New court ruling puts Universal Service Fund in hot water

In a ruling that quickly caused shock waves in the U.S. telecommunications industry, the Fifth Circuit Court of Appeals ruled, 9-7, that the Universal Service Fund (USF) is unconstitutional as currently administered. The Court explained its ruling by saying that the USF is a “misbegotten tax” that violates Article I, § 1 of the Constitution, which states that all legislative powers are given to Congress, which is made up of the Senate and the House of Representatives. It said that Congress, via the Telecommunications Act of 1996, delegated its taxing power to the FCC. But then the FCC sub-delegated the taxing power to a private corporation — the Universal Service Administrative Company — to determine how much American citizens would be forced to pay for USF taxes. The seven dissenters to the court’s ruling argued that the USF program collects administrative fees and not taxes and that the court is blurring the distinction between the two. The 6th and 11th Circuits have already ruled the opposite way, upholding the current USF funding mechanism. For this reason, the issue will likely be taken to the Supreme Court.