Dish and DirecTV, joined by a subscriber, have filed suit in a Utah district court against what they argue is a tax break that only applies to its cable competition and cable sees as an effort to equalize the tax burden on cable and satellite.
The cable industry has been successful in getting a number of states to change their laws to take into account local fees they pay that are not paid by satellite operators, laws Dish and DirecTV argue are disciminatory.
For almost three years, 360,000 families in the state have gotten a 40% tax break, which applies to consumers who use businesses that rely on public rights of way to receive "ground distribution" of their programming, according to he satellite companies, while they have had to pay the full 6.25%.
"As a practical matter, the only families in Utah who are eligible for the tax credit are those who receive their pay TV programming from a cable TV company, like Comcast or Bresnan Communications," according to the plaintiffs.
In its filing, they pointed out that the state is rewarding cable companies because they "generate substantial economic benefits for the state in the form of jobs, infrastructure investment, and rental payments to municipalities and counties for the use of the public rights-of-way," but said that has resulted in a discriminatory tax on satellite thanks to the lobbying by an industry trying to protect their entrenched monopoly.
They also argued that conditioning a tax on whether a business "performs a specific economic activity" violates the Commerce Clause."
In the litigation they called for a declaratory judgment that it is discrimination and a refund to all of Dish and DirecTV's customers on the differential since the law was passed Jan. 1, 2008.
For their part, cable operators argue that they have been paying more than satellite operators because they pay both the tax and a local franchise fee to deliver their service.
Utah is just one of a number of states -- Florida, Kentucky, North Carolina, Tennessee, Massachusetts, and Ohio are others -- that modified their tax laws to take into account the franchise fees and other local taxes cable pays.
Dish and DirecTV have argued that those are covering the costs of rights of way, but cable operators counter that is not the case, and that there are other fees besides.
"This lawsuit is about protecting our customers-many of whom dropped cable for satellite TV due to our superior product, service, and pricing," said Andrew Reinsdorf, DirecTV senior vice president of government affairs in a statement. "Forcing 360,000 Utah families to pay a higher tax simply because they chose satellite TV over cable is inexplicable in these economic times. It is especially cruel for the thousands of families who live in rural parts of the State where cable does not go. A higher tax on satellite TV unjustifiably punishes them for living where they do."
The Ohio Supreme Court is currently considering DirecTV and EchoStar's challenge of that state's tax law change, and there are pending challenges in Florida, Tennessee and Massachusetts, according to DirecTV.