Alabama Department of Revenue v. Cellular Express, Inc.

Rel: May 12, 2023

Notice: This opinion is subject to formal revision before publication in the advance sheets of Southern Reporter.
Readers are requested to notify the Reporter of Decisions, Alabama Appellate Courts, 300 Dexter Avenue,
Montgomery, Alabama 36104-3741 ((334) 229-0650), of any typographical or other errors, in order that corrections
may be made before the opinion is published in Southern Reporter.

ALABAMA COURT OF CIVIL APPEALS
OCTOBER TERM, 2022-2023
_________________________

CL-2022-0701
_________________________

Alabama Department of Revenue

v.

Cellular Express, Inc.

Appeal from Jefferson Circuit Court
(CV-21-900658)

PER CURIAM.

The Alabama Department of Revenue ("the Department") appeals

from a judgment entered by the Jefferson Circuit Court ("the trial court")

entered in an appeal from a decision of the Alabama Tax Tribunal ("the
CL-2022-0701

Tax Tribunal"). 1 The Tax Tribunal had determined that Cellular

Express, Inc. ("Cellular"), owed sales taxes on funds it had received from

customers of Boost Mobile ("Boost") as prepayments for Boost's wireless

service. The trial court determined that Cellular did not owe sales taxes

on those funds. We affirm the trial court's judgment.

Background

From April 2009 through March 2012, the period pertinent to this

appeal, Cellular was an authorized dealer for Boost, a provider of prepaid

wireless service, and operated three stores in the Birmingham area.

Cellular sold cellular telephones, sold cellular-telephone accessories, and

offered several different Boost prepaid wireless-service plans. To obtain

Boost's wireless service pursuant to one of those plans, a customer had to

prepay for the wireless service in thirty-day increments. Boost required

Cellular to accept prepayments for the plans from Boost's customers. To

1In 2014, the legislature created the Tax Tribunal to adjudicate
disputes between taxpayers and the Department that had formerly been
adjudicated by the Department's Administrative Law Division. See § 40-
2B-1, Ala. Code 1975. Section 40-2B-2(a), Ala. Code 1975, designates the
Tax Tribunal as an "independent agency" that is "within the executive
branch of government." Section 40-2B-2(m), Ala. Code 1975, provides
that appeals from decisions of the Tax Tribunal lie in the appropriate
circuit court.
2
CL-2022-0701

facilitate the customers' prepayments for the plans, Cellular's stores

housed kiosks where customers could make prepayments for their Boost

wireless-service plans on computer terminals. Boost provided the

hardware and software for the computer terminals in the kiosks and

required Cellular to grant Boost access to Cellular's bank account. After

a customer prepaid for his or her wireless-service plan on one of the

computer terminals in the kiosks, the payment went to Cellular's bank

account, Boost electronically added thirty days to the customer's

wireless-service plans without any involvement by Cellular, and the

computer terminal in the kiosk provided the customer with a paper

receipt bearing a transaction number. Suhail Assad, Cellular's principal

shareholder, testified that the purpose of the transaction number was to

enable Boost to trace the transaction in case a customer contacted Boost

regarding a problem with the transaction or the wireless service. Assad

testified that Cellular did not provide the customer with a physical

telephone card or a pin number. After a prepayment a Boost's wireless

service went into Cellular's bank account, Boost withdrew the

prepayment, minus Cellular's five-percent commission.

3
CL-2022-0701

Cellular's sales-tax returns from April 2009 through March 2012

reported its receipts from the sale of cellular telephones, its receipts from

the sale of cellular-telephone accessories, and the amounts that

customers had prepaid for Boost's wireless service using the computer

terminals in the kiosks in Cellular's stores. The returns showed a

deduction equal to the total amount of the prepayments made by

customers for Boost's wireless service during that period and showed

Cellular's payment of sales taxes on the total receipts from the sale of

cellular telephones and accessories during that period.

Section 40-23-2(1), Ala. Code 1975, levies a sales tax on those

persons or entities who are engaged in selling at retail any tangible

personal property in Alabama. In 1997, the legislature enacted Act No.

97-867, Ala. Acts 1997 ("the 1997 Act"), which added paragraph (13) to §

40-23-1(a). That paragraph provided: "PREPAID TELEPHONE

CALLING CARD. A sale of a prepaid telephone calling card or a prepaid

authorization number, or both, shall be deemed the sale of tangible

personal property subject to the tax imposed on the sale of tangible

personal property pursuant to this chapter." William Jamar, Jr., the

Department's district coordinator for Jefferson and Shelby Counties,

4
CL-2022-0701

conceded at the trial in the trial court that prepaid wireless service of the

kind provided by Boost from April 2009 through March 2012 did not exist

in 1997 when the legislature enacted the 1997 Act.

In 2012, the Department audited Cellular's sales-tax returns from

April 2009 through March 2012. In conducting its audit, the Department

took the position that, pursuant to § 40-23-1(a)(13), Cellular was liable

for sales taxes on prepayments for Boost's wireless service made on

computer terminals in the kiosks in Cellular's stores and assessed

Cellular $363,416.16 in state sales tax and $181,654.98 in local sales tax.

Cellular timely appealed to the Tax Tribunal. The Department

asked the Tax Tribunal to hold Cellular's appeal in abeyance pending the

resolution of a similar case involving Beauty & More, LLC, in the

Montgomery Circuit Court, and the Tax Tribunal did so.2 Subsequently,

however, the legislature amended § 40-23-1(a) in Act No. 2014-336, Ala.

Acts 2014 ("the 2014 Act"). The 2014 Act added a new final sentence to

2In the case involving Beauty & More, LLC, the Tax Tribunal had
held that, when the legislature enacted the 1997 Act, prepaid wireless
service, as opposed to prepaid calling cards and authorization numbers,
was not available in Alabama and that, therefore, the legislature had not
intended to tax prepaid wireless service when it enacted the 1997 Act.
The Department appealed from that decision to the Montgomery Circuit
Court; however, in October 2014, the Department dismissed that appeal.
5
CL-2022-0701

paragraph (13) of § 40-23-1(a). That new final sentence stated: "For

purposes of this subdivision (13), the sale of prepaid wireless service that

is evidenced by a physical card constitutes the sale of a prepaid telephone

calling card, and the sale of prepaid wireless service that is not evidenced

by a physical card constitutes the sale of a prepaid authorization

number." The 2014 Act also added a new paragraph (14) to § 40-23-1(a),

which provided:

"(14) PREPAID WIRELESS SERVICE. The right to use
mobile telecommunications service, which must be paid for in
advance and that is sold in predetermined units or dollars of
which the number declines with use in a known amount, and
which may include rights to use non-telecommunications
services or to download digital products or digital content. For
purposes of this subdivision (14), 'mobile telecommunications
service' has the meaning ascribed by Section 40-21-120 [, Ala.
Code 1975]."

In addition, the 2014 Act contained the following provision:

"Section 6. For transactions that occurred prior to the
effective date of this act in which the consumer did not receive
from the retailer either an authorization number or a physical
card, neither the Department of Revenue nor local tax officials
may seek payment for sales tax not collected. This limitation
on the authority of the department or local officials shall not
apply to audits that began or assessments that were entered
prior to the effective date of this act. With regard to such
transactions in which sales tax was collected and remitted,
neither the taxpayer nor the entity remitting sales tax shall
have the right to seek refund of such tax."

6
CL-2022-0701

(Emphasis added.)

After the legislature enacted the 2014 Act, the Department

amended its answer in the Tax Tribunal to assert that the 2014 Act

resolved the dispute between the Department and Cellular in the

Department's favor and that, therefore, there was no reason to hold

Cellular's appeal in abeyance pending the resolution of the Department's

appeal in the case involving Beauty & More, LLC.

In response to the legislature's enactment of the 2014 Act, Cellular

asserted that the 2014 Act was unconstitutional because, Cellular said,

it violated Cellular's right to due process. The Tax Tribunal then held

Cellular's appeal in abeyance while two other cases, one involving Atheer

Wireless, LLC ("Atheer"), and the other involving Patrick Lee Downing,

were adjudicated. After this court had adjudicated those cases in Atheer

Wireless, LLC v. State Department of Revenue, 228 So. 3d 464 (Ala. Civ.

App. 2017), and Alabama Department of Revenue v. Downing, 272 So. 3d

184 (Ala. Civ. App. 2018), respectively, the Tax Tribunal held a hearing

in 2019. On January 21, 2021, the Tax Tribunal issued a final order in

which it held that the 2014 Act made Cellular liable for sales taxes on

the prepayments for Boost's wireless service that Cellular had received,

7
CL-2022-0701

that the Tax Tribunal did not have jurisdiction to consider Cellular's

constitutional challenge to the 2014 Act, and that the constitutional

challenge was preserved for appeal to the trial court. Cellular timely

appealed to the trial court.

The trial court held a trial de novo on March 8, 2022.3 On April 27,

2022, the trial court entered a judgment determining that the

prepayments for Boost's wireless service that Cellular had received from

April 2009 through March 2012 were not subject to sales taxes pursuant

to § 40-23-1(a)(13) as it existed before the enactment of the 2014 Act. In

its judgment, the trial court found "that cell phones and/or wireless

services were not generally available to consumers in Alabama in 1997"

and, therefore, determined that the 1997 Act "clearly covered only

instances where an Alabama consumer purchased a prepaid long

distance telephone calling card and/or a pin number to use with land line

3In pertinent part, § 40-2B-2(m)(4), Ala. Code 1975, provides:

"The appeal to circuit court from a final or other appealable
order issued by the Alabama Tax Tribunal shall be a trial de
novo, except that the order shall be presumed prima facie
correct and the burden shall be on the appealing party to
prove otherwise. The circuit court shall hear the case by its
own rules and shall decide all questions of fact and law."
8
CL-2022-0701

telephones." The trial court specifically found that Cellular's receipt of

prepayments for Boost's wireless service did not constitute the sale of

prepaid authorization numbers under the 1997 Act. The trial court

further determined that Section 6 of the 2014 Act was unconstitutional

as applied to Cellular insofar as it made the 2014 Act applicable

retroactively to taxpayers as to whom the Department had begun a sales-

tax audit or had entered a sales-tax assessment before the effective date

of the 2014 Act but provided that the 2014 Act was not applicable

retroactively to other taxpayers. Accordingly, the trial court determined

that the prepayments for Boost's wireless service that Cellular had

received from April 2009 through March 2012 were not subject to sales

taxes pursuant to the 2014 Act. The Department timely appealed to this

court.

Appellate Jurisdiction

Because the Department's decision to assess sales taxes against

Cellular prompted the chain of appeals that now brings the Department's

appeal to this court, this court has jurisdiction over the Department's

appeal pursuant to § 12-3-10, Ala. Code 1975, which, among other things,

provides that this court has exclusive appellate jurisdiction over all

9
CL-2022-0701

appeals from administrative agencies other than the Alabama Public

Service Commission.

Analysis

The Department first argues that § 40-23-1(a)(13), as it existed

after the enactment of the 1997 Act and before the enactment of the 2014

Act, made Cellular liable for sales taxes on the prepayments for Boost's

wireless service that it received from April 2009 through March 2012.

Specifically, the Department asserts that the prepayments for wireless

service that Cellular received from April 2009 through March 2012

constituted the sale of a "prepaid authorization number" under § 40-23-

1(a)(13) as it existed after the enactment of the 1997 Act and before the

enactment of the 2014 Act. We disagree.

The legislature did not define the phrase "prepaid authorization

number" in the 1997 Act. Moreover, during the period pertinent to this

appeal, the Department did not adopt rule defining that phrase.

Consequently, the issue whether Cellular's receipt of a prepayment for

Boost's wireless service constituted the sale of a "prepaid authorization

number" under the 1997 Act depends on the construction of the

legislature's language in that act. "Words used in a statute must be given

10
CL-2022-0701

their natural, plain, ordinary, and commonly understood meaning, and

where plain language is used a court is bound to interpret that language

to mean exactly what it says." IMED Corp. v. Systems Eng'g Assocs.

Corp., 602 So. 2d 344, 346 (Ala. 1992). The undisputed evidence indicated

that Cellular did not issue either a physical calling card or an

authorization number that had to be entered before a customer could

access Boost's wireless service. The transaction number printed on a

paper receipt evidencing the transaction when a Boost customer prepaid

for wireless service was not a "prepaid authorization number" because

the customer did not have to use it to access Boost's wireless service.

Moreover, the Department has not explained how anything issued by

Cellular could constitute either a physical calling card or an

authorization number. Based on the plain language of the 1997 Act, we

conclude that Cellular's receipt of a prepayment for Boost's wireless

service did not constitute "[a] sale of a prepaid telephone calling card or

a prepaid authorization number, or both," under the 1997 Act because

Cellular did not issue either a physical prepaid calling card or a prepaid

authorization number. Therefore, we find no merit in the Department's

first argument.

11
CL-2022-0701

The Department next argues that this court held in Atheer and

Downing that sales of prepaid wireless service were subject to sales taxes

pursuant to § 43-23-1(a)(13) as it existed after the enactment of the 1997

Act and before the enactment of the 2014 Act. Again, we disagree.

In Atheer, the Department had assessed sales taxes against Atheer

for its sale of prepaid wireless service from September 2009 through

August 2012. Atheer appealed to the Tax Tribunal. While Atheer's appeal

was pending in the Tax Tribunal, the legislature enacted the 2014 Act.

The Department amended its answer to Atheer's appeal in the Tax

Tribunal to assert that the 2014 Act clarified § 40-23-1(a) by indicating

that sales of prepaid wireless service were subject to sales taxes. In

response, Atheer asserted that the 2014 Act was unconstitutional. After

a hearing, the Tax Tribunal entered an order finding that " '[the]

Department [had] correctly assessed [Atheer] pursuant to § 40-23-

1(a)(13), as amended by [the 2014 Act].' " 228 So. 3d at 466. Atheer

appealed to the Montgomery Circuit Court and again asserted that the

2014 Act was unconstitutional. Atheer and the Department both filed

motions for a summary judgment. In its motion, the Department asserted

that the Montgomery Circuit Court did not have jurisdiction to consider

12
CL-2022-0701

Atheer's appeal because, the Department said, Atheer had not served the

attorney general with notice of the appeal challenging the

constitutionality of the 2014 Act. The Department's motion also asserted

that the 2014 Act was constitutional. The Montgomery Circuit Court held

a hearing and denied Atheer's motion but did not rule on the

Department's motion. The Department then filed a second motion for a

summary judgment in which it reiterated more throughly its argument

that the 2014 Act was constitutional. Thereafter, the Montgomery Circuit

Court entered a summary judgment in favor of the Department without

specifying its reasons for doing so.

Atheer then appealed to this court. This court affirmed the

judgment of the Montgomery Circuit Court, and Atheer applied for a

rehearing. In its application for a rehearing, Atheer asserted for the first

time that it had served the attorney general with notice of its appeal

challenging the constitutionality of the 2014 Act by serving a copy of its

appeal on the assistant attorneys general representing the Department.

This court granted Atheer's application for a rehearing but held that it

could not consider Atheer's argument that it had served the attorney

general with notice of its constitutional challenge by serving the assistant

13
CL-2022-0701

attorneys general because of the well-settled legal principle that an

appellate court cannot consider an argument raised for the first time in

an application for a rehearing. This court affirmed the summary

judgment in favor of the Department by applying the following principle

of law:

"When a trial court enters a summary judgment without
specifying the bases for its ruling, the appellant must set forth
an argument in its principal brief as to the invalidity of each
and every ground asserted in the motion, or motions, for a
summary judgment; if not, the appellant waives any
argument as to the omitted ground, resulting in the automatic
affirmance of the summary judgment."

228 So. 3d at 468. This court automatically affirmed the summary

judgment in favor of the Department because (1) the Montgomery Circuit

Court had entered the summary judgment without specifying the bases

for its ruling; (2) the Department had asserted as one of the grounds of

its summary-judgment motion that Atheer could not challenge the

constitutionality of the 2014 Act because, the Department said, Atheer

had not served the attorney general with notice of that challenge; and (3)

Atheer had not asserted in its principal brief an argument that that

ground of the Department's motion was invalid. This court did not hold

that § 40-23-1(a)(13) as it existed after the enactment of the 1997 Act and

14
CL-2022-0701

before the enactment of the 2014 Act subjected prepayments for wireless

service to sales taxes. Moreover, we did not address the merits of Atheer's

argument that the 2014 Act was unconstitutional.

In Downing, the Department "appeal[ed] from a judgment of the

Elmore Circuit Court … finding that sales of prepaid authorization

numbers for wireless services on cellular telephones were not subject to

the sales tax at the time the sales were made [between September 1,

2008, and June 30, 2011,] and ordering the Department to refund the

amount of taxes paid." 272 So. 3d at 186 (emphasis added). In Downing,

this court stated: "Patrick Lee Downing was the sole member of Downing

Enterprises, LLC ('the LLC'), a business that sold, among other products,

prepaid authorization numbers allowing access to wireless services on

cellular telephones." Id. (emphasis added). This court also stated:

"Downing testified that the LLC sold prepaid authorization numbers for

wireless services on cellular telephones." 272 So. 3d at 193 (emphasis

added). In Downing, the Elmore Circuit Court's judgment "found that the

sales of prepaid authorization numbers were not subject to the sales tax

at the time that those sales were made." 272 So. 3d at 187 (emphasis

added). This court disagreed, and, in reversing the Elmore Circuit Court's

15
CL-2022-0701

judgment, held that "the LLC's sales of prepaid authorization numbers

were subject to taxation pursuant to § 40-23-1(a)(13), as that provision

existed at the time the applicable sales occurred." 272 So. 3d at 193

(emphasis added).

Downing is distinguishable from the present case because the

record in the present case contains no evidence indicating that Cellular

sold "prepaid authorization numbers allowing access" to wireless service.

272 So. 3d at 186. To the contrary, the undisputed evidence indicates that

Cellular did not issue a prepaid authorization number allowing access to

Boost's wireless service when Boost's customers prepaid for Boost's

wireless service. Downing did not hold that sales of prepaid wireless

service were ipso facto subject to § 40-23-1(a)(13) as it existed after the

enactment of the 1997 Act and before the enactment of the 2014 Act. It

held only that sales of prepaid authorization numbers allowing access to

wireless service on cellular telephones were subject to sales taxes under

that version of § 40-23-1(a)(13).

Accordingly, we find no merit in the Department's argument that

this court held in Atheer and Downing that sales of prepaid wireless

service were subject to sales taxes pursuant to § 43-23-1(a)(13) as it

16
CL-2022-0701

existed after the enactment of the 1997 Act and before the enactment of

the 2014 Act.

The Department next argues that the trial court erred in

determining that Section 6 of the 2014 Act was unconstitutional insofar

as it made the 2014 Act applicable retroactively to Cellular. We disagree.

Section 6 of the 2014 Act provided that the 2014 Act would not apply

retroactively to any transactions in which the consumer did not receive

from the retailer either an authorization number or a physical card if the

Department had not collected sales taxes as a result of those

transactions; however, it exempted from this limitation on retroactive

application taxpayers as to whom the Department had begun sales-tax

audits or had entered sales-tax assessments before the 2014 Act became

effective. Thus, Section 6 exempted some taxpayers from the retroactive

application of the 2014 Act while subjecting others, such as Cellular, to

its retroactive application because the Department had begun a sales-tax

audit or had entered a sales-tax assessment as to them before the

effective date of the 2014 Act.

" 'When a court is called on to consider whether retroactive
legislation is constitutional, its focus is on whether the
retroactivity of the legislation denies due process. [Monroe v.
Valhalla Cemetery Co., 749 So. 2d 470, 473-74 (Ala. Civ. App.

17
CL-2022-0701

1999), overruled on other grounds, Patterson v. Gladwin
Corp., 835 So. 2d 137, 153 (Ala. 2002)] (quoting United States
v. Carlton, 512 U.S. 26, 30-31, 114 S. Ct. 2018, 129 L. Ed. 2d
22 (1994)). In Carlton, "the [United States Supreme] Court set
forth the test to determine whether retroactive tax legislation
denies due process: first, the legislation must be 'supported by
a legislative purpose furthered by rational means,' and
second, the period of retroactivity must be 'modest.' " Valhalla
Cemetery Co., 749 So. 2d at 474 (quoting Carlton, 512 U.S. at
31, 114 S. Ct. 2018).' "

Jefferson Cnty. Comm'n v. Edwards, 49 So. 3d 685, 691 (Ala. 2010)

(quoting IEC Arab Alabama, Inc. v. City of Arab, 7 So. 3d 370, 374 (Ala.

Civ. App. 2008)).

In its judgment, the trial court explained its rationale for

concluding that Section 6 of the 2014 Act was unconstitutional as applied

to Cellular:

"Walking this case through the two-part test set forth in
[United States v.] Carlton, [512 U.S. 26 (1994),] the Court
finds:

"(1) that the retroactive aspects of the 2014 [Act] as
applied to Cellular Express are not 'supported by a
legislative purpose furthered by rational means,'
because the law singles out only those few taxpayers
who had audits that began or assessments that were
entered prior to the effective date of the [2014 Act].

"(2) by reaching five years back in time -- from the 2014
enactment of the [2014 Act] to [Cellular's] 2009 tax year
-- the retroactivity period of [the 2014 Act] is not
'modest.'

18
CL-2022-0701

"After completing its Carlton analysis, this Court finds
and holds that the following portion of Section 6 of [the 2014
Act] is unconstitutional as applied to Cellular Express under
the particular facts of this case:

" 'This limitation on the authority of the
department or local officials shall not apply to
audits that began or assessments that were
entered prior to the effective date of this act.'

"The Court has ruled in this way because, by
legislatively deciding Cellular Express's tax appeal in favor of
the Department of Revenue in 2014 regarding tax years
reaching as far back as 2009, the State of Alabama violated
Cellular Express's right to due process. More specifically, the
Court finds and holds that the State violated Cellular
Express's due process rights by arbitrarily subjecting it (and
the few others who had tax appeals pending on this issue
when the 2014 [Act] was passed) to taxes that others were not
retroactively required to pay. See Carlton, 512 U.S. at 30
(noting the Constitutional prohibition on 'arbitrary and
irrational legislation').

"For the above-outlined reasons, this Court disallows
the retroactive application of this sales tax to this particular
taxpayer under these particular circumstances. Nothing in
this ruling affects any other aspect of [the 2014 Act]. Rather,
in all other respects as to all other taxpayers, the [2014] Act
remains in full force and effect."

The Department argues that the trial court erroneously determined

that Section 6 of the 2014 Act was unconstitutional as applied to Cellular.

This is so, according to the Department, because, it says, (1) the

legislative purpose of the 2014 Act was to clarify § 40-23-1(a) rather than

19
CL-2022-0701

to create a new tax, (2) the clarification of § 40-23-1(a) by means of the

2014 Act was rational, and (3) the retroactive period of five years was

modest. However, it was not the clarification of § 40-23-1(a) that the trial

court determined was not supported by a legislative purpose furthered

by rational means; it was Section 6's retroactive application of the 2014

Act to a small number of taxpayers that included Cellular while

exempting other taxpayers from the retroactive application of the 2014

Act that the trial court determined was not supported by a legislative

purpose furthered by rational means. The Department has not

persuasively argued that subjecting a small number of taxpayers as to

whom the Department had begun sales-tax audits or had entered sales-

tax assessments before the effective date of the 2014 Act, while

exempting other taxpayers who would owe sales taxes if the 2014 Act

were applied retroactively to them, is a rational means of clarifying § 40-

23-1(a). Therefore, we will not reverse the trial court's judgment insofar

as it determined that Section 6 of the 2014 Act was unconstitutional as

applied to Cellular.

Citing this court's decision in IEC Arab Alabama, Inc. v. City of

Arab, 7 So. 3d 370 (Ala. Civ. App. 2008), the Department also argues that

20
CL-2022-0701

the five-year retroactivity period of the 2014 Act applicable to Cellular is

modest and, therefore, does not violate Cellular's due-process rights.

However, because the Department has failed to persuasively argue that

applying the 2014 Act retroactively to Cellular because the Department

had entered an assessment against it before the effective date of the 2014

Act, while exempting other taxpayers who would owe sales taxes if the

2014 Act were applied retroactively to them, is a rational means of

clarifying § 40-23-1(a), we need not reach the issue whether the five-year

retroactivity period is modest.

Accordingly, for the reasons discussed above, we affirm the

judgment of the trial court.

AFFIRMED.

Thompson, P.J., and Moore, Hanson, and Fridy, JJ., concur.

Edwards, J., recuses herself.

21