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Inc. v. United States

United States Court of Appeals, Federal Circuit

April 27, 2017

8X8, INC., Plaintiff-Appellant
UNITED STATES, Defendant-Appellee

         Appeal from the United States Court of Federal Claims in No. 1:13-cv-00478-EDK, Judge Elaine Kaplan.

          H. Christopher Bartolomucci, Kirkland & Ellis LLP, Washington, DC, argued for plaintiff-appellant. Also represented by Christopher George Michel.

          Judith Ann Hagley, Tax Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Teresa E. McLaughlin, Caroline D. Ciraolo.

          Before Wallach, Chen, and Hughes, Circuit Judges.

          Wallach, Circuit Judge.

         Appellant 8x8, Inc. ("8x8") sued Appellee the United States ("Government") in the U.S. Court of Federal Claims, seeking a refund of more than $1 million in Federal Communications Excise Tax ("FCET" or "excise tax"). The parties subsequently filed cross-motions for summary judgment, and the Court of Federal Claims denied 8x8's Motion and granted the Government's Cross-Motion, thereby denying 8x8's claim for a refund of the FCET remitted. See 8x8, Inc. v. United States, 125 Fed.Cl. 322, 331 (2016).

         8x8 appeals. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3) (2012). We affirm.


         I. 8x8's VoIP Services

         8x8 is a provider of local and long-distance telephone services over a broadband internet connection via Voice over Internet Protocol ("VoIP"). This service allows customers to make and receive calls over the internet via a digital terminal adapter ("DTA"), which contains 8x8's proprietary firmware and software. J.A. 246. Part of 8x8's VoIP service included the use of other transmission services from Level(3) and Global Crossing-i.e., traditional telecommunications carriers. J.A. 246. The customer's call would be switched over to Level(3)'s or Global Crossing's traditional lines and circuits when necessary.[1]J.A. 365-66. However, 8x8 did not pay any FCET to Level(3) or Global Crossing because it provided them with an "exemption certificate[], " which "represent[ed] that [8x8] was a provider of telephone service and was exempt from the excise tax in [I.R.C.] § 4253 [(2006)]."[2] J.A. 246.

         Subscribing to a plan offered by 8x8 included several steps. First, customers seeking access to 8x8's VoIP service needed to purchase a DTA. J.A. 246. After making the necessary physical connections to the DTA, the customer then "went to 8x8's website and signed up for a subscription plan, " which included "accept[ing] 8x8's Terms and Conditions of Service." J.A. 247. These Terms and Conditions provided that 8x8 would collect the FCET from its customers and remit the FCET to the Internal Revenue Service ("IRS") for the customers' use of 8x8's VoIP domestic telephone service. See J.A. 259 ("8x8 will . . . bill all charges invoiced to End User's account . . . . Such charges shall include . . . monthly service fees, . . . toll charges, taxes and any other applicable charges."), 260 ("Prices for the Services do not include any . . . sales, use, value added, excise, federal, state, local, public utility or other similar taxes. All such taxes shall be paid by the End User and will be added to any amounts otherwise charged[, ] unless [the] End User provides 8x8 with an appropriate exemption certificate."). The subscription plans included (1) an unlimited local and long distance plan permitting calls that were within "reasonable personal use" for a set fee, J.A. 247; or (2) plans for a set amount of minutes at a set price, J.A. 246. After selecting a subscription plan, "the customer would provide 8x8 with a credit card which would be used to pay all charges, fees, and taxes for the 8x8 service."[3] J.A. 247. Finally, "the customer would be provided with a 10 digit code that would be used to activate the 8x8 service." J.A. 247.

         II. Relevant History of the FCET

         8x8's VoIP services were subject to the FCET. J.A. 246; see I.R.C. § 4251(a)(1) (imposing the FCET on "communications services"); id. § 4251(b)(1) (defining "communications services"). Beginning in 2005, several appellate courts held that § 4251 did not permit the IRS to tax telephone services that billed customers based on a fixed per-minute, non-distance-sensitive rate. See, e.g., Reese Bros., Inc. v. United States, 447 F.3d 229, 234 & n.2 (3d Cir. 2006) (collecting cases).

         In response to these rulings, the IRS ceased collecting the FCET on "amounts paid for time-only service." I.R.S. Notice 2006-50, § 1(a), 2006-25 I.R.B. 1141 ("2006 No-tice")[4]; see I.R.S. Notice 2007-11, 2007-5 I.R.B. 405 (clarifying and modifying the 2006 Notice). The IRS also stated that VoIP services were non-taxable, 2006 Notice, § 3(a), (d), and established a process for taxpayers to seek a refund of the FCET that had been exacted on non-taxable services during the period between February 2003 and August 2006, id. § 5(d). Finally, the 2006 Notice stated that a "collector"[5] can request a refund of the FCET collected from customers during the relevant period if the collector either (1) "establishes that it repaid the amount of the tax to the person from whom the tax was ...

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