Opinion
104482/05.
Decided June 28, 2006.
This is a proposed class action by plaintiffs Seth Kessler and Matthew Berman against the State of New York and the State Comptroller, Alan Hevesi, arising from a surcharge imposed by the State on users of cellular telephones. Defendants move, pursuant to CPLR 3211(a)(7), for an order dismissing the Complaint. Plaintiffs cross-move, pursuant to CPLR 3212, for an order granting summary judgment. For the reasons stated below, the motion to dismiss is granted, the Complaint dismissed, and the cross-motion denied.
1. Background
The telephone, in addition to being one of the great advancements of the twentieth and twenty-first centuries, has been an incredible source of revenue for both State and Federal governments. Few consumers are aware that up until this spring, they were paying almost 7 billion dollars a year in taxes because of an obscure "temporary" telephone tax passed in 1898 by Congress in order to generate revenue to pay for the Spanish-American War. The tax was abandoned only after appeals courts declared it illegal.
See, Reese Bros., Inc. v. U.S., 447 F.3d 229 [3rd Cir. 2006]). See also, Rob Kelly, "Remember the Maine? Get A Refund," April 20, 2006 (http://money.cnn.com/2006/04/19/pf/telephone_excise/index.htm.
In a similar vein, the New York State Legislature in 1989 enacted Article 6 of the County Law, the first of three statutes enacted for the ostensible purpose of providing "enhanced 911 service" to users of land line and wireless telephones. Predictably, these funds were not used for their "intended" purposes and this litigation ensued.
Plaintiffs are residents of New York and users of wireless telephones. Defendant Alan Hevesi is the Comptroller of the defendant State of New York. This action arises in the context of the State's efforts to provide what is known as "Enhanced 911 Service". 911 is the well-recognized telephone number which has been designated throughout the United States as the universal number to call by individuals seeking emergency assistance.
Traditionally, 911 service has operated by providing callers with direct access to a local, county or State-operated Public Safety Answering Point (PSAP), which is responsible for dispatching emergency services, including police, fire and medical assistance. This is referred to as "basic" 911 service. One drawback of this system is that it provides only a voice connection to a pre-determined PSAP, with no information available to the operator other than that provided by the caller. "Enhanced" 911 service provides the operator with the caller's telephone number and/or location, and enables the operator to direct the call to the nearest PSAP. This reduces the amount of time required for emergency service providers to respond to the call.
In 1989, the New York State Legislature enacted Article 6 of the New York County Law in order to provide a funding mechanism for counties (and eventually other localities, including New York City) to provide Enhanced 911 service for land-line telephone users ( See, County Law § 300, et seq.). The statute empowered the counties to impose a monthly surcharge of thirty-five cents on land-line telephone users in order to "pay for the costs associated with obtaining, operating and maintaining the telecommunications equipment and telephone services needed to provided an enhanced 911 emergency telephone system . . ." (County Law § 303). The statute did not enact any surcharges on wireless telephone service. A. The 1991 Statute
According to defendants, by 2001, 94% of Americans had access to land-line 911 service, with 97% of that coverage qualifying as enhanced service. The statute currently provides that cities with a population of one million or more may impose a surcharge of one dollar.
In 1991, Article 6 was amended to include Section 309, which was entitled "Cellular Telephone Surcharge". The purpose of the amended statute was to provide basic 911 service for wireless telephone users ( See generally, Cellco Partnership v. County of Otsego, 296 AD2d 633 [3rd Dept 2002]).
The statute imposed a surcharge of seventy cents per month on cellular telephone service in New York State. Every cellular telephone service supplier was required to collect the surcharge and remit it, minus a two percent administrative fee, to the division of state police on a quarterly basis. The statute further provided that these monies were to be "deposited to the seized assets account of the miscellaneous special revenue fund for payment of division of state police costs related to statewide operation of a cellular 911 emergency telecommunications system".
B. Changes in Wireless Telephone Use
The use of wireless telephones increased significantly during 1990s. This had many significant effects, including a large increase in the amount of revenue collected pursuant to the Section 309 wireless telephone surcharge. It also led to an increase in efforts nationwide to provide enhanced 911 service to users of cellular telephones.
Beginning in 1996, the Federal Communications Commission (FCC) issued a series of Orders designed to compel wireless carriers to increase the provision of enhanced 911 service ( See, US Cellular Corp v. FCC, 254 F3d 78 [DC Cir 2001] (describing various FCC orders from 1996-2001)). The FCC Orders mandated a two-phase plan for providing such service. Phase I required identification of call-back numbers, even where they were otherwise blocked or unavailable. It also required that information be available in connection with each call's site sector, i.e. the location of the nearest cell tower. The Phase I service was designed to provide general information about the location of origin of the call within an area of approximately 100 square miles. Phase II service was designed to reduce that distance and provide information about the origin of the call within a range of 50 to 100 meters.
C. The 2002 Audit
In March of 2002, the New York State Comptroller's office issued a report of its audit of the State police's use of the monies collected under the 1991 statute. The report noted that, pursuant to the statute, wireless surcharge revenues were intended to support State Police costs related to operating a cellular 911 emergency network and coordinating emergency responses to 911 calls from wireless users (Report, Executive Summary at 1). The report stated that, in fact, the revenues were used "to pay for a wide variety of [State Police] needs, most of which do not appear to relate to cellular 911" (Report, Executive Summary at 2). This included things such as: dry cleaning bills; transportation and lodging expenses; a missing person search; conferences; flight safety training; helicopter maintenance training; and soft body armor purchases (Report at 13).
Most significantly however, the 2002 report indicated that at that time, enhanced cellular 911 was not operational anywhere in New York State. State Police answering cellular 911 calls could not routinely identify cellular call-back numbers or locations (Report, Executive Summary at 3), and the 2002 report concluded that as a result, "dispatchers may not be able to respond to cellular 911 calls as quickly as they could if enhanced cellular 911 were in place" (Report, Executive Summary at 3).
The Division of State Police responded to the audit report in a detailed letter dated March 15, 2002. It stated that it understood its mandate to be to use the surcharge revenues to provide emergency services to wireless telephone users and stated that it had made legitimate use of the monies it had received. The State Police took issue with the Comptroller's assertion that the 1991 statute mandated that the State Police implement a wireless enhanced 911 service on a statewide basis, since the technology for such a system did not exist in 1991 and such service was not a requirement for wireless carriers until 1996 when the FCC issued the first of its orders on the subject.
D. 2002 Statute
In 2002, County Law § 309 was again amended so as to increase the wireless 911 surcharge to $1.20 per month. The statute sets forth that "[a]ny surcharge hereunder required to be collected by a wireless communications service supplier shall be added to and separately stated as a single charge on a wireless communications customer's bill" (County Law § 309(2)(b)). The surcharge is specifically listed on wireless telephone bills as "NY State E911 Fee". The carrier is entitled to retain as an administrative fee 2% of 58.3% of the amount collected. County Law § 309(2)(c).
The monies collected pursuant to the statute are remitted to the Department of Taxation and Finance for deposit into banks designated by the Comptroller. The statute sets forth the specific manner for how the collected funds were to be distributed. First, the Comptroller was required to allocate:
(a) forty-one and seven-tenths of the revenues collected and received under this section into the state general fund; and (b) after deducting the amount paid under paragraph (a) of this subdivision and the amount retained by wireless communications suppliers pursuant to paragraph) of subdivision two of this section, the balance of the revenues collected under this section into the statewide public safety communications account of the miscellaneous special revenue fund, created pursuant to section ninety-seven-qq of the state finance law.
Under § 309(5), the Comptroller was directed to distribute the remaining money as follows:
(a) The sum of twenty-five million five hundred thousand dollars shall be allocated to the state police pursuant to appropriation by the legislature annually;
(b) The sum of one million five hundred thousand dollars shall be deposited into the New York state emergency services revolving loan fund annually;
(c) Up to the sum of forty million dollars shall be available in the state fiscal year two thousand two — two thousand three, for payments related to homeland security, the state public safety and security programs, including but not limited to the detection, protection against, prevention, response and recovery from terrorist acts or threats, pursuant to appropriation by the legislature;
(d) To fund costs associated with the design, construction, and operation of the statewide wireless network annually pursuant to appropriation by the legislature;
(e) The sum of four million two hundred thousand dollars shall be made available to the state police in fiscal year two thousand two — two thousand three for the Federal Communications Assistance Law Enforcement Act (CALEA); and
(f) Not less than the sum of twenty million dollars in fiscal year two thousand two — two thousand three and not less than ten million dollars each year thereafter shall be disbursed pursuant to article six-A of this chapter and appropriation by the legislature.
(g) To provide the costs of debt service for bonds and notes issued to finance expedited deployment funding pursuant to the provisions of section three hundred thirty-three of this chapter and section sixteen hundred eighty-nine-h of the public authorities law.
The 2002 statute differs significantly from the 1991 version in how the collected monies are allocated. In particular, the amount of money allocated to the State Police is far less, which reflects their reduced role in the provision of wireless 911 service. Also, under § 309(5)(f), twenty million dollars in fiscal year 2002 and ten million dollars each year thereafter was allocated to the New York State 911 Board which grants money to counties for their own E911 systems. E. 2004 Review
See, County Law, Article 6-A — Local Enhanced Wireless 911 Program, §§ 325, et seq.
The Comptroller released a report in February of 2004 titled "Status of Wireless 911 Surcharge in New York State". The report was issued as a review of the actions taken by the State Police and the State of New York in connection with their efforts to implement the changes set forth in the 2002 Statute in connection with the delivery of enhanced 911 emergency services. Among other things, the report stated that progress had been made in implementing Phase II technology, although it was still not universally available.
Defendants now assert that in the year and a half since the 2004 report, implementation of E911-capable PSAPs has continued, with at least twenty County PSAPs being Phase II enabled. Ten other Counties were Phase I enabled and six additional Counties with wireless PSAPs operated by the State Police were Phase II enabled and operating. The State further asserts that New York City is Phase II capable and operating. 2. The Instant Action
According to defendants, when a PSAP is Phase II capable and operating, it means that the PSAP is capable of receiving and processing wireless 911 calls and that at least one wireless carrier is supplying a Phase II compliant signal. Defendants note that carriers are not required to provide such a signal until notified of readiness by the PSAP and the carrier may still apply for a waiver or extension before having to supply the signal. The court also notes that enhanced 911 service is only available to cell phone users who have upgraded their phones to a model that is compatible with the service.
Plaintiffs commenced this action in March of 2005 on behalf of themselves and other similarly situated, i.e. other wireless telephone users who have paid the 1991 and 2002 surcharges. The Complaint alleges that the surcharges, in both forms, violate the Takings Clause of the Fifth Amendment of the United States Constitution, which provides that private property shall not "be taken for public use, without just compensation" ( See, United States Constitution, Amendment V).
Specifically, plaintiffs allege that "the State has taken and, in many instances, continues to take the property of Plaintiff and the Class Members without compensation in a situation in which they are constitutionally entitled to receive just compensation" (Complaint at ¶ 35). They seek an award of damages from the State in the amount that plaintiffs and the proposed class members have paid pursuant to the statute from March 31, 1999 to the date of judgment.
3. Subject Matter Jurisdiction
Initially, defendants argue that this action must be dismissed because the Court of Claims has exclusive subject matter jurisdiction over actions against the State. This is unpersuasive.
"It is well settled that the Court of Claims has exclusive jurisdiction over actions for money damages against the State, State agencies, or State officials acting in their official capacities in the exercise of governmental functions" ( Bertoldi v. State, 275 AD2d 227 [1st Dept 2000], citations omitted; see, Sinhogar v. Parry, 53 NY2d 424, 431; Morell v. Balasubramanian, 70 NY2d 297, 300). This is because "[c]laims seeking money damages which arise out of actions and determinations made by State officials acting in their official roles are, in essence, actions against the State, for the State is the real party in interest" ( Bertoldi v. State, 275 AD2d 227, 228 [1st Dept 2000], citing Thomas v. Tarpley, 268 AD2d 258 [1st Dept 2000]). Court of Claims Act § 9 provides the court with jurisdiction to hear and determine claims against the state "for the appropriation of any real or personal property or any interest therein."
"However, the Court of Claims does not have jurisdiction over challenges to the constitutionality of statutes, even if such determination is necessary to resolve a claim for money damages against the State" ( Chapman v. State, 193 Misc 2d 216, 219 [NY Ct Cl 2002]; see, Madura v. State, 12 AD3d 759 [3rd Dept 2004]; Matter of Markham v. Comstock, 272 AD2d 971, 972 [4th Dept 2000]; Ozanam Hall of Queens Nursing Home Inc v. State, 241 AD2d 670 [3rd Dept 1997]). "Rather, a declaratory judgment action in the Supreme Court is an appropriate vehicle for challenging the constitutionality of a statute'" ( Markham v. Comstock, 272 AD2d 971, 972 [4th Dept 2000], quoting Cass v. State, 58 NY2d 460, 463; see, Shields v. Katz, 143 AD2d 743 [2nd Dept 1988]).
Here, it is undisputed that plaintiffs are challenging the constitutionality of both the 1991 statute and the 2002 statute. Plaintiffs contend that the 1991 statute is unconstitutional as applied to them and they contend that the 2002 is unconstitutional on its face. Therefore, this court, rather than the court of claims, is the proper forum for adjudicating the constitutionality of the statutes at issue.
4. Exhaustion of Remedies
Defendants argue that plaintiffs' claims under the 1991 Statute must be dismissed for failure to exhaust their underlying administrative remedies. Defendants rely on State Finance Law 8 § (15), which provides an administrative remedy to individuals who have paid a fee or other monies but have not received a requested service. Defendants contend that plaintiffs "have not alleged that they have exhausted this claim by requesting such a refund from the relevant State agency, and obtaining certification from its head" (Defendants' Memorandum of Law at 31).
Defendants' argument is unpersuasive. First, State Finance Law 8 § (15) is inapplicable to this action. Defendants correctly set forth that the statute provides a means by which a party can seek a refund after having paid a fee or other monies and not receiving the requested service for which they paid. However, it is undisputed that plaintiffs have not alleged that they sought a refund or that they requested a service which they did not receive.
In any event, even if the State Finance Law were applicable, even "where a statute expressly designates an article 78 proceeding as the sole route to relief from its invalid application, resort to another form of judicial scrutiny nevertheless may be had when the statute is alleged to be unconstitutional, by its terms or application, or where [it] is attacked as wholly inapplicable'" ( Watergate II Apartments v. Buffalo Sewer Authority, 46 NY2d 52, 57, quoting First Nat City Bank v. City of New York Finance Administration, 36 NY2d 87). Here, plaintiffs have clearly challenged the constitutionality of the 1991 statute as it applies to them. Therefore, defendants have not demonstrated that plaintiffs have failed to exhaust their administrative remedies with respect to their claims under the 1991 statute.
5. Constitutionality of 2002 Statute
Plaintiffs seek a declaration that County Law § 309 is unconstitutional on its face because it violates the Takings Clause of the Fifth Amendment of the United States Constitution. "A claimant under the Takings Clause must show that the government, by some specific action, took a private property interest for a public use without just compensation" ( Adams v. US, 391 F3d 1212, 1218 [Fed Cir 2004], citing, Hodel v. Va Surface Mining Reclamation Ass'n, 452 US 264, 294).
Plaintiffs bear a heavy burden in attempting to demonstrate that Section 309 is unconstitutional because it is presumed that legislative enactments are constitutional and that presumption "will only be disturbed by proof persuasive beyond a reasonable doubt'" ( Salvador v. State, 205 AD2d 194, 199 [3rd Dept 1994], quoting Hotel Dorset Co v. Trust for Cultural Resources, 46 NY2d 358, 370; see, City of New York v. State of New York, 76 NY2d 479, 485; see also, National Endowment For the Arts v. Finley, 524 US 569, 580; US v. Salerno, 481 US 739, 745). There is also a presumption "that the Legislature made a sufficient inquiry into the existence of the necessary supporting facts as well as into the need for and desirability of the legislation" ( Salvador v. State, supra at 199, citations omitted).
The central issue in this action is whether the surcharge imposed by Section 309 constitutes a user fee or a tax. Plaintiffs' argument in support of the Complaint rests entirely on their assertion that surcharge is a user fee. Plaintiffs rely heavily on the decision in US v. Sperry Corp, in which the Supreme Court stated that a user fee must be a "fair approximation of the cost of benefits supplied" ( 493 US 52, 60, quoting Massachusetts v. United States, 435 US 444, 463, n. 19 [1978]).
Plaintiffs contend that they and other potential class members have paid, and continue to pay, a user fee for the provision of E911 service. They further allege that "New York has failed to develop and maintain a fully functioning statewide wireless E911 system" (Complaint at 3). Thus, they assert that the hundreds of millions of dollars collected by the State since 1991 do not constitute a fair approximation of the cost of the benefits supplied.
Defendants contend that surcharge is a tax rather than a user fee. The distinction is critical because plaintiffs do not argue that the surcharge is unconstitutional if it is in fact a tax.
The distinction between taxes and fees has been addressed in numerous Federal and New York cases. "Taxation is a legislative function, and Congress, which is the sole organ for levying taxes, may act arbitrarily and disregard benefits bestowed by the Government on a taxpayer . . ." ( National Cable Television Ass'n, Inc v. US, 415 US 336, 340). "One of the characteristics of a tax as opposed to a fee is that a tax is an exaction for public purposes rather than a voluntary payment for a private benefit" ( In re Jenny Lynn Min Co, 780 F2d 585, 589 [6th Cir 1986] (relying on National Cable, supra, to determine that money paid for a strip mining permit was an excise tax); In re United Healthcare System, Inc, 396 F3d 247, 260 [3rd Cir 2005]; US v. City of Huntington, West Virginia, 999 F2d 71, 73 [4th Cir 1993] ("[u]ser fees are payments given in return for a government-provided benefit"; taxes are enforced contributions for the purpose of supporting government); National RR Passenger Corp v. City of New York, 882 F2d 710 [2d Cir 1989], citing US v. La Franca, 282 US 568).
Unlike a tax, "[a] fee . . . is incident to a voluntary act, e.g., a request that a public agency permit an applicant to practice law or medicine or construct a house or run a broadcast station" ( National Cable Television Ass'n, Inc v. US, 415 US 336, 340-41). As such, "[t]he public agency performing those services normally may exact a fee for a grant which, presumably, bestows a benefit on the applicant, not shared by other members of society" ( Id. at 341; see, Commonwealth Edison Co v. Montana, 453 US 609 (user fees reimburse the State for costs incurred in providing specific quantifiable services); In re Jenny Lynn Min Co, 780 F2d 585, 589 [6th Cir 1986] ("one purpose of most governmentally imposed fees is to support the agency that administers the program under which the fee is charged, presumably serving some public purpose").
New York law is consistent with the standard set forth in the Federal courts. "Simply stated, taxes are burdens of a pecuniary nature imposed for the purpose of defraying the costs of government services generally . . . while fees have been characterized as the visitation of the costs of special services upon the one who derives a benefit from them'" ( New York Telephone Co v. City of Amsterdam, 200 AD2d 315, 317 [3rd Dept 1994], quoting Jewish Reconstructionist Synagogue of North Shore, Inc v. Incorporated Village of Roslyn Harbor, 40 NY2d 158, 163, and citing Joslin v. Regan, 63 AD2d 466 [4th Dept 1978], aff'd 48 NY2d 746; see, Owner-Operator Independent Drivers Ass'n v. Urbach, 279 AD2d 171 [1st Dept 2000]; Hanson v. Griffiths, 204 Misc 736, 738 [NY Sup Aug 24, 1953]; aff'd Hanson v. Griffiths, 283 AD 662 [2nd Dept 1954]).
In other words, "[a] tax is defined as a levy made for the purpose of raising revenue for a general governmental purpose; a fee is enacted principally as an integral part of the regulation of an activity and to cover the cost of regulation" ( Radio Common Carriers of New York, Inc v. State, 158 Misc 2d 695, 698 [NY Sup Jun 09, 1993], citing, American Trucking Association v. O'Neill, 522 FSupp 49 (D Conn 1981]; see, Health Services Medical Corp of Cent New York, Inc v. Chassin, 175 Misc 2d 621 [NY Sup Jan 27, 1998], aff'd Health Services Medical Corp of Cent New York, Inc v. Chassin, 259 AD2d 1053 [4th Dept 1999]).
In State University of New York v. Patterson, 42 AD2d 328 [3rd Dept 1973], the court found that where a water rate had to be paid regardless of the quantity of water used it was a tax, whereas if the charge imposed had been for water actually consumed or services rendered it would not have been a tax. By contrast, in Town Bd of Town of Poughkeepsie, on Behalf of Arlington Water Dist v. City of Poughkeepsie, 22 AD2d 270 [2nd Dept 1964], the court found that a water charge was not a tax where the amount of the charge depended solely upon the quantity of water used and the water was deemed to have been voluntarily purchased.
In Salvador v. State, the court found that fees charged for operation of commercial docks on Lake George were not taxes since they were not imposed "to generate revenue or to offset the cost of governmental functions generally . . ." ( 205 AD2d 194, 200 [3rd Dept 1994], quoting CID Landfill v. New York State Dept of Envtl Conservation, 167 AD2d 827 [4th Dept 1990]). Instead, the charges were "user fees imposed to reimburse the costs of government services" ( Id. at 201, citing United States v. Sperry Corp, 493 US 52, 63; Marshall County Bd of Educ v. Marshall County Gas Dist, 992 F2d 1171, 1176 [11th Cir 1993]).
In Salvador, the court found that the fee did not constitute an unconstitutional taking. 205 AD2d at 200.
In the case at hand, it is undisputed that the surcharge is not referred to as a tax in the statute and the surcharge is listed on each customer's bill as "NY State E911 Fee". However, the use of the word "fee" on the bill does not, by itself, establish that the surcharge is a user fee. This is because to permit the manner in which something "is labeled to determine whether it is a tax or a fee would be to let form obscure substance" ( American Ins Ass'n v. Lewis, 50 NY2d 617, 623, citing Wisconsin v. JC Penney Co, 311 US 435, 443). "The label which is attached to an assessment is not dispositive of its true nature" ( New York Telephone Co v. City of Amsterdam, 200 AD2d 315, 317-18 [3rd Dept 1994], quoting Albany Area Bldrs Assn v. Town of Guilderland, 141 AD2d 293, 298 [3rd Dept 1988], aff'd 74 NY2d 372; see, US v. River Coal Co, Inc, 748 F2d 1103, 1106 [6th Cir 1984]).
Several factors establish that the surcharge at issue here is a tax rather than a user fee. First, the monies collected under the statute are remitted to the Department of Taxation and Finance. Moreover, it is significant that the obligation to pay the surcharge was imposed by the Legislature, the body vested with the power to tax, rather than by an administrative agency charged, for instance, with issuing and regulating licenses ( American Ins Ass'n v. Lewis, 50 NY2d 617, 623-24).
Most importantly, the surcharge is compulsory. All users of wireless telephones must pay the surcharge in order to obtain wireless telephone service. Thus, wireless telephone users do not have the option of using their telephones and deciding whether or not to avail themselves of E911 service in return for payment of a fee designed to cover the cost of providing that service. Moreover, every user is required to pay the same amount of money regardless of how much they use wireless 911 service.
This is not a situation where an individual requests a service from the government and voluntarily pays money in order to receive that service, which service is of direct benefit to the individual rather than to society as a whole. To the contrary, the surcharge is clearly an enforced contribution intended to raise revenue for the purpose of defraying government costs generally and benefitting society as whole ( see, New York Telephone Co v. City of Amsterdam, 200 AD2d 315, 317 [3rd Dept 1994]; see also, American Landfill, Inc v. Stark/Tuscarawas/Wayne Joint Solid Waste Management Dist, 166 F3d 835 [6th Cir 1999]; US v. City of Huntington, West Virginia, 999 F2d 71, 73 [4th Cir 1993]). Nearly half of the surcharge money is allocated directly to the general revenue. The remainder of the money is directed to various activities such as anti-terrorism funding. Only a relatively small portion of the surcharge is directed to wireless telephone service in the form of the allocation of money to the New York State 911 Board to assist counties in providing for their own E911 systems. Therefore, the court finds that the surcharge clearly constitutes a tax rather than a user fee.
As noted above, this action rests entirely on plaintiffs assertion that the surcharge constitutes an impermissible user fee. Plaintiffs do not challenge the statute's constitutionality in the event that the court finds that the surcharge is a tax. Therefore, plaintiffs' claim must fail, given the court's finding that the surcharge constitutes a tax rather than a user fee.
Plaintiffs note that wireless phones are subject to other taxes by the State and speculate as to whether the imposition of an additional tax on cell phones, in the form of the surcharge at issue here, would constitute double taxation, although they concede that the State possesses such power, subject to certain restrictions. Plaintiffs also discuss whether the surcharge comports with the New York State Constitution's requirements in regards to imposing taxes. However, the Complaint does not allege that the surcharge constitutes a tax and does not allege that such a tax would be unconstitutional. Therefore, the court need not address these issues further.
The court notes plaintiffs' assertion that the surcharge requires "that some people alone (mobile phone users) must contribute to closing the state budge shortfall, a public problem for which the public as a whole should be responsible." (Plaintiffs' Memorandum of Law at 15). However, "[a] tax is not an assessment of benefits" ( Commonwealth Edison Co v. Montana, 453 US 609). "It is . . . a means of distributing the burden of the cost of government" ( Id.). Thus, "[t]he only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society, established and safeguarded by the devotion of taxes to public purposes" ( Id.). "Any other view would preclude the levying of taxes except as they are used to compensate for the burden on those who pay them, and would involve abandonment of the most fundamental principle of government — that it exists primarily to provide for the common good" ( Id., citing Carmichael v. Southern Coal Coke Co, 301 US 495, 521-523).
The court additionally recognizes the apparent misleading nature of the description of the surcharge as it is set forth on the bills of wireless telephone users. The surcharge is listed as "NY State E911 Fee". That description is certainly likely to lead a consumer to believe that he or she is paying a fee that will be dedicated to the creation and subsequent operation of enhanced 911 service, which is a service of obvious importance to users of wireless telephones and to society as a whole.
However, while the label given to the surcharge may be misleading, the statute itself is not. The Legislature clearly intended to levy a tax on users of cell phones and apply that money to defray the costs of government services rather than to provide E911 service to individuals who request that service and pay for it. Had it chosen, the Legislature could have offered to provide E911 service to cell phone users who chose to avail themselves of that service for a fee. That is not the case here. It is certainly unfortunate that enhanced 911 service does not appear to be operational statewide given its obvious benefit to users of cell phones and society in general. This is particularly true in light of the hundreds of millions of dollars that have been collected over the years under the statute. However, this failure does not render the 2002 statute unconstitutional as alleged by plaintiffs.
This court also believes that given the connotations that accompany the term "taxation", that the legislature was undoubtedly highly motivated to not use the word "tax" in drafting the statute.
6. Constitutionality of 1991 Statute
Plaintiffs seek a declaration that Section 309, in its 1991 incarnation, is unconstitutional as applied to plaintiffs because it too violated the Takings Clause. The Complaint alleges that from 1991 to 2000, the State collected approximately $119 million in "E911 funds" pursuant to the 1991 version of Section 309 (Complaint at ¶ 14). In the fiscal year ending on March 31, 2001, the State collected an additional $43 million.
Plaintiffs allege that although these funds should have been used to pay for the State Police's costs related to operating an enhanced cellular 911 service, the funds were in fact used for unrelated purposes. Specifically, the State Police allegedly used the E911 funds for travel, dry cleaning, boots, vehicles, conferences, helicopter maintenance training, pens, lawn mowing and garbage removal, among other things (Complaint at ¶ 15). "Consequently, by 2002, despite the collection of more than $162 million in E911 Funds, E911 service was not operational anywhere in New York" (Complaint at ¶ 16).
It is undisputed that plaintiffs are not alleging that the monies collected pursuant to the 1991 statute were acquired unlawfully. In other words, plaintiffs do not contend that the statute is unconstitutional on its face. Instead, they contend that the statute is invalid as applied to them because the money was not spent by the state police on the creation and maintenance of enhanced 911 service. Instead, the money was allegedly spent on other items and activities related to state police operations.
As above, the operative question is whether the statute enacted a user fee or a tax. The court finds that Section 309, in its 1991 form, enacted a tax rather than a user fee.
As with the current statute, the 1991 version was a compulsory charge which all users were required to pay in order to obtain wireless telephone service in New York State. Moreover, the fee was fixed and did not depend on the amount of cell phone usage. Also, the money was allocated to provide a service that benefitted the public as a whole, rather than just the individual paying the surcharge.
The 1991 Statute differs from the 2002 version in that the money is not directed to the general revenue. However, a tax is no "less a general revenue-raising measure because it is allocable to a particular project and its amount dependent on the size of the subsidy necessary to sustain the financial soundness of the project it supports" ( American Ins Ass'n v. Lewis, 50 NY2d 617, 623; see, American Landfill, Inc v. Stark/Tuscarawas/Wayne Joint Solid Waste Management Dist, 166 F3d 835, 839-40 [6th Cir 1999]). "When all is said and done, it is a compulsory contribution for the purpose of defraying the cost of government" ( American Ins Ass'n v. Lewis, supra at 623). The 1991 statute was clearly a compulsory contribution by cell phone users which was used to defray the cost of government. It was not a service that the individual requested and paid for.
As noted above, plaintiffs do not allege that the 1991 surcharge is invalid if, in fact, it is a tax. However, the court notes that even in such a case, the complaint would fail to state a claim with respect to the 1991 statute.
In Schulz v. State, the plaintiffs commenced an action alleging that various actions by State and local governmental officials constituted the use of public funds for private purposes ( Schulz v. State, 86 NY2d 225). In affirming the dismissal of certain of the plaintiffs' claims, the Court stated that "[p]laintiffs have not alleged any actual appropriation of their individual property by the governmental action they describe, or even an indirect invasion of their specific property rights through regulation of the use thereof" ( Id. at 232-33 citing, Lucas v. South Carolina Coastal Council, 505 US 1003). "They merely alleged that governmental revenues, concededly acquired lawfully through State or local tax levies, have been misused or misapplied to private purposes" ( Id. at 233, citing US Constitution, 5th and 14th Amendments). The court concluded that the plaintiffs had "not validly alleged any violation of the Due Process or Takings' Clauses of the Federal Constitution" ( Id. at 233, citing US Const 5th, 14th Amends).
Based on the holding in Schulz, plaintiffs have clearly failed to state a claim for violation of the Takings Clause of the Federal Constitution. The 1991 surcharge money was collected through a lawful tax levy. Even assuming the money was spent inappropriately by the state police, as alleged by plaintiffs, such action does not violate the Takings Clause. Therefore, this claim is dismissed. Accordingly, it is
ORDERED that defendants' motion to dismiss the Complaint is granted and the Complaint is dismissed; and it is further
ORDERED that plaintiffs' cross-motion for summary judgment is denied.