Opinion ID: 1966700
Heading Depth: 1
Heading Rank: 11

Heading: whether gross receipts at issue are taxable

Text: Capitol, Aliant, and Systems argue that the gross receipts from the labor services at issue do not relate to a public utility function, nor were they received from the provision, installation, construction, servicing, or removal of property used in conjunction with the furnishing, installing, or connecting of a public utility service pursuant to §§ 77-2703(1) and 77-2702.07(2). Capitol specifically points to the 1986 Dear Telephone Company letter written by Hirsch to support its position that those charges are not taxable under §§ 77-2703(1) and 77-2702.07(2). The Department's regulation § 065.05 provides: Charges made by a telephone company to the customer for installations, service connections, move and change charges, service upgrades, optional features like call waiting or voice mail, and construction costs constitute gross receipts for telephone service and are taxable. Agency regulations, properly adopted and filed with the Secretary of State of Nebraska, have the effect of statutory law. Lackawanna Leather Co. v. Nebraska Dept. of Rev., 259 Neb. 100, 608 N.W.2d 177 (2000). The Aliant and Systems trial court concluded that neither § 77-2703(1) nor § 77-2702.07(2) provides a basis for assessing sales tax on the gross receipts from the labor services provided by Aliant or Systems. The trial court, in the Aliant and Systems' case, also held that the Department could not through adoption of § 065.05 enlarge its power to assess sales tax. The Department interprets §§ 77-2703(1) and 77-2702.07(2) as allowing for the gross receipts from the relevant labor services of Capitol, Aliant, and Systems to be subject to taxation. Although construction of a statute by a department charged with enforcing it is not controlling, considerable weight will be given to such a construction. This is particularly so when the Legislature has failed to take any action to change such an interpretation. Cox Cable of Omaha v. Nebraska Dept. of Revenue, 254 Neb. 598, 578 N.W.2d 423 (1998). Section 065.05 became effective May 14, 1994. Since Aliant's and Systems' tax deficiencies were from 1995 to 1998, the Hirsch letter had no effect as to Aliant or Systems. As to Capitol, however, its audit period was December 1, 1993, to October 31, 1997. Since § 065.05 became effective on May 14, 1994, the Hirsch letter was in existence with regard to Capitol from December 1, 1993, through May 14, 1994. The Hirsch letter, however, was not controlling and is not a rule or regulation. See Perryman v. Nebraska Dept. of Corr. Servs., 253 Neb. 66, 568 N.W.2d 241 (1997) (Department of Correctional Services' memorandum did not constitute rule or regulation), disapproved on other grounds, Johnson v. Clarke, 258 Neb. 316, 603 N.W.2d 373 (1999). In Perryman, we were required to determine whether a memorandum by the director of the Department of Correctional Services was a rule or regulation. This memorandum was written in response to a letter containing a legal opinion from the Attorney General. The memorandum advised that, effective immediately, the application of good time toward mandatory minimum sentences imposed for certain drug offenses was to be discontinued. We held in Perryman that the memorandum did not constitute a rule or regulation. See, also, Neb.Rev.Stat. § 84-901(2) (Reissue 1999). We conclude that the Hirsch letter is akin to the Department of Correctional Services' director's memorandum in Perryman. The Hirsch letter is not a rule or regulation. Even if the Hirsch letter was a rule or regulation, an administrative agency cannot use its rulemaking power to modify, alter, or enlarge provisions of a statute which it is charged with administering. Spencer v. Omaha Pub. Sch. Dist., 252 Neb. 750, 566 N.W.2d 757 (1997); Clemens v. Harvey, 247 Neb. 77, 525 N.W.2d 185 (1994). Additionally, statutory interpretation presents a question of law, in connection with which an appellate court has an obligation to reach an independent conclusion irrespective of the decision made by the court below. In the absence of anything to the contrary, statutory language is to be given its plain and ordinary meaning; an appellate court will not resort to interpretation to ascertain the meaning of statutory words which are plain, direct, and unambiguous. Philpot v. Aguglia, 259 Neb. 573, 611 N.W.2d 93 (2000); Ferguson v. Union Pacific RR. Co., 258 Neb. 78, 601 N.W.2d 907 (1999). In discerning the meaning of a statute, a court must determine and give effect to the purpose and intent of the Legislature as ascertained from the entire language of the statute considered in its plain, ordinary, and popular sense. It is the court's duty to discover, if possible, the Legislature's intent from the language of the statute itself. Burlington Northern & Santa Fe Ry. Co. v. Chaulk, 262 Neb. 235, 631 N.W.2d 131 (2001). We previously addressed a similar issue of statutory interpretation in Cox Cable of Omaha v. Nebraska Dept. of Revenue, 254 Neb. 598, 578 N.W.2d 423 (1998). In that case, Cox hired independent contractors to perform the installation of house drops. These drops connect the distribution plant to a subscriber's residence, thereby enabling the subscriber to receive cable television. A use tax was assessed to Cox for the charges paid to the independent contractors for the installation of house drops. Cox maintained that the tax applied only to the franchise company when it performed the installation services because the independent contractors were not licensed cable providers. This court, however, rejected that argument, stating: The tax imposed by § 77-2703(1) is on the gross receipts of cable television service operators or any person involved in the connecting and installing of regulated television services. Section 77-2703(1) clearly reflects an intent to tax not only the receipts of cable television service operators, but also the receipts of persons who are not franchised entities but perform services involving the connection and installation of regulated television services. Similarly, § 77-2702(4)(b)(iv) defines gross receipts to include not only gross income from furnishing regulated cable television service, but also gross income from the installation and construction of tangible personal property used in conjunction with the installation or connection of regulated cable television services. 254 Neb. at 604, 578 N.W.2d at 427. We held in Cox Cable of Omaha that if the Legislature had intended to tax only the gross receipts attributable to connection and installation services performed by the holder of a franchise or permit, it could have so stated. However, the Legislature's use of broader language reflects that it intended the scope of the tax to extend beyond the receipts of the franchised entity to other persons or entities who derive revenue from performing services which involve the installing or connecting of regulated television services. Therefore, we held that the tax imposed by § 77-2703(1) extended to independent contractors' gross receipts derived from services which they performed in installing house drops pursuant to their contractual agreements with Cox. Cox Cable of Omaha v. Nebraska Dept. of Revenue, supra . We conclude that §§ 77-2703(1) and 77-2702.07(2) allow for the charges at issue to be taxable. The definition of gross receipts in § 77-2702.07(2) encompasses every person engaged in furnishing telephone communication services or any person involved in connecting and installing telephone communication services. Subsection (2)(a) provides that gross receipts include the gross income from furnishing local exchange service and intrastate message toll telephone service. Additionally, the definition of gross receipts is broadened by subsection (2)(d) to include in the gross income revenue received from the provision, installation, construction, servicing, or removal of property used in conjunction with the furnishing, installing, or connecting of any public utility service, including telephone communication service. The language of § 77-2703(1) ties in closely to the definition of gross receipts in § 77-2702.07(2). Section 77-2702.07(2) imposes a sales tax on the gross receipts of every person engaged as a public utility or any person involved in the connecting and installing of public utility service, including telephone communication service. If the Legislature had intended only labor on the regulated side of the D mark to be taxable, it could have so stated in the statute. It did not, however, and instead stated that not only would the gross receipts of the public utility be taxed, but so would the gross receipts of any person involved in the connecting and installing of the services defined in subdivision (2)(a), (b), or (d) of section 77-2702.07. § 77-2703(1). We agree with the trial court in Capitol's case and find that the gross receipts of Capitol, Aliant, and Systems at issue are taxable. Regardless of who owns the inside wiring or terminal equipment, it is used in conjunction with the equipment of the telephone service carrier to provide the level of telecommunication service required by the customer. Capitol, Aliant, and Systems are engaged in installing and connecting telephones, wires, cables, consoles, and other property that form the telephone communication systems. Their telephone systems are connected or united with the local exchange network to carry telephone service into their customers' premises, and it is highly unlikely that their customers would pay for the systems if they would not have access to local telephone service. The services are, therefore, plainly rendered in conjunction with the furnishing, installing, or connecting of any local exchange service or intrastate message toll telephone service, even when performed on the customer side of the D mark. We conclude that § 065.05 does not alter or enlarge the provisions of §§ 77-2703(1) and 77-2702.07(2) and, therefore, that the gross receipts of Capitol, Aliant, and Systems at issue are subject to Nebraska sales tax pursuant to §§ 77-2703(1) and 77-2702.07(2). We thus affirm the decision of the Capitol trial court and reverse the decision of the Aliant and Systems trial court on this issue.