Justices Mull Tax Fight Over Pay Television

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TALLAHASSEE (NSF) – The Florida Supreme Court on Wednesday waded into a constitutional fight about a higher state tax rate for satellite-television companies than for their cable TV competitors.

The Florida Department of Revenue and a cable industry group asked justices to overturn an appeals-court ruling last year that sided with satellite companies DirecTV and Dish Network. In a 2-1 decision, a panel of the 1st District Court of Appeal found that the differing tax rates were discriminatory and violated the Commerce Clause of the U.S. Constitution.

Supreme Court justices questioned attorneys on both sides Wednesday and, as is customary, did not indicate when they will rule. But along with affecting cable and satellite companies, the outcome of the case could have major financial ramifications for the state --- in part because the appeals court raised the prospect of providing refunds to satellite companies.

Jonathan Williams, an attorney for the Department of Revenue, told justices that there is no evidence the Legislature intended to discriminate when it set the tax rates. The issue centers on the state's communications-services tax.

"Florida's communications-services tax does not discriminate against interstate commerce,'' Williams said, alluding to the federal constitutional issue.

But the satellite industry argues that the difference in tax rates violates what is known as the "dormant" Commerce Clause. The industry, in a brief filed last year, described the tax difference as "economic protectionism" that benefits cable companies over satellite firms that generate their services out of state.

"We have a situation in which the signal difference between cable and satellite is where they perform this critical activity of assembling and distributing pay TV service," satellite industry attorney Eric Shumsky told the Supreme Court on Wednesday.

(Disclosure: The News Service of Florida and the Florida Cable Telecommunications Association, an industry group that is a party in the case, have a partnership for the Capital Dateline Online news show.)

The communications-services tax dates to 2000 and is actually paid by customers, though cable and satellite companies collect the money and remit it. The state tax rate for cable services is 4.92 percent, while the rate for satellite services is 9.07 percent.

Cable customers also face local communications-services taxes that do not apply to satellite TV. A Department of Revenue brief in the case said those local tax rates are typically about 5 percent, though they vary.

Williams argued Wednesday that the combined state and local taxes ultimately create higher rates for the cable industry than for satellite providers.

"In every single year examined in this case, satellite providers enjoyed a tax advantage over the pay-TV competitor cable,'' he said. "Plainly, satellite is not the victim of discrimination against interstate commerce in this case."

But Shumsky drew a distinction between the state and local taxes, saying that cable companies use local rights of way for their equipment. He said Congress provided an exemption on local taxes to satellite companies.

"The reason it (Congress) gave is, this is national industry that does not use public rights of way,'' Shumsky said.

The News Service of Florida's Jim Saunders contributed to this report.

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