For years there has been the debate on whether satellite companies should be subject to a tax on their satellite services on the state or federal level. Cable companies are levied franchise fees ranging from two percent to five percent in areas that they do business, but are not subject to a special “cable” tax. DirecTV and Echostar have been fighting state taxes in virtually every state in the nation for years.
Back in 2003, the state of Ohio passed a law that required satellite companies pay a 5.5 percent tax, but the tax would be exclusive to satellite providers and not local cable companies. Since that time, the state of Ohio has collected roughly $44 million, while the two satellite conglomerates have sued to have the taxes overturned. They argue that the tax is discriminatory and that they amount to “local cable protectionism” considering the cable companies had local physical presences.
After the original ruling in 2003, the Senior Vice President and CFO of DirecTV made the following statements:
The satellite-only tax flies in the face of both the Ohio and U.S. constitutions.Applying a discriminatory tax on satellite providers that provide virtually the same product to the same customer gives a direct commercial advantage to local cable services that access and place a burden on the state’s public infrastructure, while discriminating against out-of-state satellite television services that do not use the public infrastructure nor put demands on the state for the delivery of their services.
Well, at the end of Dec. 2010, the Ohio State Supreme Court ruled against DirecTV and Echostar by a vote of 5-2. Justice Terrence O’Donnell declared the tax “does not favor in-state interests at the expense of out-of-state interests.”
In the end, the additional costs will not be picked up by the satellite customers but will, in fact, be paid for by the customers of satellite television services. It does seem that the tax is targeting companies, specifically satellites companies, that don’t have a physical presence in the state of Ohio. What worries me as a customer, is that other states will follow suit and although these efforts have been thwarted in the past there is now precedence.
I want to hear your thoughts to both sides of the equation in the comments below.