Universal Service Fee Surcharge, B-279796, January 4, 1999

B-279796 Jan 04, 1999 Jump To VIEW DECISION RELATED PAGES GAO CONTACTS Highlights The United States is vigorously defending the legality of the requirement. A surcharge that communications vendors have added to Fort Sam Houston's invoices for telecommunications services. Although this matter is complicated by pending litigation. We have no objection to the Army's payment of the fee if payment is required by its existing contracts and is consistent with the carriers tariff. Including the extent to which telecommunications services are essential to education and public health and safety. A number of carriers have chosen to impose them in order to recover from customers. He questions whether the federal government is exempt from paying the surcharge. Analysis Our 9-1-1 decisions are inapposite here. View Decision Matter of: Universal Service Fee Surcharge File: B-279796 Date: January 4, 1999 DIGEST DECISION A disbursing officer of the Army at Fort Sam Houston has requested an advance decision concerning the propriety of paying a Universal Service Fee, a surcharge that communications vendors have added to Fort Sam Houston's invoices for telecommunications services. Although this matter is complicated by pending litigation, we have no objection to the Army's payment of the fee if payment is required by its existing contracts and is consistent with the carriers tariff. Background The Telecommunications Act of 1996 requires that "every telecommunications carrier that provides interstate telecommunications services shall contribute . . . to the specific, predictable, and sufficient mechanisms" established by the Federal Communications Commission (Commission, or FCC) "to preserve and advance universal service." Pub. L. No. 104-104, Sec. 254(d), 110 Stat. 56, 71-73 (1996). The Act defines "universal service", generally, as a level of telecommunications services that the Commission establishes periodically after taking into account various considerations, including the extent to which telecommunications services are essential to education and public health and safety. Id., Sec. 254(c)(1). The Commission uses the carriers' universal service contributions to subsidize services to low income consumers, as well as advanced telecommunications for schools, libraries, and rural health care providers. The Commission bases contributions on the carriers' end-user revenues. The carriers calculate their contributions by multiplying their end-user revenues by the universal service contribution factor set by the Commission. Although the Commission has specifically declined to direct the carriers to recover their contributions through a surcharge on their customers, it did not prohibit surcharges. Federal State Board on Universal Service, Report and Order, 12 F.C.C. Rcd. 8776, 9211-12 (May 8, 1997). A number of carriers have chosen to impose them in order to recover from customers, as a cost of doing business, the amounts of their contributions. Referring to the Commission's decision not to require carriers to pass their contributions on to customers through surcharges, the disbursing officer asks whether he may pay the surcharge, or Universal Service Fee, assessed Fort Sam Houston by its communications vendors. Noting our decisions addressing 9-1-1 emergency telephone surcharges, he questions whether the federal government is exempt from paying the surcharge, which he compares to the 9-1-1 surcharges, as a tax assessed against customers. Analysis Our 9-1-1 decisions are inapposite here. The 9-1-1 cases involved taxes assessed under state law. The United States and its instrumentalities are immune from direct taxation by state and local governments. U.S. Const. art VI, cl. 2. Hence, in our 9-1-1 decisions, we found the federal government, as a consumer, exempt from paying state and local taxes assessed directly against the United States as an end user. See B-265776, Nov. 29, 1995; B-254628, Apr. 7, 1994; B-254712, Feb. 14, 1994. (On the other hand, when a state or locality assesses a tax against a provider who simply passes that amount on to its customers as an added cost of business, the federal government may pay its provider the costs the provider charges. Id.) Because the Universal Service Fee at issue here is intended to recover the carriers' universal service contributions established under federal, not state, law, constitutional immunity does not arise, and would not prohibit payment of the fee. This matter is complicated by pending litigation in which carriers challenge the constitutionality of the Commission's action requiring universal service contributions. A number of carriers, along with several states, have petitioned the Fifth Circuit Court of Appeals for review of the Commission's order. Texas Office of Public Utility Counsel v. FCC, No. 97-60421 (5th Cir., filed June 25, 1997).