More Taxes Eyed for Cable Subscribers

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If it's sold, bought, or comes through a wire, local governments are looking at it as a new or more-lucrative revenue source.

On Feb. 4, Ohio Gov. Bob Taft outlined his budget proposal, notifying legislators that the state must raise $4 billion in new or increased taxes in order to fund his $99 billion spending plan for government programs. The operating budget will increase just over 3 percent over each of the next two years, despite decreased income and higher expenses, such as an increase in the state's payments to Medicaid.

Thus, everyone has a tax target on his or her back — including hunters, who will have to pay more for licenses. The governor vowed to limit tax hikes to "discretionary consumer choices," a category into which he lumps cable TV and indoor tanning. The initial proposal suggests that the state extend its sales tax to subscription video services.

The Ohio Cable Telecommunications Association reacted swiftly and negatively to the plan, noting that direct-broadcast satellite competitors pay no local taxes. DBS is the state's No. 2 video provider with 850,000 Ohio customers, said OCTA executive vice president Ed Kozelek said.

Thus, the tax plan would put cable at a competitive disadvantage, Kozelek contended.

"Cable customers pay up to 5 percent in fees to local governments, and the sales tax would essentially double the tax for those customers," he said in a statement.

MSOs also provide free services to public schools, he noted.

Kentucky Gov. Paul Patton also wants to tax cable, but his budget hammer may fall on DBS, too. Kentucky's plan would place a 9 percent tax on DBS service and a 6 percent tax on cable television.

With a tax on local business factored in, though, Kentuckians could sustain a 7.2 percent hit to their cable bill, according to the Kentucky Cable Telecommunications Association. The state has 117 systems.

Satellite customers in Kentucky currently pay no local taxes. The tax plan apparently would not alter a 6 percent tax on telephone service.

The telecommunications tax burden on video providers would rise an estimated $50 million.

In Massachusetts, Boston Thomas Menino — acting on behalf of the state's other mayors — has asked the legislature to consider allowing cities to create local taxes.

Merino also wants lawmakers to repeal an "outdated" property-tax exemption on telephone switching equipment — a tax-code feature that was intended to encourage plant expansion.

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