Satellite TV Networks Sue North Carolina Over Unfair Sales Taxes

SPACEMART

North Carolina has a 5 percent sales tax on satellite TV services, but no sales tax on cable TV services. Similar discriminatory taxing policies exist in Tennessee and Ohio, which also were sued by EchoStar and DirecTV on August 19 and June 26, respectively. (Illustration only - A Boeing 702 series satellite)

Raleigh - Oct 02, 2003
DirecTV, Inc. and EchoStar Satellite Corporation and its DISH Network, the nation's largest providers of satellite TV services, have filed a lawsuit against North Carolina as part of a nationwide campaign to challenge unfair taxing policies that discriminate against satellite TV providers while benefiting local cable TV firms.

The lawsuit, filed against the state's Department of Revenue and other entities, challenges the constitutionality of North Carolina's taxing policies under the Commerce Clause of the United States Constitution, which prohibits state taxes that discriminate against interstate commerce, or are not fairly related to the services provided to the taxpayer.

North Carolina has a 5 percent sales tax on satellite TV services, but no sales tax on cable TV services. The lawsuit was filed Tuesday in the Superior Court for Wake County in Raleigh, N.C.

"As we have demonstrated with our recent actions in Ohio and Tennessee and now in North Carolina, DISH Network and DirecTV will vigorously defend the rights of consumers in any state that pursues a discriminatory tax policy," said Michael McDonnell, senior vice president and chief financial officer at EchoStar. "These discriminatory taxes benefit local cable operators while unfairly burdening satellite TV customers."

DISH Network and DirecTV provide multi-channel video programming via direct-to-home satellite television service, which is also known as direct broadcast satellite (DBS) service, not only to subscribers in North Carolina, but to viewers throughout the United States. However, the local cable companies, which are the dominant providers of multi-channel video programming in the state, are not similarly subjected to the state's sales tax and, as such, are given an unfair competitive edge through these discriminatory taxing policies, the lawsuit states.

Following North Carolina's procedures, prior to going to court the satellite providers requested a refund for their customers in the state of approximately $30 million, a required first step in challenging the discriminatory sales tax on satellite TV service. The State Department of Revenue rejected the request; and the required 90-day waiting period for filing a lawsuit after requesting a refund has expired.

In contrast to cable operators in North Carolina, satellite TV companies do not use public infrastructure to provide services and have no significant presence in the state that could put a demand on the state for services. EchoStar is based in Littleton, Colo., and DirecTV is based in El Segundo, Calif.

"This approach to taxation at the state level, which unfairly burdens a satellite provider vs. the cable industry, is both discriminatory and unconstitutional," said Michael W. Palkovic, senior vice president and chief financial officer of DirecTV, Inc. "We will continue to aggressively fight this unfair and illegal tax practice along with EchoStar on behalf of all satellite television customers."

Cable operators pay a franchise fee in exchange for many rights and privileges that they receive from the local authorities. Among other things, these fees compensate a community for benefits including cable's use of the local rights-of-way and to offset any government costs and burdens associated with the local cable franchise. The satellite carriers, by contrast, do not receive any such benefits from the local authorities and do not impose any such costs on them.

Similar discriminatory taxing policies exist in Tennessee and Ohio, which also were sued by EchoStar and DirecTV on August 19 and June 26, respectively.

The Tennessee statute imposes an 8.25 percent sales tax on the entire amount of satellite customers' monthly subscription fees, whereas customers of cable operators are exempted from the tax on the first $15 of their subscription fees. The result is a higher tax on satellite customers than on the customers of competing cable companies.

Ohio charges satellite TV customers a 6 percent sales tax on their service, but cable operators are exempt from the sales tax imposed on their satellite competitors.

EchoStar Satellite is a subsidiary of EchoStar Communications Corporation , which serves 9 million satellite TV customers through its DISH Network(TM), the fastest growing subscription television service in the nation. DISH Network delivers advanced digital satellite television services, including hundreds of video and audio channels, Interactive TV, HDTV, sports and international programming, professional installation and 24-hour customer service.

SPACEMART

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