BLESSING SEEKS REPEAL OF SALES TAX ON SATELLITE TV, SAYS IT WOULD AVOID RETURN OF MILLIONS IN REVENUE

Volume #77, Report #128, Article #3--Wednesday, July 2, 2008 - Gongwer News Service Ohio

Bolstered by a court decision finding the sales tax on satellite television discriminatory, Rep. Lou Blessing introduced legislation Wednesday to exempt dish service and hopefully avoid paying back millions of dollars from state coffers.

The proposal immediately set off a flurry of feedback from the cable and satellite industries that rekindled a five-year-old budget bill debate.

Pointing to a Franklin County common pleas court ruling last spring that found the sales tax on satellite television service unconstitutional, Rep. Blessing (R-Cincinnati) said lame duck action on his bill (HB 599 ) could serve as the vehicle for an agreement to avoid having to return as much as $140 million.

"The problem we have is that there's $100 million sitting out there that's been collected and the state is at risk for probably another $40 million by the end of the year," Rep. Blessing told reporters during a news conference.

"Hopefully, what can get done is that the satellite companies and the state can reach some agreement where the state's not obligated to return that money," he said, adding the providers indicated they would be willing to negotiate such a deal.

The issue stems dates back to the 2003 executive budget (HB95, 124th General Assembly) that originally sought to extend the state sales tax to both satellite and cable services. The latter constituency, however, successfully convinced lawmakers that imposing the tax on their services it was unfair because the industry already paid franchise fees for installing cable infrastructure in public rights of way.

Satellite providers subsequently sued the state, arguing the tax unfairly discriminates against them in violation of the Commerce Clause. Common Pleas Judge Daniel Hogan found the sales tax gave cable providers a competitive advantage, but the state has appealed the decision, where it now pending in Franklin County's 10th Ohio District Court of Appeals.

The sales tax on satellite television service generated about $36 million in fiscal year 2008, according to the Department of Taxation.

The franchise fee that cable companies pay is not comparable to the sales tax that satellite providers' customers pay, Rep. Blessing said. "Satellite providers have their own cost of doing business - building, launching, and maintaining satellites in space, which is no small undertaking."

If the state continues to appeal the decision up to the Ohio Supreme Court, the sales tax revenue collected could reach hundreds of millions of dollars, he said. "And there's no incentive at that point for the satellite companies to reach any agreement." Ohio Cable Telecommunications Association Executive Director Jonathon McGee criticized the proposal, noting the sponsor originally voted to extend the sales tax to satellite service.

"Presumably, he believed that calling on satellite to pay its fair share of taxes in Ohio - a state where the cable industry and its customers pay more than $100 million annually in taxes and fees, when satellite was then paying nothing - was the right thing to do," he stated.

Mr. McGee called on lawmakers to allow time for the appeals court to issue its decision. "The legislature and Gov. Strickland just went through a painful process to pare the state budget to get it balanced again. This bill would irresponsibly reopen that deficit," he said. "The responsible thing to do would be to wait on the courts to rule on this issue before blowing a hole in the state budget."

The issue has been found constitutional in several other courts throughout the country, he added.

Satellite television companies issued a statement lauding Rep. Blessing's proposal, saying it would benefit all consumers.

"Many of those subscribers are rural Ohioans, for whom satellite television may be their only pay TV choice," DIRECTV Inc. and DISH Network Corporation said in a joint statement. "Discriminatory satellite taxes are also bad for cable customers, since they allow cable companies to raise their rates by the amount of the tax without suffering any competitive disadvantage."

"We commend Rep. Blessing for recognizing that satellite and cable have unique costs of doing business, that government has no business imposing additional costs that favor one over the other, and that the state of Ohio cannot stand by while a $100-million debt continues to grow," the companies stated.

A similar measure is pending in Congress (H.R. 3679) that would prohibit any tax that results in different charges on "substantially equivalent" television services. Satellite executives have reportedly testified that the federal legislation is necessary because six states, including Ohio, have enacted laws that impose steeper taxes on satellite subscribers than their cable counterparts.