Court Rejects Suit To Overturn N.C. Satellite Tax


A federal appeals court has rejected an attempt by DirecTV and EchoStar to overturn a state tax in North Carolina.

The direct-broadcast satellite providers took their case to the U.S. District Court of Appeal for the Fourth Circuit, seeking to reverse the ruling of U.S. District Court Judge Louise Flanigan. The DBS companies argue that a 7% state sales tax, levied in 2006 on both satellite and terrestrial cable providers, is unconstitutional.

In 2005, the North Carolina levy on both providers was instituted, initially as a gross receipts tax. The state gave cable operators a 5% credit for the franchise fees they pay. The end result was 7% from each technology. That year, the DBS companies filed their suit. But in 2006, North Carolina changed the tax, eliminating the 5% franchise fee (and credit) and charged a 7% state sales tax against all providers, instead.

The DBS providers amended their suit, arguing the 2006 tax scheme is still unfair, because now cable operators get the benefit of the use of public rights-of-way without paying for it directly. The tax scheme forces DBS to subsidize that free use, attorneys argued.

But the appeals court agreed with the lower federal court, which dismissed the suit. The federal courts can't enjoin states from levying taxes, both courts said, adding that DirecTV and EchoStar have not been injured in fact.