Direct-Broadcast Satellite Firms Seek Tax Changes

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DirecTV and EchoStar Communications are urging Congress to pass a law that would bar states from applying sales taxes to satellite-TV providers but not to cable-system operators, according to cable and satellite lobbyists.

The two satellite companies, serving about 30 million customers combined, are trying to insert the tax provision in legislation designed to make permanent the taxation ban on the retail price of broadband access service.

About six states have sales taxes that DirecTV and EchoStar view as discriminatory, because cable operators are exempt.

But the direct-broadcast satellite providers have lost at least twice in federal court in bids to get the taxes struck down.

The cable industry is opposing the satellite giants on Capitol Hill. Cable claims that the imposition of a satellite-TV sales tax on cable would be discriminatory, because cable systems already surrender 5% of their service revenue to local governments to compensate them for use of public rights of way.

EchoStar and DirecTV insist that the 5% franchise fee paid by cable companies isn't a tax per se, but rent to occupy government-owned property.

“Cable companies receive something of enormous value in return for paying the franchise fee — access to rights of way that they value in the billions of dollars in their (Securities and Exchange Commission) filings. DBS providers obtain no such valuable rights when they pay sales taxes,” DirecTV and EchoStar said in a recent memo for House Judiciary Committee staff.

Local franchise authorities are barred by federal law from imposing fees on satellite TV providers.

Cable also argues that applying the sales tax to both cable and satellite or lifting the sales tax on DBS where it exists today would discriminate against cable because in either instance cable companies would pay more in government-imposed taxes and fees than satellite companies.

The tax battle is being waged as Congress considers a permanent or short-term extensions of the Internet Tax Freedom Act, which expires Nov. 1.

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