Iowa Consumers Challenge Franchise Fees

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Consumers in seven Iowa cities are challenging cable-franchise fees, arguing that they violate state law because the amount collected is larger than the actual cost to regulate the businesses.

Individual lawsuits have been filed in Iowa District Court against Bettendorf, Cedar Rapids, Davenport, Des Moines, Dubuque, Sioux City and Waterloo.

Richard Davidson, attorney for the plaintiffs, said the suits were triggered by a May ruling by the state’s Supreme Court. The ruling was on a case -- launched by a utility user, Lisa Kragnes of Des Moines -- that affirmed that taxing agencies can only assess and recover the actual cost of regulating a utility.

In Iowa, Davidson said, state courts established that the people, not the cities, own the rights of way. Because it is the public’s property, cities are not authorized to rent it out, he added.

The cities that have been sued each charge a 5% franchise fee on cable revenues -- the amount authorized by the federal Cable Act.

If the suit is successful, it could shrink the taxes passed through by cable operators that attempt to compete there, including Cable One, Mediacom Communications and McLeodUSA Telecom.

Currently, Davidson added, cable operators are subject to a 5% sales tax and up to 2% in county sales taxes, in addition to franchise fees. These are passed through to customers, raising the rates they pay when compared with direct-broadcast satellite customers.

If the individual suits are successful, Davidson will pursue class-action status on behalf of cable customers.

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