Ohio Satellite TV Tax Doesn’t Violate Commerce Clause, Say States, Cable Companies
The National Governors Association (NGA) the National Conference of State Legislatures (NCSL), the Multistate Tax Commission and more than a dozen states threw their weight behind a satellite TV sales tax Monday that’s before the Ohio Supreme Court. The fight is over an Ohio tax requiring satellite subscribers to pay a tax equal to 5.5 percent of their service revenue, while cable customers pay nothing. The cable companies and state organizations say the tax is a near equivalent of the franchise fees required of cable providers. Comcast, Cox Communications, and Time Warner Cable also filed a brief with the court supporting the tax. Oral argument hasn’t been scheduled.
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State legislatures “must be afforded maximum flexibility to devise fair and efficient tax structures to assure that taxes on communications services are levied in an equal, efficient, and competitively-neutral manner” and “the Ohio General Assembly has done just that,” said the NCSL, in its friend of the court brief. The satellite TV providers’ claim that the tax violates the Constitution’s Commerce Clause is a “novel and formalistic interpretation,” it said. Drawing any constitutional difference between the tax and the cable franchise fee would reflect a policy that undermines the state Legislature’s discretion to create tax schemes with consistent and “substantively equivalent tax burdens on consumers,” said the NCSL.
The DBS providers’ assertion that franchise fees and a satellite tax are different because cable service is “local” while satellite is an “interstate” service would require some kind of “comparative local presence” criteria to differentiate the services, NCSL said. There’s no test and if such a test existed it would force state legislatures to “assess every potential new tax based on vague notions of “local presence,” the group said.
The NGA said the Telecom Act of 1996 specifically leaves open the possibility of state taxes on satellite TV providers in section 602(c). It said the Ohio Court of Appeals was astute in recognizing that Ohio sales taxes on TV providers is based solely on how TV is distributed and not where the TV providers locate equipment used to distribute the programming. Since the tax is based on how the providers distribute programming rather than where its equipment is held, there’s no disproportionate burden on interstate commerce, the NGA said. If the Supreme Court rules that the satellite TV tax does violate the Commerce Clause, it could “jeopardize the ability of state governments to raise revenue and promote the general welfare of their citizens, it said.
Time Warner Cable, Comcast, and Cox Communications said the idea that satellite TV providers shouldn’t be subject to the tax because they don’t use local rights of way is “simply incorrect” since they do lease cable and fiber. Also, the tax is geographically neutral and the Ohio Legislature imposed the tax without mention of location, they said. The companies agreed with the Appeals Court finding that the tax doesn’t discriminate against interstate commerce, but discriminates between “different forms of interstate commerce.”
The satellite industry was not persuaded by the state and cable arguments. According to one satellite executive, the states want to defend their ability to tax the satellite providers, “even when those taxes are plainly discriminatory and favor one provider over another because of their technology.” Dish Network and DirecTV did not respond to requests for comment.