Washington High Court Nixes Sales Tax on Free Wireless Services

Assurance Wireless USA LP convinced the Washington Supreme Court Thursday it doesn’t owe sales tax on wireless services it provided to low-income consumers for free under a federal program.

Because an instrumentality of the federal government operates the program, imposing sales tax on the transactions “violates the intergovernmental tax immunity doctrine as applied in this case,” Justice Debra L. Stephens wrote for the unanimous court.

Assurance, formerly known as Virgin Mobile, argued it was entitled to the sales tax portion of a $3.9 million tax bill it paid the state on funds it received for participating in the Federal Communication Commission’s Lifeline program. It asked the high court to overturn an appeals court ruling that the funds constitute taxable sales.

The company argued the money it receives through the program, administered by the Universal Service Administration Co., is part of a separate transaction from the company providing subsidized service. Telecommunications carriers are required by federal law to make contributions to the fund supporting the program and are reimbursed from the fund if they participate.

The high court agreed with ruling below that the transactions were retail sales because the USAC reimburses Assurance for providing prepaid plans to consumers.

It then found that the USAC, not the FCC or the Lifeline consumer, was the buyer legally obligated to pay for the Lifeline services.

Calling it a “close question,” the high court held that USAC is a tax-immune instrumentality of the federal government, not a government contractor. “It exists solely to carry out the FCC’s mission of advancing universal service, which includes the Lifeline program, and USAC pursues no independent business objectives,” the court said.

Eversheds Sutherland LLP represented Assurance.

The case is Assurance Wireless USA, LP v. Dep’t of Revenue, Wash., No. 101873-8, 3/7/24.