Dish and DirecTV, joined by a subscriber, have filed
suit in a Utah district court against what they argue is a tax break that only
applies to its cable competition and cable sees as an effort to equalize
the tax burden on cable and satellite.
The cable industry has been successful in getting a number
of states to change their laws to take into account local fees they pay that
are not paid by satellite operators, laws Dish and DirecTV argue are
For almost three years, 360,000 families in the state have
gotten a 40% tax break, which applies to consumers who use businesses that rely
on public rights of way to receive "ground distribution" of their
programming, according to the satellite companies, while they have had to pay
the full 6.25%.
"As a practical matter, the only families in Utah who
are eligible for the tax credit are those who receive their pay TV programming
from a cable TV company, like Comcast or Bresnan Communications," they
In its filing, the operators point out that the state is
rewarding cable companies because they "generate substantial economic
benefits for the State in the form of jobs, infrastructure investment, and
rental payments to municipalities and counties for the use of the public
rights-of-way," but say that has resulted in a discriminatory tax
on satellite thanks to the lobbying by an industry trying to protect their
They argue that conditioning a tax on whether a business
"performs a specific economic activity" violates the Commerce Clause.
They want a declaratory judgment that it is discrimination
and a refund to all of Dish and DirecTV's customers on the differential since
the law was passed Jan. 1, 2008.
Cable operators argue that they have been paying more than
satellite operators because they pay both the tax and a local franchise fee to
deliver their service.
Utah is just one of a number of states--Florida, Kentucky,
North Carolina, Tennessee, Massachusetts and Ohio are others--that modified
their tax laws to take into account the franchise fees and other local taxes
EchoStar and DirecTV have argued that those are covering the
costs of rights of way, but cable operators counter that is not the case, and
that there are other fees besides.
"This lawsuit is about protecting our customers-many of
whom dropped cable for satellite TV due to our superior product, service, and
pricing," said Andrew Reinsdorf, DirecTV senior VP of government affairs, in a
statement. "Forcing 360,000 Utah families to pay a higher tax simply
because they chose satellite TV over cable is inexplicable in these economic
times. It is especially cruel for the thousands of families who live in
rural parts of the State where cable does not go. A higher tax on
satellite TV unjustifiably punishes them for living where they do."
The Ohio Supreme Court is currently considering DirecTV and
EchoStar's challenge of that state's tax law change, and there are pending
challenges in Florida, Tennessee and Massachusetts, according to DirecTV.