[00:00:03] Speaker 06:
First case is 8x8, Inc.

[00:00:05] Speaker 06:
versus the United States.

[00:00:09] Speaker 06:
Prepare to go forward, counsel?

[00:00:10] Speaker 05:
Yes, your honor.

[00:00:13] Speaker 06:
Mr. Bartolomucci?

[00:00:15] Speaker 06:
Bartolomucci.

[00:00:16] Speaker 06:
Bartolomucci, OK.

[00:00:19] Speaker 05:
May it please the court, Chris Bartolomucci for Appellant 8x8.

[00:00:24] Speaker 05:
The government collected billions of dollars in unlawful telephone excite cash.

[00:00:30] Speaker 06:
When was it successful in your appeal?

[00:00:32] Speaker 06:
and receive the requested excise tax refund.

[00:00:36] Speaker 06:
Are you going to refund that tax money to your customers?

[00:00:40] Speaker 05:
I don't think so, Your Honor.

[00:00:42] Speaker 05:
There's nothing in the record that indicates what 8x8 plans to do with the refund if it collects it.

[00:00:47] Speaker 05:
So I think the court can assume that it intends just to keep it.

[00:00:51] Speaker 05:
Treat it as a windfall.

[00:00:52] Speaker 05:
Not as a windfall.

[00:00:53] Speaker 05:
It paid the tax.

[00:00:55] Speaker 04:
That's not true.

[00:00:56] Speaker 04:
It did pay the tax.

[00:00:57] Speaker 04:
It did not pay the tax.

[00:00:58] Speaker 04:
It collected the tax from its customers.

[00:01:01] Speaker 04:
and it's transmitted to the government.

[00:01:04] Speaker 03:
Isn't that what your CFO said in the deposition?

[00:01:07] Speaker 06:
And the customers that you admit have received the refund.

[00:01:10] Speaker 04:
Respectfully, Your Honors, the special tax rules here may be... I don't care about your argument about how the statute reads and whether it would have made you liable.

[00:01:21] Speaker 04:
The facts of the case are you build your customers for this tax, you collected it from them, and then you transmitted it to the IRS.

[00:01:31] Speaker 04:
Are you disputing that?

[00:01:32] Speaker 04:
I am disputing that.

[00:01:33] Speaker 04:
Isn't that contrary to the deposition testimony?

[00:01:36] Speaker 05:
No, I don't think so.

[00:01:37] Speaker 05:
It is true that 8x8 passed.

[00:01:39] Speaker 03:
I thought he said that 8x8 collected the excise tax and remitted it.

[00:01:43] Speaker 03:
He didn't say that?

[00:01:47] Speaker 04:
I don't know.

[00:01:47] Speaker 04:
Well, why don't you look at it?

[00:01:49] Speaker 04:
It's in the appendix at page 389, pages 138 and 139 of the transcript.

[00:01:58] Speaker 04:
I think you are pushing the edge here with this argument.

[00:02:02] Speaker 05:
Well, I have to disagree, Your Honor.

[00:02:04] Speaker 05:
Now, we admit that 8x8 passed on the cost of the tax to its customers.

[00:02:10] Speaker 04:
No.

[00:02:10] Speaker 04:
Read this.

[00:02:11] Speaker 04:
It says, so prior to, and I take it in June of, prior to June of 6, what was the company's policy with regard to the tax?

[00:02:20] Speaker 04:
Prior to 06, we collected it and remitted it.

[00:02:24] Speaker 04:
You didn't pass it on.

[00:02:25] Speaker 04:
You collected it from your customers and you remitted it.

[00:02:28] Speaker 05:
Well, I don't think he meant that in the legal sense of being a tax checker for 64, 15.

[00:02:33] Speaker 02:
OK, so he was under oath, but as the CFO, you were saying he made a mistake, right?

[00:02:39] Speaker 02:
He said it.

[00:02:40] Speaker 02:
You have to admit he said it.

[00:02:41] Speaker 02:
We have it right in here in the record.

[00:02:42] Speaker 05:
He said those words.

[00:02:44] Speaker 02:
But the fact is that he didn't mean it.

[00:02:47] Speaker 05:
I don't think he meant that as a legal matter,

[00:02:52] Speaker 05:
8x8 was acting as a tax collector, and therefore it was not the partner.

[00:02:56] Speaker 03:
What about your 10K form?

[00:02:57] Speaker 03:
You know, your SEC 10K form?

[00:03:00] Speaker 03:
Where you said, you know, it's the customers that are paying the excise tax.

[00:03:06] Speaker 05:
The customers paid the burden of the excise tax.

[00:03:09] Speaker 05:
We don't disagree with that.

[00:03:11] Speaker 05:
But the statutes, and if you look at the regulations.

[00:03:14] Speaker 05:
But you want the benefit.

[00:03:16] Speaker 05:
Excuse me?

[00:03:17] Speaker 05:
But your client wants the benefit.

[00:03:19] Speaker 05:
The client paid the tax, and therefore it wants the refund.

[00:03:23] Speaker 05:
There's nothing unusual about passing on the burden of a tax to the customer.

[00:03:27] Speaker 06:
So you want the government to pay the refund to the customers, which you admit it's done, and to your client?

[00:03:34] Speaker 05:
Well, no.

[00:03:35] Speaker 05:
What the stipulation says is that a majority of 8x8 customers probably got a refund.

[00:03:42] Speaker 05:
Now, under the government's program, you could check a safe harbor box

[00:03:47] Speaker 05:
and without any other explanation get a refund.

[00:03:50] Speaker 03:
Just curious.

[00:03:54] Speaker 03:
How did the end users end up getting the refund?

[00:03:59] Speaker 03:
How did that process work?

[00:04:01] Speaker 05:
Well, I'm drawing this from the Cohen decision.

[00:04:06] Speaker 05:
But there was a procedure whereby taxpayers could just check a box and get a safe harbor amount.

[00:04:14] Speaker 05:
as a refund from toll telephone service.

[00:04:17] Speaker 05:
And I suspect what that stipulation is referring to, but it doesn't explain that.

[00:04:23] Speaker 05:
But our argument would be that whether or not some customers got a refund, they weren't the ones who were entitled to it.

[00:04:30] Speaker 05:
The 2007 notice makes perfectly clear that the holder... You told your customers they were paying taxes.

[00:04:36] Speaker 05:
Did you not?

[00:04:37] Speaker 05:
Well, we listed the taxed amounts based on our understanding of what California law required eight by eight to do.

[00:04:47] Speaker 03:
But then what about the terms and conditions of the contract you had with your customers, right?

[00:04:52] Speaker 03:
You had a contract with them.

[00:04:54] Speaker 03:
Sure.

[00:04:54] Speaker 03:
You had this ongoing business relationship with them.

[00:04:56] Speaker 03:
Through the contract, terms and conditions say, specifically, the excise taxes shall be paid by end user.

[00:05:05] Speaker 03:
There's nothing in you know the price for the services do not include the excise taxes There's nothing in the regulations to the extent you're asking about the continuing business relationship No, no, I'm asking about your terms and conditions where you are telling your customers that Well, they're the ones paying the excise.

[00:05:24] Speaker 05:
I was being very transparent about how they were getting billed like there's a tax in these amounts that this is what it is but as a legal matter

[00:05:32] Speaker 05:
Those taxes were the burden of eight by eight.

[00:05:35] Speaker 05:
They were the ones that had to pay it.

[00:05:37] Speaker 06:
So why didn't you tell your clients they didn't have to pay that money to you?

[00:05:41] Speaker 05:
Well, because we were charging them for the cost of the tax.

[00:05:45] Speaker 05:
We're not disputing that.

[00:05:47] Speaker 05:
But that's no different than.

[00:05:48] Speaker 04:
But if you were paying these taxes, as you say you were, you would have been paying them to the carrier you purchased these services from.

[00:05:56] Speaker 04:
But you filed an exemption form.

[00:05:58] Speaker 03:
So you didn't have to pay them.

[00:05:59] Speaker 05:
Well, the exemption meant that the carrier didn't have to collect the tax from us.

[00:06:04] Speaker 05:
But we were still liable for it, whether or not they collected it.

[00:06:08] Speaker 05:
So we pay the tax ourselves.

[00:06:10] Speaker 04:
How do you deal with the fact that in the regulation, it says those exemptions specifically do not apply to a transfer of a PTC from a carrier to a transferee reseller?

[00:06:21] Speaker 04:
Well, I would point to either you were not following the law then,

[00:06:26] Speaker 04:
by filing the exemption certificate and not paying the taxes to the carrier, or now you're seeking a refund you're not entitled to?

[00:06:33] Speaker 05:
No, we were following the law.

[00:06:35] Speaker 05:
Section 4253F says that the carrier doesn't have to collect tax if the service is being transferred to a telephone or telegraph company.

[00:06:44] Speaker 05:
And we were relying upon that part of 4253.

[00:06:48] Speaker 04:
But now you're relying on the notion that you're a transferee reseller to get a refund.

[00:06:53] Speaker 04:
And it specifically says in the regulation that if you were a transferee reseller, you don't get the exemption.

[00:07:02] Speaker 04:
You can't change your legal theory on whether or not you are liable for taxes then versus now just to get a refund.

[00:07:10] Speaker 05:
I don't think that's a correct reading of the regulation, Your Honor.

[00:07:15] Speaker 05:
We'll look at D3.

[00:07:17] Speaker 05:
Well, I'm looking at D2.

[00:07:21] Speaker 04:
Well, I'm not looking at D2.

[00:07:22] Speaker 04:
I'm looking at the exemption portion that says, Section 4253 does not apply to the transfer of a PTC from a carrier to transferory reseller.

[00:07:33] Speaker 04:
So if you considered yourself a transferory reseller, you could not have filed the exemption form.

[00:07:39] Speaker 05:
Well, be that as it may.

[00:07:44] Speaker 05:
8x8 remained liable for the tax.

[00:07:46] Speaker 05:
The only issue under 4253 is whether the carrier had to collect it from us.

[00:07:52] Speaker 05:
We remained liable for it either way.

[00:07:55] Speaker 04:
And if you look at the regulation, it says- You mean if you legitimately file an exemption form, you're still liable for the tax?

[00:08:03] Speaker 05:
We're still liable for the tax.

[00:08:04] Speaker 05:
It's just that the carrier doesn't have to collect it from us.

[00:08:08] Speaker 05:
That's what 2-2 says.

[00:08:13] Speaker 05:
two, one, and two, that if the carrier gets the notice, and as long as they don't have any reason to believe that it's wrong, they don't have to collect the tax.

[00:08:24] Speaker 05:
But that doesn't mean that we don't have to pay the tax.

[00:08:26] Speaker 05:
We still do.

[00:08:27] Speaker 04:
But two applies to carriers.

[00:08:28] Speaker 05:
It doesn't apply to transfer or resellers.

[00:08:31] Speaker 05:
Well, two, two applies to a purchaser.

[00:08:34] Speaker 05:
In this sense, at this point, we were the purchaser of the service from the carriers, and two says... It applies to purchasers that are carriers.

[00:08:43] Speaker 04:
Not purchasers that are transferee resellers.

[00:08:47] Speaker 05:
Well, I think that's got to mean that the statute refers to carriers and other entities, like telephone and telegraph companies.

[00:08:54] Speaker 05:
And I think that's got to be shorthand for all the entities that are listed in the regulation.

[00:09:00] Speaker 05:
But not transferee resellers.

[00:09:03] Speaker 05:
Well, I think it does include transferee resellers.

[00:09:06] Speaker 05:
I don't know how you get around their language in D3.

[00:09:08] Speaker 05:
What says the purchaser remains liable for the tax imposed

[00:09:15] Speaker 05:
So the liability stayed with 8 by 8.

[00:09:18] Speaker 05:
The 2007 notice is very plain, that the holder is not liable for the tax.

[00:09:26] Speaker 05:
In this case, the carrier didn't have to collect it.

[00:09:28] Speaker 05:
So the only entity that could possibly have been liable for the tax is 8 by 8, the transferee.

[00:09:39] Speaker 05:
And that's also explicit with what the 2007 regulation says.

[00:09:45] Speaker 05:
which is that the transferee is the person liable for the tax paid on the PTC, and thus it's the person that can request the credit.

[00:09:55] Speaker 06:
I'm interested in your relationship with your client's relationship with its customers.

[00:10:01] Speaker 06:
If they didn't pay that 3%, would you still provide them with service?

[00:10:08] Speaker 05:
Well, they had to pay up front, so they had to pay the amount that they were billed.

[00:10:14] Speaker 05:
When they did that, they got the service.

[00:10:15] Speaker 05:
If they paid something less, they wouldn't get the service.

[00:10:20] Speaker 05:
Am I answering the question you were driving at?

[00:10:22] Speaker 04:
Sure.

[00:10:22] Speaker 04:
They paid the excise tax.

[00:10:24] Speaker 05:
It was billed to them, and they paid it.

[00:10:26] Speaker 05:
They paid the equivalent of the tax.

[00:10:29] Speaker 05:
They didn't pay the taxes.

[00:10:30] Speaker 05:
So what you were doing.

[00:10:32] Speaker 05:
Wait a minute.

[00:10:33] Speaker 05:
You're looking at me funny.

[00:10:34] Speaker 06:
Council, you don't talk when a judge talks.

[00:10:37] Speaker 06:
Do you understand that?

[00:10:39] Speaker 05:
Yes, sir.

[00:10:41] Speaker 06:
OK.

[00:10:41] Speaker 06:
What you were doing is you were collecting 3% and you were telling your customers that that was tax money.

[00:10:51] Speaker 06:
Is that not correct?

[00:10:53] Speaker 05:
We told them, yes, what the tax was, and they sent our understanding.

[00:10:56] Speaker 06:
It said on the bill.

[00:10:58] Speaker 05:
Tax, 3%.

[00:11:00] Speaker 05:
Now, we weren't saying you are paying the tax.

[00:11:04] Speaker 05:
We're explaining why we were billing them what we were billing them, and that's because

[00:11:08] Speaker 05:
We were liable for the tax.

[00:11:10] Speaker 04:
I'm sorry.

[00:11:10] Speaker 04:
Are you really saying if I get a bill from a telephone company that has an amount for a service and an amount for a 3% excise tax, and I have to pay both of those, that I'm not really paying the tax?

[00:11:22] Speaker 04:
Well, not in this case.

[00:11:24] Speaker 05:
In this case, yes, we passed on the cost of the tax to our customers.

[00:11:30] Speaker 06:
Just out of idle curiosity, the rest of the bill, were they not really paying that either?

[00:11:34] Speaker 05:
No, they are paying that, Your Honor.

[00:11:36] Speaker 05:
But it's hardly unusual for

[00:11:39] Speaker 05:
a business entity to be taxed and then passed on the cost of that tax to their customer.

[00:11:46] Speaker 05:
It's no different than if there had been a property tax hike and then the restaurant raises their prices.

[00:11:54] Speaker 04:
No, it's completely different because when I get a menu, I don't get a menu that says the price of my crab is $30 plus here's an extra amount for the property tax.

[00:12:05] Speaker 04:
That's different when you include it into a long-sum price.

[00:12:08] Speaker 04:
I agree.

[00:12:09] Speaker 04:
If all you did was pass on and say, here, you pay $30 for these services and don't break out the excise tax, you might have some good-faith argument.

[00:12:20] Speaker 04:
You didn't include it altogether.

[00:12:23] Speaker 04:
You broke out the excise tax.

[00:12:25] Speaker 05:
Well, all I can tell you, Your Honor, is that APE was trying to be transparent about why the customers were being billed what they were billed.

[00:12:35] Speaker 05:
what they were being billed was a cost equal to the amount of the tax imposed.

[00:12:40] Speaker 06:
Not equal to exactly.

[00:12:42] Speaker 06:
And the fact is that the customers are legally entitled to a tax refund, and that can only be if they were taxpayers.

[00:12:51] Speaker 06:
Is that not correct?

[00:12:53] Speaker 05:
Well, I'd say the customers are not entitled to a refund if this was a PTC arrangement.

[00:12:59] Speaker 05:
If this was a PTC arrangement,

[00:13:01] Speaker 05:
then only eight by eight is liable.

[00:13:03] Speaker 06:
So they illegally, your position is they illegally collected those refunds that you admit they received?

[00:13:09] Speaker 05:
Well, we're put another way that the IRS was mistaken in issuing refunds to any customers who took that.

[00:13:15] Speaker 05:
Yes.

[00:13:15] Speaker 06:
And you took that position before the IRS initially?

[00:13:21] Speaker 05:
I believe that's right, Your Honor.

[00:13:22] Speaker 05:
I believe that's been our consistent position.

[00:13:24] Speaker 06:
You opposed repayment to your customers?

[00:13:28] Speaker 05:
Well, the customers would have

[00:13:30] Speaker 05:
sought a refund separately, we wouldn't even know about it.

[00:13:33] Speaker 05:
That's why the stipulation is so vague, because any refund request would occur entirely separatilistic.

[00:13:39] Speaker 05:
If I could reserve the balance of my time for a moment.

[00:13:47] Speaker 06:
The government has something to say?

[00:13:50] Speaker 00:
Good morning.

[00:13:50] Speaker 00:
May it please the court?

[00:13:52] Speaker 00:
Our position is simple, eight by eight.

[00:13:55] Speaker 04:
Can you just?

[00:13:56] Speaker 04:
Yes.

[00:13:56] Speaker 04:
These tax regulations are very difficult to read.

[00:13:59] Speaker 04:
But can you give me your reading of D3, the exemption language, and whether it applies to transferee resellers?

[00:14:06] Speaker 00:
This is on page 20A of the Addendum to Petitioner's Brief.

[00:14:10] Speaker 04:
I read that as saying.

[00:14:11] Speaker 04:
Well, it's in the regulations.

[00:14:13] Speaker 00:
Oh, I'm sorry.

[00:14:13] Speaker 00:
I was looking at that.

[00:14:14] Speaker 00:
D3.

[00:14:15] Speaker 00:
Yeah.

[00:14:16] Speaker 04:
It's the exemption language about whether or not a transfer reseller can file that.

[00:14:21] Speaker 00:
I think it clearly says Section 4253, which is the exemption, does not apply to the transfer of a PTC from a carrier to a transferee reseller.

[00:14:31] Speaker 00:
So if they had, in fact, been a transferee reseller, they would not have been able to swear honestly an exemption certificate to their carrier suppliers that they were exempt.

[00:14:40] Speaker 04:
And if they had actually been a transferee reseller, they would not have filed this exemption and instead would have paid the taxes directly to the carrier.

[00:14:48] Speaker 00:
That's correct.

[00:14:49] Speaker 00:
That's how the regulation works.

[00:14:51] Speaker 00:
works.

[00:14:54] Speaker 00:
The points that I wanted to make, frankly, were made by the court during the questioning, if there's anything that I can explain from our brief.

[00:15:01] Speaker 04:
Do you think there's a good faith basis for this argument being made by your friend?

[00:15:04] Speaker 00:
No, I don't.

[00:15:09] Speaker 01:
Well, they have an argument that what they're doing is a similar arrangement to a PTC.

[00:15:15] Speaker 01:
Or at least, PTC is defined so broadly as to encompass

[00:15:21] Speaker 01:
arrangements that might be something like what 8x8 is doing.

[00:15:27] Speaker 00:
And we've set out in our brief five alternative reasons why we think this arrangement is not, you know, similar to a PTC arrangement.

[00:15:35] Speaker 00:
But regardless of whether they were selling PTCs or even whether they were transferring resellers of PTCs, they told their subscribers, this is on page 260 of the Joint Appendix and Subscription Agreement, you owe the tax unless you can give us an exemption certificate

[00:15:51] Speaker 00:
and then separately charged them for the tax.

[00:15:53] Speaker 00:
They've conceded in this case they didn't bear the economic burden.

[00:15:56] Speaker 00:
They've conceded that they didn't repay their subscribers or obtain their consent.

[00:16:02] Speaker 00:
So they haven't complied with 6415A.

[00:16:05] Speaker 00:
And under binding precedent from this court, for example, the Gumptor decision, they're not entitled to a refund.

[00:16:13] Speaker 00:
Unless the court has any further questions, the government may rest on its brief.

[00:16:17] Speaker 01:
Thank you, counsel.

[00:16:26] Speaker 05:
Welcome back.

[00:16:28] Speaker 05:
I've been puzzling over the regulation D3 provision.

[00:16:35] Speaker 05:
And I would say that if you think that we were in violation of that provision, the only effect of that is that instead of the carrier collecting the tax from 8x8, 8x8 was itself responsible for paying the tax, which it did.

[00:16:53] Speaker 05:
Either way, 8x8 was responsible for the tax, and it paid the tax.

[00:16:59] Speaker 05:
So I think, with respect, I think that's a red herring issue in this case.

[00:17:04] Speaker 05:
The D22 provision.

[00:17:07] Speaker 04:
You didn't pay the tax with your own money.

[00:17:09] Speaker 04:
You didn't pay the tax with your own money.

[00:17:12] Speaker 04:
You paid the tax with your customers' money.

[00:17:16] Speaker 04:
So if you want to take advantage of it, you owe the IRS a lot of money, and you need to refund your customers a lot of money.

[00:17:23] Speaker 05:
Well, of course, the customers paid their bill, and it was from that pool of money that 8x8 paid the tax.

[00:17:32] Speaker 05:
But the tax burden under the notice and the statute was

[00:17:37] Speaker 05:
aimed squarely at 8x8.

[00:17:39] Speaker 05:
The transferee is the entity responsible... You certainly didn't think that at the time.

[00:17:44] Speaker 04:
I'm sorry?

[00:17:45] Speaker 04:
You certainly didn't think that at the time because you filed the exemption certificate saying you weren't liable for the tax.

[00:17:51] Speaker 05:
Well, the exemption, again, was on the basis that 8x8 was a telephone or telegraph company.

[00:17:58] Speaker 05:
That was its good faith position and... Which makes it

[00:18:02] Speaker 04:
responsible for collecting the tax from its customers, which is what your CFO testified to you.

[00:18:07] Speaker 04:
No, it makes it liable for the tax.

[00:18:10] Speaker 04:
And again, it paid the tax.

[00:18:12] Speaker 04:
No, it doesn't.

[00:18:12] Speaker 04:
It makes you responsible for collecting it from your customers who are liable for the tax if you think you're some kind of service provider or carrier.

[00:18:20] Speaker 05:
Well, if this was a PTC arrangement, the 2007 notice is perfectly clear.

[00:18:25] Speaker 04:
If this was a PTC arrangement, you couldn't have filed the exemption.

[00:18:29] Speaker 05:
Well, again,

[00:18:31] Speaker 05:
If that was a mistake, that just means that the carrier should have collected the tax from us.

[00:18:37] Speaker 04:
It wasn't a mistake.

[00:18:39] Speaker 04:
Clearly, you would believe you were not required to pay the tax.

[00:18:44] Speaker 04:
Now, when you see the opportunity of a windfall, you're changing your legal theory of what you were liable for.

[00:18:51] Speaker 05:
I disagree that it's a windfall, Your Honor.

[00:18:53] Speaker 05:
It was the government that collected $4 billion that it hasn't refunded.

[00:19:00] Speaker 05:
The equities here are not that simple.

[00:19:04] Speaker 05:
Your time's up, counsel.

[00:19:05] Speaker 05:
Thank you, Your Honor.