Fifth Circuit Court Declares FCC's Universal Service Fee as a Tax and Unconstitutional

In a significant ruling, the en banc U.S. Court of Appeals for the Fifth Circuit has declared the Federal Communications Commission's (FCC) "Universal Service" fee unconstitutional. In a closely contested decision, the court voted 9-7, determining that the fee constitutes a tax that was improperly delegated to the FCC and subsequently subdelegated to a private entity, the Universal Service Administrative Company (USAC). This ruling raises critical questions about the delegation of taxing authority to private corporations. The court's majority opinion emphasized that the power to levy contributions to the Universal Service Fund (USF) was not appropriately granted to the FCC under Section 254 of the Communications Act. The judges argued that while Congress may have intended to empower the FCC to manage universal service contributions, it did not authorize the FCC to delegate this taxing power to a private organization. This delegation, they contend, violates constitutional principles regarding the separation of powers and the limits on legislative authority. Dissenting opinions within the court argued that the USF serves a vital public purpose and should not be classified as a tax. The dissenters maintained that the fund is essential for ensuring widespread access to telecommunications services, particularly in underserved areas. They expressed concern that the ruling could undermine efforts to maintain universal service in the telecommunications sector. This landmark decision could have far-reaching implications for how federal agencies manage funding and regulatory responsibilities, particularly in the context of public services and private sector involvement.