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Iowans Sue Over Fees

Consumers in seven Iowa cities are challenging cable franchise fees, arguing they violate state law because the amount collected is larger than the actual cost of regulating the businesses.

Individual lawsuits have been filed in Iowa District Court against Bettendorf, Cedar Rapids, Davenport, Des Moines, Dubuque, Sioux City and Waterloo. Richard Davidson, attorney for the plaintiffs, cited a May ruling by the state’s Supreme Court that affirmed taxing agencies can assess and recover only the actual cost of regulating a utility.

In Iowa, Davidson said, state courts have established that the people, not cities, own the rights of way. Because it is the public’s property, cities are not authorized to rent it out, he said. The cities being sued each charge a 5% franchise fee on cable revenue, the amount authorized by the federal Cable Act.

If the suit is successful, it could shrink the taxes passed through by cable operators including Cable One, Mediacom Communications Corp. and McLeod USA Telecom. Currently, Davidson said, cable operators are subject to a 5% sales tax, and up to 2% in county sales taxes, in addition to franchise fees. These are passed through to customers, raising the rates they pay when compared to direct-broadcast satellite customers.

If the individual suits are successful, Davidson said he’ll pursue class-action status on behalf of cable customers.