Satellite Companies Target State Taxes

DirecTV Inc. and EchoStar Communications Corp. have targeted two more states — Kentucky and Florida — for legal challenges on the taxes applied to direct-broadcast satellite customers.

That brings the lawsuit roster to five. The DBS providers had already filed suits in Ohio, Tennessee and North Carolina.

The Kentucky suit, filed in the U.S. District Court for the Eastern District of Kentucky, challenges a change in tax policy approved just this year by the legislature. A cable-backed bill eliminated traditional franchise fees and replaced them with a 3% excise tax on all video providers, plus a 2.4% gross receipts tax.

“Kentucky residents will have less robust competition in the pay-TV marketplace as a result of the cable-sponsored special tax law recently placed on satellite service,” EchoStar chief financial officer David Rayner said in a statement.

The Florida suit challenges an older tax law. In 2001, the state went to a uniform telecommunications tax policy, replacing local fees and assessments with a single fee to the state. The bill was revenue neutral, meaning operators would still pay amounts equal to the 9.18% state sales tax, plus franchise fees of 1% to 5%. But it saved operators in accounting fees, and helped the competitive field by drawing in DBS providers and their customers.

The DBS providers said they waited until this year to challenge the Florida policy because attorneys made a lengthy analysis of the unique policy, dubbed the Communications Services Tax Simplification Law.

In both suits, the DBS companies argue the state taxes are unfair because cable operators get an offset on the state levy for local fees they pay that represent their cost of doing business. That’s an offset DBS companies can’t claim because they don’t hit on local rights of way and therefore don’t pay those fees.

Using that theory, the DBS companies assert they pay a 10.8% tax on retail sales in Florida, for instance, compared to 6.8% paid by cable operators.

The suits also allege that the state taxes violate the interstate commerce clause of the U.S. Constitution.

DirecTV and EchoStar have fought taxes vigorously in every state where they have been proposed, and have enlisted subscribers in their fights. Anti-tax ads air frequently over both providers’ services, directing viewers to the DBS lobbying Web site,

According to the DBS companies, the anti-tax efforts have headed off an 8.5% tax proposal in Washington, amended last month to remove the satellite levy, and were behind the Nevada and Arkansas legislatures failure to act on proposed taxes this year.

The DBS vendors are still soliciting consumers’ support to head off an 8% tax that’s surfaced in repeated sessions in California.