischfeger, 196 Wis. 2d at 662.  If not, then an 
interpretation is reasonable.   
¶11 In 
this 
case, 
both 
parties 
offer 
different 
interpretations of the term "intrastate operations" from Wis. 
Stat. § 196.85(2).  The term "intrastate operations" is not 
defined in the statute.  The PSC takes the position that 
"revenues . . . derived from intrastate operations" include 
revenues from all sales of interexchange telecommunications to 
customers within Wisconsin, regardless of the destination of the 
communication.  This interpretation essentially equates the term 
"intrastate operations" with "intrastate sales."  MCI, arguing 
that the statute is plain on its face and unambiguous, takes the 
position that the term "intrastate operations" cannot possibly 
include calls that originate in Wisconsin but terminate outside 
the state.  MCI's interpretation equates "intrastate operations" 
with "intrastate telecommunications."   
¶12 We do not agree with MCI that the meaning of the 
statute is clear and unambiguous.  As the court of appeals 
noted, "[s]ince the statute applies to utilities providing 
energy, telecommunications 
and water 
services, 
the 
phrase 
'revenues . . . derived from intrastate operations' necessarily 
has a different meaning as applied to each type of public 
utility."  MCI, 203 Wis. 2d at 402.  Like the court of appeals, 
we also conclude that both the interpretation of the PSC and 
that of MCI are reasonable.  Therefore, we find that Wis. Stat. 
§ 196.85(2) 
is 
ambiguous. 
 
Because 
we 
find 
the 
statute 
ambiguous, we must look outside of the statute to ascertain the 
legislative intent in passing the statute.  Among the sources we 
 
 
No.  95-0915 
 
 
7 
look to are the "scope, history, context, subject matter and 
purpose of the statute."  UFE, 201 Wis. 2d at 282.  This court 
may also look to the interpretation of the agency charged with 
enforcement of the statute.  See id.  
¶13 In reviewing agency interpretations, this court has 
applied three distinct levels of deference:  great weight, due 
weight, and de novo review.  See Harnischfeger, 196 Wis. 2d at 
659-60, citing Jicha v. DILHR, 169 Wis. 2d 284, 290, 485 N.W.2d 
256 (1992).  In order to be accorded great weight deference, a 
court must conclude that: 1) the agency was charged by the 
legislature with the duty of administering the statute; 2) the 
interpretation of the agency is one of long-standing; 3) the 
agency employed its specialized knowledge or expertise in 
forming the interpretation; and 4) the agency's interpretation 
will provide consistency and uniformity in the application of 
the statute.  Id., citing Lisney v. LIRC, 171 Wis. 2d 499, 505, 
493 N.W.2d 14 (1992).   
¶14 The parties disagree over what level of deference this 
court should apply to the PSC's interpretation of Wis. Stat. 
§ 196.85(2).  MCI argues that a de novo review is proper because 
this is an issue of first impression in that it is the first 
time that the PSC's interpretation has been challenged.  At the 
very most, MCI argues, the agency interpretation should be 
accorded due weight deference because two of the criteria for 
great weight deference, the requirements of a long-standing 
interpretation and agency expertise, are not met.  The PSC 
argues that great weight deference is appropriate because all 
four of the Harnischfeger criteria for this standard are met.  
 
 
No.  95-0915 
 
 
8 
We conclude that the PSC interpretation of the statute is 
correct under any level of deference and therefore decline to 
address further the proper level of deference in this case. 
¶15 Under any level of deference, the most important 
consideration 
is 
whether 
the 
interpretation 
furthers 
the 
legislative purpose.  See UFE, 201 Wis. 2d at 281-82, 283-89;  
Harnischfeger, 193 Wis. 2d at 659-64.  The purpose of Wis. Stat. 
§ 196.85(2) is plain on its face. Its goal is to provide for the 
payment of expenses incurred by the PSC in regulating utilities 
by those utilities that generate the costs.  See Wisconsin 
Telephone Co. v. Public Service Comm'n, 206 Wis. 589, 590-92, 
240 N.W. 411 (1932).
3  The interpretation of the PSC is 
consistent with this purpose.  The costs paid by the utilities 
as required by the statute are directly proportional to the 
costs incurred by the agency in supervising and regulating those 
utilities.  Additionally, under the PSC's interpretation, the 
revenues upon which MCI's assessment is based are derived from 
income generated from sales within the state of Wisconsin.  An 
examination of several extrinsic sources helps to further 
demonstrate this point.       
¶16 A brief exploration of the legislative history of Wis. 
Stat. 
§ 196.85(2), 
while 
not 
particularly 
revealing, 
is 
necessary to aid in the understanding of the term "revenues . . 
. derived from intrastate operations" and its use by the 
                     
3 In Wisconsin Telephone Co. v. Public Service Comm'n, 206 
Wis. 589, 240 N.W. 411 (1932), this court upheld Wis. Stat. 
§ 196.85 against a constitutional challenge.  The court found 
that the PSC was well within its authority in assessing 
utilities for the cost of regulating and supervising those 
utilities.  Id. at 591.   
 
 
No.  95-0915 
 
 
9 
legislature.  The Wisconsin legislature first passed Wis. Stat. 
§ 196.85 on June 5, 1931.  After passing the original statute, 
the legislature amended the statute on July 3, 1931, to add the 
words “power districts,” among other things, to subsection (2). 
 On January 29, 1932, the legislature amended Wis. Stat. § 
196.85(2) during a special session to add the phrase “derived 
from intrastate operations.”   
¶17 Looking specifically at the phrase “derived from 
intrastate operations” in the drafting records reveals a few 
helpful facts.  None of these facts, though, reveal the true 
intention of the legislature in adding the phrase “derived from 
intrastate operations.” 
¶18 First, the bill to amend the statute was introduced in 
the special session because the provisions of the 1931 utility 
regulation 
act 
providing 
for 
charging 
back 
the 
cost 
of 
investigations to the utilities were held unconstitutional by a 
Dane County Circuit Court.  Before the special session ended, 
the Wisconsin Supreme Court overruled the Dane County Circuit 
Court holding, thereby making the bill unnecessary.  The 
legislature passed the bill nonetheless.   Thus, the bill was 
not introduced during the special session specifically to add 
the phrase “derived from intrastate operations.” 
¶19 Second, 
the 
phrase 
“derived 
from 
intrastate 
operations” first appeared in the fourth draft of the bill.  The 
phrase was attached to the very last sentence of subsection (2). 
 The phrase “derived from intrastate operations” did not show up 
in its current position in subsection (2) until the sixth draft 
of the bill when the phrase was penciled in the margin.  The 
 
 
No.  95-0915 
 
 
10
drafting records did not provide an explanation for the addition 
of the phrase “derived from intrastate operations” in subsection 
(2).  The phrase remained in the two positions and the statute 
was amended as such on January 26, 1932, during the special 
session. 
¶20 One cannot deduce much from the little legislative 
history that exists.  The scarce legislative history is useful, 
though, to dispute MCI's argument that if the legislature had 
intended the PSC’s interpretation of the statute, it would not 
have called a special session and would not have added the 
phrase “derived from intrastate operations.”  The legislative 
history makes it clear that the bill to amend Wis. Stat. § 
196.85 was not introduced for the purpose of adding the phrase 
“derived from intrastate operations” to subsection (2).  Rather, 
the history makes it clear that the bill was introduced to deal 
with a ruling made by a Dane County Circuit Court regarding 
provisions charging back the costs of investigations to the 
utilities. 
¶21 MCI argues that the fact that the statute was passed 
in 1931 but not interpreted by the PSC in its current form until 
1984 demonstrates inconsistency on the part of the PSC in its 
interpretations.  However, we note that it is perfectly logical 
for the PSC to have embraced its current interpretation in 1984 
when the nation's entire telecommunications system changed.  
"The explosion in new telecommunications technologies and the 
breakup of the AT&T monopoly has led a number of States to 
 
 
No.  95-0915 
 
 
11
revise 
the 
taxes 
they 
impose 
on 
the 
telecommunications 
industry."  Goldberg v. Sweet, 488 U.S. 252, 255 (1989).
4  
¶22 In determining the reasonableness of an interpretation 
of a statute, this court also looks to the scope of the statute, 
that is, "what does the statute encompass?"  MCI argues that the 
PSC's interpretation of the statute is unreasonable because, 
while the PSC has regulatory authority over only intrastate 
telecommunications, it seeks to assess revenues received from 
interstate telecommunications.  As noted by the court of 
appeals, "[t]he flaw in MCI's argument is that it equates 
'intrastate operations' and 'intrastate telecommunications.'"  
MCI, 203 Wis. 2d at 404. To equate the two terms provides an 
absurd interpretation when the statute is applied to water or 
energy utilities.  The scope of the statute is broad.  It covers 
all utilities licensed in Wisconsin, not just telecommunications 
utilities. The PSC is acting within its authority in assessing 
the revenues generated from such interstate telecommunications 
insofar as they are classified as "intrastate operations."
5   
                     
4 Although it is an assessment and not a tax at issue in 
this case, the logic behind this quotation applies equally to 
Wis. Stat. § 196.85 and its interpretation by the PSC.   
5 In order for a state to have the authority to levy a tax 
or an assessment on an "interstate transaction," that activity 
must have a substantial nexus with the taxing state.  Complete 
Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977).  In this case, 
MCI does not deny Wisconsin's substantial nexus to the in-state 
calls that are assessed.  In fact, at oral argument in this 
case, the attorney for MCI stated that this case presented no 
constitutional issues to this court.  Consequently, we do not 
address any potential "nexus" or other constitutional problem in 
this opinion.      
 
 
No.  95-0915 
 
 
12
¶23 The United States Supreme Court has upheld similar 
challenges in cases analogous to, though not squarely on all 
fours with, this case.  In the case of Goldberg v. Sweet, 488 
U.S. 252 (1989), the Court held that a state in which an 
interstate telephone call originates or terminates has the 
requisite nexus to tax a customer's purchase of that call as 
long as the call is billed or charged to a service address, or 
paid by an addressee, within the taxing state.  
¶24 Goldberg indicates that the focus is on the site of 
the sale and not on the ultimate destination. Although not 
directly on point, this case does support the proposition that 
the sales of interstate telecommunications can legitimately be 
taxed or assessed by the state in which they originated. The 
PSC's interpretation of Wis. Stat. § 196.85(2) is consistent 
with the holding of this Supreme Court case.   
¶25 In sum, we adopt the PSC's interpretation of Wis. 
Stat. § 196.85(2) as the correct interpretation.  Because we 
find Wis. Stat. § 196.85(2) to be ambiguous, this conclusion is 
supported through the study of extrinsic sources like the 
purpose, legislative history, and scope of the statute. We hold 
that the interpretation of the phrase "revenues . . . derived 
from intrastate operations" by the PSC to include revenue from 
interstate telecommunications originating in Wisconsin is a 
correct interpretation. Additionally, because we embrace the 
PSC's interpretation as the proper one under any standard of 
review, we decline to address the proper level of deference to 
be applied in this case.  
 
 
No.  95-0915 
 
 
13
¶26 For the foregoing reasons, we affirm the court of 
appeals' decision reversing the circuit court. 
 
By the Court.— The decision of the court of appeals is 
affirmed.  
 
 
No.  95-0915 
 
 
14
 
1