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DBS Fights N.C. Satellite Tax

EchoStar and DirecTV last week launched a battle against North Carolina's satellite-TV tax by seeking a refund for the state's 700,000 DBS customers.

The move is a necessary first step toward a court fight to eliminate a 5% sales tax that has cost subscribers in the state $30 million since Jan. 1, 2002. North Carolina law requires them to seek a refund of taxes paid before a court will review the levy's legality.

The tax is discriminatory because it does not apply to cable, the companies say. If the North Carolina Department of Revenue does not refund the taxes within 90 days, the companies vow to file a lawsuit alleging violation of the U.S. Constitution's Commerce Clause.

"These taxes discriminate in favor of the DBS companies' chief competitors, the dominant cable operators," said Michael Palkovic, chief financial officer at DirecTV.

The satellite operators blame cable-industry lobbying for DBS customers' sales-tax burden. They say cable companies pushed for the levies as a way to make DBS subscription costs more in line with cable operators', which pay local franchise fees. There's no reason to balance out the tax burden, DBS officials say, because satellite operators don't use any local infrastructure to reach their customers.

The action in North Carolina comes on the heels of EchoStar and DirecTV's lawsuit against a 6% sales tax enacted in Ohio June 26. Said Ed Kozelek, executive vice president of the Ohio Cable Telecommunications Association: "Perhaps," he said, "if the satellite lobby had spent less time criticizing the cable industry and more time engaged in persuading policymakers why they should continue to be allowed to extract billions of dollars from Ohio without giving anything back, the outcome would have been different."

Other states have similar taxes. Tennessee and Florida levy sales taxes on both cable and satellite operators, but DBS pays higher rates. In Connecticut, lawmakers are considering whether to extend to DBS the gross-earnings tax paid by cable companies. In 19 states, DBS and cable operators pay equal sales taxes.

Kozelek denied that there was any attempt to single out DBS for tax burdens. "We did not proactively seek standalone legislation to tax satellite," he said. "We just wanted to make sure an additional tax was not imposed on cable."