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Ninth Circuit Holds Washington B&O Statute Not Preempted by Federal Law

combined case against Cingular Wireless (now AT&T) has been working its way through state and federal courts for some time now. At issue was Cingular’s practice of

November 5, 2012

combined case against Cingular Wireless (now AT&T) has been working its way through state and federal courts for some time now. At issue was Cingular’s practice of passing through to its customers, as a line-item surcharge, the Washington business & occupation (B&O) tax assessed against the company. The plaintiffs sued Cingular on the grounds that its billing practice violated, among other things, R.C.W. 82.04.500 and Washington’s Consumer Protection Act (CPA). Section 82.04.500 provides that the B&O tax is to be levied upon and collected from the person engaged in the business activities rather than purchasers or customers. The federal district court held that R.C.W. 82.04.500 was preempted by the Federal Communications Act and granted Cingular’s motion for summary judgment on the plaintiffs’ remaining claims. 

On appeal, the Ninth Circuit held that R.C.W. 82.04.500 is not preempted by federal law.  Section 332(c)(3)(A) of Title 47 of the U.S. Code provides that state and local governments are not authorized to regulate the entry of or the rates charged by any commercial mobile service; however, a savings clause in the same section authorizes state and local governments to regulate “the other terms and conditions of commercial mobile services.” The Ninth Circuit found that R.C.W. 82.04.500 regulates “other terms and conditions,” not rates, because it only requires that businesses quote all prices inclusive of the B&O tax.

The Ninth Circuit also ruled that Cingular engaged in an unfair or deceptive practice in violation of the state CPA. Under Washington case law, a successful CPA claimant need only show that the practice in question had the capacity to deceive a substantial portion of the public, rather than an intent to deceive or actual deception. The Ninth Circuit determined that Cingular’s inclusion of the surcharge on customers’ bills had the capacity to deceive the public into believing the surcharge had the FCC’s blessing.

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