Arizona cable operators are stumping for a new state policy that would trim the amount of total taxes passed through to consumers and limit localities to requiring just two public-access channels.
The Arizona Cable Telecommunications Association says direct-broadcast satellite customers pay no state and local taxes, so defections to satellite — which can be exacerbated by higher cable fees — cost cities money, contended ACTA executive director Susan Bitter Smith.
But city and county officials are not buying the revenue-savings argument. They say the law would be costly to cities and add a layer of bureaucracy between federal policy and local regulation.
Twin bills are making their way through the state House and Senate. They would limit franchise fees to 1% of an operator’s gross revenue, plus any applicable “town privilege tax” (translation: sales tax); or 5% of gross revenue, whichever is less.
Gross revenue will be defined as cash, credit, property or other considerations paid by cable subscribers.
Franchise authorities would be prevented from demanding additional fees or in-kind services in excess of the 5% total fee cap — but an operator could offer such considerations as part of a good-faith negotiation, Bitter Smith said.
The bill would allow cities to continue to regulate rights-of-way, but would limit payments for use to a “reasonable cost” to pay for things like cuts that damage roads.
But the bill doesn’t define “reasonable,” and similar language in the federal Cable Communications Policy Act has led to lawsuits over differing interpretations of that word.
Bitter Smith said this change is important because cable currently is treated differently from other ROW users — a disparity that can add to the deployment costs of new products, such as voice-over-Internet protocol telephony.
The new policy could actually raise tax rates in small, rural towns, but should lower the tax burden in larger communities, according to Bitter Smith.
Cities where the consumer tax burden could decrease include Tucson, where local taxes and computations that the cable operator must pay on franchise fees collected from consumers yield an 8.7% tax rate for cable subscribers, Smith said.
But Tucson is actively opposing the bill, as is the League of Arizona Cities and Towns.
“The setting of license fees is regulated at the federal level,” notes league legislative director Kevin Adams. “There will be a sudden loss of revenue with no discussion of how it is to be made up by cities.
“If the legislature wants to give a tax break to cable companies, it should do it out of [state] money.”
But the change to revenues would not be immediate, Bitter Smith said. The bill would not implement the changes to individual franchises and other polices until a cable pact comes up for renewal.
In the case of Tucson, Cox Communications Inc.’s franchise will not be renegotiated for 15 years, she noted.