THE SUPREME COURT OF THE
FEDERATED STATES OF MICRONESIA
Cite as FSM Telecomm. Corp. v. Department of Treasury ,
9 FSM Intrm. 292 (Ponape 1999)
FSM TELECOMMUNICATIONS CORPORATION,
DEPARTMENT OF TREASURY AND
ADMINISTRATION OF THE STATE OF POHNPEI,
CIVIL ACTION NO. 1997-125
Andon L. Amaraich
Argued: September 17, 1998
Decided: December 30, 1999
For the Plaintiff: Stephen V. Finnen, Esq.
Law Offices of Saimon & Associates
P.O. Box 1450
Kolonia, Pohnpei FM 96941
For the Defendant: James Woodruff, Esq.
Pohnpei Department of Justice
P.O. Box 1555
Kolonia, Pohnpei FM 96941
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Constitutional Law ) Case or Dispute ) Ripeness
When the plaintiff argues it is exempt from the tax under state and national law as an entity wholly owned and operated by the national government functioning solely for public benefit and the state asserts that the plaintiff's corporate status exposes it to state taxation (regardless of the national government's stock ownership and indirect control) and claims that the FSM Constitution does not authorize the national government to prevent the imposition of a "use tax" on imported goods used or consumed in the state, and when the state requests a declaration that its use tax scheme does not violate the FSM Constitution and makes its motion aware that the court's resolution of the plaintiff's motion does not require it to address whether the use tax law conflicts with the FSM Constitution even though the plaintiff's complaint includes a cause of action raising that very argument, all of the issues addressed in the motions are properly raised by the pleadings and involve justiciable controversies of special public concern worthy of resolution at this time. FSM Telecomm. Corp. v. Department of
Treasury, 9 FSM Intrm. 292, 293-94 (Pon. 1999).
For tax purposes, the FSM Telecommunications Corp. is deemed part of the national government thereby making it exempt from a state use tax. FSM Telecomm. Corp. v. Department of Treasury, 9 FSM Intrm. 292, 294 (Pon. 1999).
Taxation ) Constitutionality
A state use tax is a tax on imports which impermissibly interferes with interstate commerce such that the use tax is in violation of the FSM Constitution, FSM Const. art. IX, §§ 2(d), 2(g); FSM Const. art. VIII, § 3. FSM Telecomm. Corp. v. Department of Treasury, 9 FSM Intrm. 292, 294 (Pon. 1999).
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ANDON L. AMARAICH, Chief Justice:
This matter comes before the Court on cross motions for summary judgment, the first filed by FSM Telecommunications Corporation (Telecom) on January 21, 1998, and the second by the Department of Treasury and Administration of the State of Pohnpei (Pohnpei) on February 2, 1998. The motions center on Pohnpei's imposition of a "use tax" on Telecom for its importation of a motor vehicle and telephone equipment purchased outside the FSM. The parties submitted their motions on stipulated facts and agree that this case does not involve any dispute over issues of material fact. They agree, as does the Court, that the motions turn strictly on questions of law thereby making summary judgment an appropriate procedure for resolving this case.
The motions were heard on September 17, 1998. Telecom was represented by Stephen V. Finnen, Esq. of the Law Offices of Saimon and Associates. Pohnpei was represented by James P. Woodruff, Esq., Pohnpei State Attorney General.
Telecom's principal argument is that it should be deemed exempt from the tax under state and national law as an entity wholly owned and operated by the national government functioning solely for public benefit. Telecom asserts that because of its unique role and special characteristics it should be declared part of the national government for tax purposes and therefore exempt from state taxation. The exemption is claimed under 21 F.S.M.C. 208 and Section 14-4(4) of Pohnpei State Law No. 4L-35-97.1 The issues presented by Telecom's motion are framed so as not to call into question the constitutionality of the state taxing scheme.
Pohnpei responds to Telecom's motion by asserting that Telecom's corporate status exposes it to taxation under state law (regardless of stock ownership and a degree of indirect control by the FSM national government) and claiming that the national government is not authorized by the FSM
Constitution to prevent the imposition of a "use tax" on imported goods used or consumed in the state of Pohnpei. Thus, Pohnpei urges the Court to uphold the November 24, 1997 decision of its Department of Treasury and Administration finding that the use tax properly applies to Telecom under these circumstances.
In an effort to resolve issues raised in its answer by way of affirmative defense, Pohnpei counters Telecom's motion with one of its own requesting a declaration that the use tax scheme at issue is not violative of the FSM Constitution, Article VIII, Section 3, prohibiting state and local governments from imposing taxes which restrict interstate commerce, or Article IX, Section 2(d), expressly delegating to Congress the power to impose taxes based on imports. Pohnpei makes its motion aware that the resolution of Telecom's motion does not require the Court to address the question of whether the use tax law is in conflict with the FSM Constitution even though Telecom's complaint includes a second cause of action raising that very argument. Pohnpei justifies its request for an order declaring that the use tax is not in conflict with the FSM Constitution out of concern over challenges to the imposition of the use tax on constitutional grounds. To avoid protracted future litigation on this issue, Pohnpei brings its motion on Telecom's second cause of action for declaratory relief.
All of the issues addressed in the motions are properly raised by the pleadings and involve justiciable controversies of special public concern worthy of resolution at this time.
Based on the pleadings and arguments presented, and after careful consideration of each legal issue raised by the parties, the Court finds that for tax purposes Telecom shall be deemed part of the national government thereby making it exempt from the tax at issue under 21 F.S.M.C. 208 and Pohnpei State Law No. 4L-35-97.
The Court further finds that the "use tax" is a tax on imports which impermissibly interferes with interstate commerce such that the use tax provisions of the Tax Act are in violation of the FSM Constitution, Article IX, sections 2(d) and (g), and Article VIII, section 3, respectively.
Accordingly, Telecom's motion for summary judgment is granted and the Director's decision of November 24, 1997 is hereby reversed. The declaratory judgment sought by Pohnpei's motion is hereby entered in favor of Telecom. Consequently, the state of Pohnpei is hereby enjoined from assessing further use taxes under Pohnpei State Law Nos. 4L-35-97 and 4L-92-99 and from accepting or collecting any use taxes assessed but not due and payable under Section 14-7 of the Tax Act as of the date this order is signed.
This ruling shall not apply to any taxpayer who has become liable to pay use taxes assessed under the Tax Act if his time to file an appeal under section 10-1 of the Tax Act has expired as of the date this order is signed.
The Court will issue a memorandum of decision further explaining the reasoning behind this order within thirty (30) days.
1. Telecom's motion focuses on the first cause of action in its complaint which is an appeal of an administrative hearing decision by the Director of the Pohnpei Department of Treasury and Administration concluding that Telecom is subject to the use tax.