A tax applied by the state of Kentucky to direct-broadcast satellite service does not violate the federal Constitution, according to a ruling issued Thursday by the U.S. Court of Appeals for the Sixth Circuit.
DirecTV and EchoStar Satellite challenged the tax, which was approved by the Kentucky legislature in 2005 and went into effect at the beginning of 2006. The DBS companies argued that because their product is delivered from the sky, and they have no significant employee base in the state, they should not be subjected to state taxes.
Kentucky attempted to simplify its telecommunications taxes two years ago. It dropped categories such as franchise fees paid by cable operators and instead instituted a uniform tax scheme. All multichannel-video providers are required to pay a 3% excise tax on the retail purchase of video and a separate 2.4% tax on gross revenues.
The DBS companies responded by suing Mark Treech, the state's commissioner of revenue, challenging the tax scheme. A lower court ruled in favor of the state official, and the DBS providers appealed to the federal appeals court.
The appeals panel stated that the tax does not provide any direct commercial advantage to in-state companies over the DBS providers.