DIRECTV and DISH Network File Suit in Tennessee Challenging Discriminatory Taxes on Satellite TV Customers; Action Follows Related Moves In Ohio and North Carolina to Abolish Taxes That Favor Incumbent Cable Operators
Business Editors/Legal Writers
NASHVILLE, Tenn.--(BUSINESS WIRE)--Aug. 19, 2003--DIRECTV, Inc. and EchoStar Satellite Corporation and its DISH Network, the nation's largest providers of satellite TV services, have filed a lawsuit against the Commissioner of Revenue of the State of Tennessee challenging the sales tax imposed by Tennessee on direct broadcast satellite (DBS) customers. The sales tax is not imposed equally on local cable television customers, even though satellite television companies compete with incumbent cable operators in the same market.
The lawsuit was filed today in the Chancery Court of Davidson County.
The Tennessee statute imposes an 8.25 percent sales tax on the entire amount of satellite customers' monthly subscription fees, whereas customers of cable operators are exempted from the tax on the first $15 of their subscription fees. The result is a higher tax on satellite customers than on the customers of competing cable companies.
"Imposing a significantly higher sales tax on satellite TV companies than imposed on our cable operator competitors is discriminatory, unconstitutional and otherwise unlawful," said Michael W. Palkovic, senior vice president and chief financial officer, DIRECTV, Inc. "By tying the DBS companies' hands in their efforts to compete, these taxes can only help perpetuate the high and ever-increasing cable prices that consumers are experiencing throughout the nation."
Among other things, the provision violates the Commerce Clause of the United States Constitution, which prohibits state taxes that discriminate against interstate commerce or are not fairly related to the services provided to the taxpayer. In contrast to cable operators in Tennessee, satellite TV companies do not use public infrastructure to provide service and have no significant presence in the State that could put a demand on the State for services.
While cable operators pay a franchise fee to compensate a community for cable's use of the local rights-of-way, and to offset any costs associated with administering the local cable franchise, the franchise fee, according to the Federal Communications Commission's Local and State Government Advisory Committee, is "not a tax, but an expense of doing business that is essentially a form of rent."
"As we have demonstrated with our recent actions in Ohio and North Carolina, and now in Tennessee, DISH Network and DIRECTV will vigorously defend the rights of consumers in any state that pursues a discriminatory and unfair tax policy that disenfranchises satellite TV customers, " said Michael McDonnell, senior vice president and chief financial officer at EchoStar. "The Tennessee tax benefits local cable operators at the expense of satellite TV customers."
On June 26, DIRECTV and DISH Network filed suit against the State of Ohio immediately after the legislature enacted a discriminatory 6 percent sales tax on satellite television service. On June 30, the satellite providers requested a refund for their customers in North Carolina of approximately $30 million, a required first step in challenging a discriminatory 5 percent sales tax on satellite TV service. In both Ohio and North Carolina, cable operators are exempt from sales taxes imposed on their satellite competitors.
DIRECTV is the nation's leading digital multichannel television service provider with more than 11.5 million customers. DIRECTV and the Cyclone Design logo are registered trademarks of DIRECTV, Inc., a unit of Hughes Electronics Corporation. HUGHES, a unit of General Motors Corporation, is a world-leading provider of digital television entertainment, broadband satellite networks and services, and global video and data broadcasting. The earnings of HUGHES are used to calculate the earnings attributable to the General Motors Class H common stock (NYSE:GMH). For more information, visit www.DIRECTV.com.
EchoStar Communications Corporation (Nasdaq:DISH), through its DISH Network (TM), is a leading U.S. provider of satellite television entertainment services with 8.8 million customers. DISH Network provides advanced digital satellite television services to the home, including hundreds of video, audio and data channels, personal video recording, HDTV, sports and international programming, professional installation and 24-hour customer service. For more information on DISH Network, visit www.dishnetwork.com, call -DISH () or contact your local DISH Network retailer.
CONTACT: DIRECTV, Inc.
EchoStar Communications Corp.