Tennessee Subs Hit with Tax

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Tennessee lawmakers partially lifted a cable-television
sales-tax exemption in order to generate an additional $13 million in revenues from
consumers.

Under a tax measure enacted on the final day of the 1999
session, cable subscribers paying between $15 and $27.50 per month for basic and
expanded-basic programming will be subject to the state's 8.25 percent sales tax.

Those paying more than $27.50 will be hit with a 6 percent
state sales tax and up to an additional 2.75 percent that will be earmarked for local
municipalities.

Industry officials said the tax would affect at least 1
million of Tennessee's 1.3 million cable households.

The lifting of the exemption was not unexpected, however.

Tennessee operators had worried that lawmakers might be
looking at cable as a source of new revenues after Gov. Don Sunquist announced earlier
this year that the state was staring down the barrel of a $450 million budget deficit.

Nevertheless, operators were content that the exemption was
at least preserved for consumers paying less than $15 per month, Tennessee Cable and
Telecommunications Association executive director Stacey Burks said.

"They wanted to take the entire exemption away,"
she added. "At least we managed to protect our low-income folks. We're hoping that
this will convince Tennesseans to support more long-term tax solutions to a budget problem
that will rear its ugly head again without adequate reform."

Operators did score some points during the tax debate by
convincing legislators to enact a 2.25 percent sales tax on all services offered by
direct-broadcast satellite operators.

The DBS tax will narrow the gap between cable and the
direct-to-home industry, which currently doesn't pay franchise fees or property taxes,
Burks said.

The industry also managed to resolve a double-taxation
issue, she added.

Previously, operators paid a tax of at least 6 percent on
equipment purchased for rental to consumers. The state then turned around and taxed
consumers on the rental costs of such equipment as cable modems and set-top converter
boxes.

Under the new tax bill, the tax that operators pay will be
revoked, Burks said.

"We did manage to clear up that inequity," she
added, "and that's good for our operators."

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