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DirecTV Seeks "Unfair Tax Treatment" Verdicts - and Is Disappointed

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Two groundbreaking and precedent-setting appellate court decisions were rendered by tribunals in Massachusetts and Tennessee within nine days of each other last year concerning allegations of possible discriminatory tax treatment as between satellite and cable home television service, two important sources of “multi-channel video programming” in the U.S. The cases have a plaintiff in common: DirecTV, Inc. (“DirecTV”). In each proceeding, the satellite service company claimed that state taxation unfairly discriminated against it in favor of providers of cable service, by affording the latter tax advantages unavailable to it. In both lawsuits/both venues, the charges failed to elicit sympathy from the judges and the relief requested was refused, in each instance because it was decided that the two media were NOT so alike that identical tax treatment at the hands of the state was demanded.

The Massachusetts action (DirecTV, LLC, & Dish Network L.L.C., v. Department of Revenue, Case No. SJC-11658, Supreme Judicial Court of Massachusetts, 470 Mass. 647; 25 N.E.3d 258; 2015 Mass. LEXIS 94; by Thomas P. Billings, J., on motions for summary judgment), was initiated more than five years ago by DirecTV and Dish Network L.L.C., with the parties seeking both declaratory and injunctive relief in response to their complaint that the Massachusetts State Direct Broadcast Satellite Service Excise Tax violates the dormant commerce clause of the United States Constitution. Massachusetts’ highest court found sufficient differences in the media, and sufficient similarities in the total tax burden imposed upon them, to rule that the complainants had not proven that there was any adverse discrimination by the Commonwealth in the effect, intention, or implementation of the tax. Per the applicable term of art, the two media were deemed not to be “similarly situated.”

Instead, the Bay State court concluded that, whatever inequity in taxation could be demonstrated between the 5% state excise burden imposed on satellite (the “unfair” impost DirecTV was looking to overturn) and the dizzying combination of obligations to which cablecos are subject (including local franchise fees, public-educational-governmental (“P.E.G.”) fees, and the requirement that they supply municipalities with service, facilities, and equipment to support P.E.G. purposes AND provide actual cable service to libraries, schools, and municipal buildings free of charge) – “the discrepancy would be permissibly attributable to important differences between the cable and satellite industries. … The rate of the excise tax permissibly may allow for the fact that satellite companies do not bear the additional regulatory burdens imposed on cable companies. The Legislature also permissibly may wish to support the provision of cable services, in order to ensure that this regulated product remains available to Massachusetts consumers” (citations omitted). That is to say that the Court concluded that the two services are different enough for there to be no constitutional necessity for the state to treat them identically.

In Tennessee, the discussion is complicated by the state’s intricate sales tax structure, both generally and as specifically applicable to subscription fees for “multichannel video programming service,” a term for cable and satellite video offerings:

In 1984, the state instituted an “amusement tax” on any cable fee greater than “those charges made for the basic or lowest rate charged” – that is, exempting from tax the cost of basic service. In 1994, charges for satellite television became susceptible to Tennessee’s telecommunications service tax, but no comparable exclusion for the cost of “basic” was built in. In 1999, both services were adjudged to be privileges subject to sales tax, and a three-level structure for assessing cable was introduced: The “basic” exemption was standardized to exclude from operation of the tax the first $15 of one’s monthly fee; a tax rate of 8¼% applied to charges of $15 to $27.50; and any charge over $27.50 was taxed at the state rate of 6% (subsequently raised to 7%), plus local option taxes of up to 2¾%. Provision of satellite service was taxed at a flat, all-inclusive rate of 8¼%, wholly exempt from local taxability.

In mid-2003, DirecTV and DISH Network (then called EchoStar Satellite) sued Tennessee Revenue for refunds, claiming that the exemption – granted as it was only to the first $15 of cable charges – was inherently unfair and that it violated commerce clause and equal protection guarantees in the Federal Constitution. The trial court accepted their argument, reasoning that “the cable tax exemption taxes virtually identical retail transactions among competitors differently” and that the levy therefore “has the actual effect of substantially favoring the cable industry over the satellite industry.” This verdict was, however, appealed to Tennessee’s Court of Appeals by the state Revenue Commissioner, leading to its subsequently reversing the judgment of the Chancery Court – a conclusion reached nearly 12 years after the case was opened. (DirecTV, Inc., et al. v. Richard H. Roberts, Commissioner of Revenue, State of Tennessee, Case No. M2013-01673-COA-R3-CV, Court of Appeals of Tennessee, at Nashville, 2015 Tenn. App. LEXIS 101)

The Supreme Court of the United States has propounded that “[d]isparate treatment constitutes discrimination only if the objects of the disparate treatment are, for the relevant purposes, similarly situated” (citation omitted). The Court of Appeals wrote that “DirecTV and Dish argue, not unconvincingly, that satellite providers and cable providers are substantially similar entities because consumers view satellite and cable as similar and substitutable,” cogently observing, however, that “[w]hat constitutes ‘substantially similar entities’ has not been extensively explored by the courts.”

The appellate court does find “an important distinction. Cable providers are heavily regulated by the federal government, while satellite providers are ‘minimally’ regulated,” and there exist “significant public interest regulations imposed on cable providers by Congress and the Federal Communications Commission. Cable television systems are subject to ‘must-carry’ provisions,” for instance; the Court then lists ten further requirements with which cable must comply but that satellite escapes.

The decision concludes, “The difference in regulatory treatment between satellite and cable and the resulting benefits inuring to cable customers mean that satellite providers and cable providers are not substantially similar entities for purposes of the Commerce Clause. … Therefore, the disparate tax treatment of satellite providers and cable providers does not constitute discrimination. We reverse the trial court’s grant of summary judgment in favor of DirecTV and Dish” (emphasis added).

[Author’s Note: Sales taxes are levied upon the consumer – always have been. In addition, cable company franchise taxes and satellite company excise taxes are by state law permitted to be - and so they unfailingly are - PASSED ALONG TO CUSTOMERS as individually itemized entries on their monthly bills, to reimburse the service providers for their out-of-pocket tax-compliance expenses. In other words, the tax burden always ultimately lands on us end-users, and the above conflicts, however they turn out, end up costing the providers nothing one way or the other. Consumers must evaluate the prices and benefits, the pros and cons of these similar (but not identical!) methods of receiving home television entertainment. The rest is “mere perception.”]

About the Author: Marc Palmer Kram is a Senior Tax Analyst at Wolters Kluwer Tax & Accounting US, where he performs quality control and troubleshooting on the vast taxability database supporting its best-in-class CCH tax-compliance software, and then sometimes writes about what he finds. Learn more about him by visiting his author bio page. Learn more about Wolters Kluwer at and

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