Sales Tax Slice: Courts to Satellite TV Providers: Not All Discriminatory Taxes are Created Equal


Last week, SCOTUS denied (see here and here) DIRECTV’s and DISH Network’s petitions for writ of certiorari from Tennessee* and Massachusetts decisions that earlier this year rejected the satellite TV providers’ dormant commerce clause challenges to those states’ taxation of satellite TV service. This is the third time that SCOTUS has denied cert on the satellite TV providers’ claims, but the first time since a Florida appellate decision earlier this year created a lower court split. The high court previously denied cert from Ohio and Kentucky decisions adverse to the providers.   

So far, the satellite TV providers have brought dormant commerce clause challenges to differential transaction taxes imposed on their services in six states: Florida, Kentucky, Massachusetts, North Carolina, Ohio, and Tennessee. The Florida Court of Appeal’s decision represent their only standing victory. However, the Florida Department of Revenue has appealed to the state’s Supreme Court. 

In all of the cases brought by DIRECTV et al., there was really no denying that satellite TV services was subject to higher transaction taxes than cable. However, as the courts have all agreed, not all discrimination is unconstitutional. To awaken the dormant commerce clause, discrimination must favor in-state economic interests over out-of-state ones. In addition, the discrimination must be between similarly situated entities. Another way to look at this second requirement is that the dormant commerce clause challenge will fail if there exists a non-prohibited basis for discriminating between different enterprises (i.e., any distinction other than one being an in-state interest and the other being an out-of-state interest). Such a permissible basis will exist if the enterprises are dissimilarly situated.  

According to the satellite TV providers, they represent out-of-state economic interests relative to cable TV providers, because they use less infrastructure in-state. They also claim that they are similarly situated to cable TV providers because they sell a product that end consumers view as interchangeable with that sold by cable TV providers.

The courts that have ruled against DIRECTV and friends have divided on their analysis. Some have held that because the distinction that the states draw between cable and satellite TV service is based on operational, rather than geographic, differences, there is no favorable treatment of in-state interests over out-of-state interests. The other courts have conceded the first point to satellite TV providers but held that based on their operational differences cable and satellite TV providers are not similarly situated business enterprises, and that there is, therefore, a permissible basis upon which to discriminate between them.  

It will be interesting to see whether the Florida Supreme Court resolves the court split on this issue by joining the majority of states that have ruled against DIRECTV et al. or instead affirms the lower court. Affirmance could be the beginning of a prolonged split that may eventually attract SCOTUS’s interest. This is because, applying the Florida Court of Appeal’s reasoning to other scenarios could greatly expand the dormant commerce clause’s scope. By endorsing the characterization of satellite TV providers as out-of-state economic interests based on their relative in-state investment, the Court invites a case-by-case analysis into the relative in-state investment of other differently taxed business enterprises as well.

For example, this analysis might support a challenge to exemptions for solar panels, which may require a greater in-state investment than other means of generating electricity. How about soft drink syrup taxes? If wholesalers of soft drink syrup invest less in the state than wholesalers of canned or bottle soft drinks, would that tax be susceptible to challenge as one that discriminates in favor of in-state economic interests? Suffice it to say, even if you are not in the satellite or cable TV industry, you may want to watch this one.     

*Bloomberg BNA’s Ryan Voorhees analyzed the Tennessee decision in depth earlier this year. You can read his blog post here

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Are satellite television providers out-of-state economic interests and cable television providers in-state economic interests? Was the Court of Appeal of Florida the first to get it right on this issue or the only one to get it wrong?

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