Cedar Falls Defends Overbuilds Tax Status

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The city of Cedar Falls, Iowa, is trying to fend off a
cable-industry effort to have its municipal telecommunications system declared as taxable
property by state officials.

In a filing with the Iowa Department of Revenue and
Finance, Cedar Falls insisted that the city-owned cable network, which competes with an
AT&T Broadband & Internet Services system, is "devoted to a public
purpose" and, therefore, tax-exempt under state law.

Westmarc Cablevision Inc., operating as TCI of Northern
Iowa, recently asked the department to revoke a tax exemption granted by Black Hawk County
to the Cedar Falls municipal network.

In its own filing with the state, the MSO pointed out that
the Iowa Supreme Court has ruled that such property cannot be used for "pecuniary
profit."

Cable-industry officials insisted that eliminating the
tax-exempt status enjoyed by municipal overbuilds is only fair, given the fact that
private operators contribute an estimated $5 million annually in property taxes to the
state's coffers.

But in its filing, Cedar Falls argued that state law has
declared municipal property tax-exempt when "devoted to public purpose." And
since Iowa Code Chapter 388 found that "providing cable television is a public
purpose," it "follows that such utility property is exempt from taxation."

Moreover, the city said, lawmakers earlier this year
provided for taxation of telecommunications networks, but only the portion that provides
local-exchange services.

"The present action [by Westmarc] seeks to have a tax
imposed administratively in a situation where the legislature has declined to impose a
tax," according to the Cedar Falls filing.

Industry executives decided to target the property-tax
issue after the state legislature failed to address the matter earlier this year, when it
passed a bill requiring municipal overbuilds to pay the same fees as private operators.

In addition, the industry hopes that revoking Cedar
Falls' exemption will persuade county assessors to follow suit.

Property taxes assessed by counties can be a hit-or-miss
proposition: While Blackhawk County exempted Cedar Falls, Sioux County has declared
Hawarden's municipal system as taxable.

Cedar Falls was the first municipal government to overbuild
an incumbent operator in Iowa. Its network has signed up more than 6,000 subscribers, most
of them former TCI customers.

Cable's move against Cedar Falls represents a new
strategy for an industry plagued by municipal overbuilds.

As Iowa's dominant operator, AT&T Broadband has
been the most beleaguered of the state's MSOs, with municipal cable systems surfacing
in five of its cities and a handful of other venues examining the possibility.

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