DBS Ops Attack Tenn. Tax

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Continuing their fight against state taxes on direct-broadcast satellite, DirecTV Inc. and EchoStar Communications Corp. filed suit Aug. 19 over an 8.25% sales tax in Tennessee.

"Imposing a significantly higher sales tax on cable TV companies than is imposed on our cable-operator competitors is discriminatory, unconstitutional and otherwise unlawful," DirecTV Inc. senior vice president and chief financial officer Michael Palkovic said in a prepared statement.

The lawsuit, filed in Davidson County Chancery Court, challenges the application of the sales tax to the entire amount of a DBS customer's bill. Cable operators were able to obtain an exemption against taxation on the first $15 of a subscriber's bill — the charge for broadcast basic service. That makes lifeline service more affordable.

DBS companies assert that the uneven application of the tax violates the commerce clause of the U.S. Constitution, which prohibits state levies that discriminate against interstate commerce or are not fairly related to the services provided to taxpayers.

"The Tennessee tax benefits local cable operators at the expense of satellite-TV customers," added EchoStar chief financial officer Michael McDonnell.

Plaintiffs restated arguments made in recent state tax challenges in Ohio and North Carolina.

Cable operators have argued that they pay franchise and other fees that are not applied to DBS providers or their customers. New taxes on DBS equalize the tax burden on consumers, cable operators argue.

Plaintiffs counter that cable companies use state infrastructure and resources, and franchise fees are rent for the use of public space, and not taxes.

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