New Hampshire high-speed data customers will have to pay close to $3 more beginning Nov. 1 — but only if they are cable customers.
The fee is part of a state tax on "two-way" services that has been in state cable franchise language since the early 1990s. At that time, cable operators agreed to a compromise with state officials that called for taxes on advanced services to avoid taxes on video services.
Operators argue that the tax is unfair because it does not apply to dial-up, digital subscriber line or wireless data customers. Operators considered going to court over the matter, but dropped the idea for fear that a lawsuit would have been political suicide.
"We hope, after the election, we can get this overturned, but who knows what the outcome will be," said Terry Hicks, vice president and regional manager of MetroCast Cablevision, one of the state's smaller operators.
Most operators believe that cable-modem service should be exempt from the state tax under the Internet Tax Freedom Act — passed by Congress in 1997 — which bars levies on data services. But AT&T Broadband has opted to pay the tax because it delivers both Internet and telephone services.
Earlier this year, MetroCast sought a clarification of operators' tax liability. Operators acknowledge that nine states, including New Hampshire, are exempt from the federal act because they had Internet tax laws in place before congressional action.
But they argued that the New Hampshire policy does not actually meet the two-pronged test to qualify for the exemption. The state tax was not "generally imposed and actually enforced" before Oct. 1, 1998, and federal policy discourages "discriminatory" taxes on electronic commerce.
Cable executives took their case to the legislature's Science, Technology and Energy committee in an effort to kill the tax.
"The committee took the position the tax was not appropriate," said Bill Durand, executive vice president of the New England Cable Telecommunications Association. But then budget realities hit and legislators couldn't justify action that would cost the state $1.6 million in revenue this year.
That was in addition to the shortfall created when operators stopped paying franchise fees on modem service, per the Federal Communications Commission's ruling that defined data delivery as an information service rather than a cable service.
Rate hike coming
The parties eventually reached a compromised. Operators will not be responsible for back taxes but must add 7 percent to their bills beginning next month.
MetroCast has notified its customers of the pending rate hike.
"Some think it's us, but others are very upset at the state," he said of the new assessment.
Hick's company has received assurances from the local representative, John Thomas, that he will resurrect Internet tax relief after November elections.
Operators will push for an all-out moratorium on the tax. Failing that, Durand said, the industry would ask the legislature to follow the example of Connecticut. It, too, had an exemption from the federal act, but to promote location of computer-reliant "clean industry" in the state, it phased out its tax over three years.
Meanwhile, Hicks said his 15,000 data customers will be assessed an extra $2.80 next month and MetroCast will wait to see the fallout.
"Any time there is a rate increase, there's attrition," he said.