Satellite lobbying push could mean higher cable bills

WASHINGTON--In a political gambit that could lead to higher fees for cable providers and their subscribers, the satellite television industry urged politicians on Thursday to enact a federal law prohibiting "discriminatory" taxes.

DirecTV and Dish Network executives argue that the federal legislation is needed because six states--Ohio, Tennessee, Florida, Kentucky, North Carolina, and Utah--have enacted laws in recent years that impose steeper taxes on satellite subscribers than on cable subscribers. They claim that those laws are a direct result of cable industry lobbying in an effort to make their prices more competitive with those charged by satellite operators.

In congressional testimony on Thursday, a DirecTV executive called for "equalizing" taxes. In states where taxes may be deemed unequal, satellite taxes could go down or stay the same while taxes on cable providers could rise (as would, presumably, the monthly bills that cable subscribers pay).

In apparent response to the concerns of the satellite industry, two Democrats and two Republicans in the U.S. House of Representatives have introduced a bill called the State Video Tax Fairness Act, which was the subject of a subcommittee hearing here. The brief proposal effectively dictates that states must tax all multichannel video services--regardless of whether they are shuttled over cable, Internet protocol, satellite, or other technologies--at the same rate.

Right now, for instance, Florida imposes a 6.8 percent sales tax on cable subscriptions and a 10.8 percent tax on satellite, and Ohio charges a 5.5 percent tax on satellite but no tax at all on cable. (That law was found unconstitutional from one Ohio court, but the decision was on appeal.)

But what that means is that if the law were enacted, any state could theoretically impose taxes at whatever rate it pleases, even if it means raising taxes. For his part, Mike Palkovic, a DirecTV executive vice president, said he would not be averse to seeing Florida, for example, even out its sales tax rates so that cable customers would experience a 4 percent hike.

The National Cable and Telecommunications Association says the possibility of higher taxes for its customers is one reason why it strongly opposes the bill. In prepared testimony, outside counsel Howard Symons said cable operators already pay higher taxes and fees than satellite subscribers and that the House bill would only preserve satellite's "unfair tax advantage."

Whether you buy that argument depends on how you define the word "tax."

To be sure, the cable industry currently faces at least one set of fees that its satellite counterparts don't. Cable companies typically must pay so-called franchise fees in order to dig up streets or access other pieces of public infrastructure to install their wares. Then they often, in turn, pass on those costs to consumers, who most likely don't differentiate between those costs and taxes.

Satellite providers, on the other hand, are exempt under federal law from having to pay franchise fees, largely because installing their product does not require access to those public facilities. Satellite providers are also exempt under federal law from having to pay local taxes, but they're fair game for state taxes.

It's against that backdrop that cable has been lobbying state governments for "parity" in the taxes and fees required of all video providers. Cable argues all it's trying to do is establish a "level playing field" with its satellite brethren, which now serves some 30 million subscribers and, in cable's view, is no longer in need of special treatment.

Consumers advocacy groups--including the National Taxpayers Union, Consumers Union, and Public Knowledge--have sided with the satellite industry's position, arguing that it's unfair to punish satellite operators with new, higher taxes to make up for franchise fees that are effectively like "rent" payments for cable operators.

The National Taxpayers Union acknowledges that franchise fees could be considered a tax if they're higher than is necessary to cover "actual and legitimate expenses" that a state incurs when a cable company installs its infrastructure--which the cable industry implied is the case. But for the most part, NTU says those fees should be considered the "cost of doing business," not taxes. It's not as though satellite companies don't have "rent"-like costs, too, in the form of preparing, launching, and maintaining their airborne dishes, NTU argues.

Despite NTU's support for the bill, director of government affairs Kristina Rasmussen told politicians that her group was concerned that states could exploit the bill as a way to raise taxes for all consumers. Rasmussen said NTU would "welcome" language clarifying that states can't do that.

Rep. Ric Keller (R-Fla.) raised similar concerns and suggested he would push for changes to the bill that make such clarifications.

The National Governors Association, the National Association of Counties, and various city associations oppose the bill, arguing the federal government has no right to trump their ability to establish tax policy as they see fit.

"We have a natural unbalance that was caused really under federal law," said David Quam, the NGA's head lobbyist. "Allowing state and local governments to create parity is the way to move this forward."