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Lawyer: Satellite TV Providers Don't Seek Tax Refund

Satellite Technology

Satellite Technology Feature Article

October 13, 2010

Lawyer: Satellite TV Providers Don't Seek Tax Refund

By Ed Silverstein, TMCnet Web Editor

An attorney for satellite TV providers fighting a state sales tax not applied to their cable competitors told Ohio's high court Wednesday that the industry isn't looking for a refund, The AP reported.

According to The AP, during oral arguments Wednesday, E. Joshua Rosenkranz told the Ohio Supreme Court the much-watched case brought by DirecTV Inc. and EchoStar Satellite (News - Alert) Corp. is about fair competition with cable, not getting back more than $300 million in Ohio taxes collected from satellite customers since 2003.

The industry has challenged similar tax discrepancies in North Carolina, Kentucky, Florida, Tennessee and Massachusetts, according to The AP. The former two cases ended in favor of the states. The others have yet to be decided.

The issue before Ohio’s highest court is: Does an Ohio law that imposes state sales tax on pay TV services that are transmitted directly to a satellite receiver at the consumer’s location, but does not impose sales tax on competing pay TV services that are delivered to consumers via cable, violate the Commerce Clause of the U.S. Constitution by giving preferential treatment to companies that have a substantial “on-the ground” presence in Ohio over interstate competitors?

The satellite companies argue that there is no difference in the nature of the business activity in which they engage and the business activity of competing cable companies. Both provide consumers with multichannel pay-TV programming. Rather than basing its action on the irrelevant fact that they use a different technology to provide the same service as cable companies, they contend, the Ohio legislature impermissibly imposed a state tax on their interstate business activity and not on their competitors’ business activity based on the cable companies’ role in the state and local economies.

However, attorneys for the cable companies point out that the satellite companies have asserted the same Commerce Clause claims arising from unequal taxation of cable TV providers in lawsuits filed in North Carolina and Kentucky, and in both instances the courts have dismissed their claims as meritless. They point out that cable companies, but not satellite TV providers, are required by law to pay a franchise fee of up to 5 percent of their gross revenues to local governments in areas that they serve, and are also required to provide free broadcast channels and production facilities for local educational and nonprofit programming, furnish free cable service to schools and meet other regulatory requirements that are not applicable to competing satellite companies. They point to prior U.S. Supreme Court decisions finding no Commerce Clause violation where states have offset similarly unequal financial burdens by exempting one business from a “compensatory tax” imposed on a competitor, such as the sales tax imposed on satellite TV providers by Ohio in this case.

A group calling itself Stop Satellite Tax issued a statement that, “DIRECTV and Dish Network applaud the Ohio Supreme Court's decision to review a Court of Appeals ruling regarding a discriminatory tax imposed on satellite TV subscribers. We look forward to a Supreme Court decision that will promote fair competition in the state and lower prices for consumers.”

The organization said it is confident the state highest court “will strike down this discriminatory tax as unconstitutional and not force Ohio consumers to pay more because they chose to subscribe to a satellite TV service.”

“We believe the Court - the first state supreme court to consider the issue – will appreciate that this tax rewards businesses (cable) that impact the local infrastructure at the expense of businesses (satellite) that have found a more efficient way to provide the same service,” the organization added.

Fifteen states, the National Conference of State Legislatures and the National Governors Association are among those who have signed on in support of Ohio in the case. In its brief, the bipartisan governors' group said it's interested in the case because it "calls into question the ability of all 50 states to raise revenue."

Ed Silverstein is a contributing editor for TMCnet's InfoTech Spotlight. To read more of his articles, please visit his columnist page.

Edited by Stefanie Mosca

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