Iowa Ops Target Overbuilds Tax Status

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Iowa cable operators have launched a new offensive in their
ongoing battle against the growing number of municipal overbuilds sweeping the state.

Westmarc Cablevision Inc., operating as TCI of Northern
Iowa, has asked state officials to revoke a property-tax exemption granted by Black Hawk
County to a municipal cable system in Cedar Falls.

In a filing with the Iowa Department of Revenue and
Finance, Westmarc claimed that the county assessor in Black Hawk erred by ruling that the
Cedar Falls system fell under Iowa Code Section 427.1(2), Chapter 427, which states that
municipally owned property is not taxable.

"The mere fact that a city or county owns real estate
does not qualify it for a tax exemption," according to the filing with the state.

The filing noted that the Iowa Supreme Court has held that
property must meet three requirements in order to be exempt from taxes: It must be
municipally owned, it must be devoted to public use and it cannot be used for profit.

"Cedar Falls is operating a cable-television system
for private use for pecuniary profit," the company said in its filing. "This is
a business that the city has undertaken and, as such, it is property that does not qualify
for any property-tax exemption under Chapter 427."

Iowa Cable Telecommunications Association executive
director Tom Graves said the trade group was financing Westmarc's challenge as a way of
tackling an issue that state lawmakers failed to address earlier this year, when they
passed legislation mandating that municipal cable systems meet the same requirements and
pay the same fees as their private counterparts.

"And we don't think Cedar Falls meets the
property-tax-exemption requirements on two counts," he added.

Iowa has been a hotbed of municipal competition in recent
years due to an inordinate number of municipally owned electrical utilities in the state.

AT&T Broadband & Internet Services has been the
most beleaguered of the state's MSOs, with municipal overbuilds springing up in five of
its cities and several others at least studying the issue.

Among the first to go into competition with AT&T
Broadband was Cedar Falls, which, at last count, had more than 6,000 area cable
subscribers, most of them pirated from the incumbent.

Doris Kelly, spokeswoman for Cedar Falls, said the city was
still reviewing the filing.

"We forwarded a copy of the filing to our legal
counsel, and we are awaiting a response," she said.

Graves said lifting cities' tax-exempt status would level
the field between municipal cable networks and private operators, which pay an estimated
$5 million per year in property taxes.

It would also bring consistency to the assessment process,
he added, noting that the Sioux County Assessor has ruled that a municipal network in
Hawarden must pay property taxes on its local network.

"If [Hawarden is] paying taxes, why shouldn't Cedar
Falls?" Graves asked. "Since there are different rulings by different assessors,
we think the director of the Department of Revenue and Finance should say this property is
taxable."

A victory for cable operators would set a precedent in
Iowa, as county assessors would be inclined to follow the state director's lead in the
matter, Graves added.

He conceded, however, that in 1994, a similar petition went
before an Iowa district court, which ruled that a municipal system in Belleview was
entitled to its tax exemption.

"But I don't think that's going to make a difference
here," he said. "We expect a decision by this fall, with whomever loses
appealing it to district court."

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