Mas
08-02-2006, 10:16 PM
RALEIGH, N.C. -- A state sales tax on satellite television service was fair even though cable TV service providers in North Carolina didn't have to pay the same tax, the state Court of Appeals has ruled.
The ruling, released this week, means it's unlikely that the state will have to refund nearly $30 million in taxes that DirecTV Inc. and Echostar Satellite LLC, operator of The Dish Network, collected in 2002 and 2003.
"It's not a surprise that the state won," Sabra Faires, a former state Revenue Department official and now an attorney for the Senate Finance Committee, said Wednesday. "It gets to the heart about reasonable classifications between taxpayers."
The two companies sued in September 2003 seeking refunds for a 5 percent sales tax they collected on customer bills since the tax took effect in January 2002.
There was no sales tax imposed on cable television at the time. The tax placed an additional $30 annual tax burden on its subscribers, the two companies said.
The companies argued the sales tax violated the U.S. Constitution's commerce clause that prevents states from regulating out-of-state companies. The tax favored cable companies that operated in the state over satellite companies that by its nature provide television from above the earth, they contended.
Superior Court Judge Clarence Horton dismissed the lawsuit. A three-judge panel of the Court of Appeals upheld his decision, saying that the different tax rates aren't a result of geographical differences in the two types of providers, but rather the differences in how the services are delivered .
The commerce clause "prohibits discrimination against the interstate marketing for multichannel video programming, but that it does not necessarily prohibit discrimination against programmers in that market who deliver programming by satellite as opposed to cable," Judge Jim Wynn wrote in the unanimous opinion.
The sales tax also didn't place an undue burden on interstate commerce, Wynn wrote, citing evidence that the satellite TV providers say their subscribers and gross revenues rise even after the tax was initiated.
And cable television providers were required during this time to pay local franchise taxes that were recouped from subscribers.
There is no automatic right to appeal the ruling because Judges Martha Geer and Linda Stephens also agreed in Wynn's opinion. Attorneys for the satellite companies didn't return phone calls seeking comment.
The tax structure for these television services have changed dramatically over the past two years. In 2005, the General Assembly agreed to require cable television customers to pay a 7 percent sales tax and also raise the satellite television tax to 7 percent. But the state allowed cable providers to receive credit for the franchise tax paid by cable providers to local governments.
This year, lawmakers agreed to eliminate the local franchise tax for cable providers but required all pay-television providers _ through cable, satellite and phone lines or broadband _ to pay the same 7 percent sales tax rate.
The ruling, released this week, means it's unlikely that the state will have to refund nearly $30 million in taxes that DirecTV Inc. and Echostar Satellite LLC, operator of The Dish Network, collected in 2002 and 2003.
"It's not a surprise that the state won," Sabra Faires, a former state Revenue Department official and now an attorney for the Senate Finance Committee, said Wednesday. "It gets to the heart about reasonable classifications between taxpayers."
The two companies sued in September 2003 seeking refunds for a 5 percent sales tax they collected on customer bills since the tax took effect in January 2002.
There was no sales tax imposed on cable television at the time. The tax placed an additional $30 annual tax burden on its subscribers, the two companies said.
The companies argued the sales tax violated the U.S. Constitution's commerce clause that prevents states from regulating out-of-state companies. The tax favored cable companies that operated in the state over satellite companies that by its nature provide television from above the earth, they contended.
Superior Court Judge Clarence Horton dismissed the lawsuit. A three-judge panel of the Court of Appeals upheld his decision, saying that the different tax rates aren't a result of geographical differences in the two types of providers, but rather the differences in how the services are delivered .
The commerce clause "prohibits discrimination against the interstate marketing for multichannel video programming, but that it does not necessarily prohibit discrimination against programmers in that market who deliver programming by satellite as opposed to cable," Judge Jim Wynn wrote in the unanimous opinion.
The sales tax also didn't place an undue burden on interstate commerce, Wynn wrote, citing evidence that the satellite TV providers say their subscribers and gross revenues rise even after the tax was initiated.
And cable television providers were required during this time to pay local franchise taxes that were recouped from subscribers.
There is no automatic right to appeal the ruling because Judges Martha Geer and Linda Stephens also agreed in Wynn's opinion. Attorneys for the satellite companies didn't return phone calls seeking comment.
The tax structure for these television services have changed dramatically over the past two years. In 2005, the General Assembly agreed to require cable television customers to pay a 7 percent sales tax and also raise the satellite television tax to 7 percent. But the state allowed cable providers to receive credit for the franchise tax paid by cable providers to local governments.
This year, lawmakers agreed to eliminate the local franchise tax for cable providers but required all pay-television providers _ through cable, satellite and phone lines or broadband _ to pay the same 7 percent sales tax rate.