Case Title: Arlington County v. Mutual Broadcasting Sys.

Citation: 

Docket Number: 992662

State: virginia

Court: Virginia Supreme Court

Date: 2000-11-03T00:00:00Z

Document:
Present:  All the Justices 
 
ARLINGTON COUNTY 
 
v.  Record No. 992662    OPINION BY JUSTICE ELIZABETH B. LACY 
 
 
 
November 3, 2000 
MUTUAL BROADCASTING SYSTEM, INC. 
 
FROM THE CIRCUIT COURT OF ARLINGTON COUNTY 
Joanne F. Alper, Judge 
 
 
Arlington County appeals the decision of the trial court 
that Mutual Broadcasting System, Inc. (Mutual) is entitled to 
an exemption from the business license tax pursuant to Code 
§ 58.1-3703(C)(3) because it operates a radio "broadcasting 
station or service."1  Because the record supports the trial 
court's findings that Mutual widely disseminated and 
transmitted its radio signal for reception by the general 
public, we will affirm the judgment of the trial court. 
I. 
Mutual produces a variety of radio programs at its 
studios in Arlington County, Virginia.  The broadcast signal 
for these programs is processed in a "master control room 
area" at Mutual's studios through complex equipment which 
routes, monitors, and adjusts the signal for further 
transmission.  The refined signal is sent from the master 
control room to a satellite "earth station" uplink facility by 
one of two methods.  It may be broadcast from a "KU" satellite 
                     
1 During the years in question, the same language was in 
former Code § 58.1-3703(B)(3). 
antenna located on the roof of the Arlington facility or 
through a "T1" telephone line.  Programming transmitted 
through the "T1" telephone line is converted to digital pulses 
for transmission over the line and then converted back to a 
radio signal when it reaches the earth station.  Approximately 
seventy-five percent of Mutual's programming is transmitted 
over the "T1" line. 
The earth station, located in Mount Vernon, New Jersey, 
relays the radio signal to a communications satellite located 
in space, which, in turn, relays the signal back to earth.  
The signal is received by several thousand radio stations 
affiliated with Mutual through contractual arrangements.  The 
affiliate radio stations then rebroadcast the radio signal to 
the public.  The radio signal is also received and rebroadcast 
by non-affiliate stations such as college radio stations and 
the United States Armed Forces Radio Network.  Furthermore, 
the radio signal can be received by members of the public 
directly, if they have appropriate equipment.2  The radio 
signal is not encoded or encrypted and there is no fee for 
receiving this signal.  Mutual's broadcasts are paid for by 
advertising revenues. 
                     
2 Members of the public with appropriate equipment may 
also receive the radio signal directly from the "KU" satellite 
transmission of the signal from Mutual's Arlington facilities 
to the earth station. 
 
2
Though Mutual owns the Arlington facilities, its parent 
company, Westwood One, Inc. (Westwood), owns the "KU" 
satellite and possesses the Federal Communications Commission 
(FCC) license for these radio transmissions.  The earth 
station is owned by General Electric.  Mutual does not own the 
satellite, but has a "capital lease" for it which covers over 
ninety percent of the estimated use of the life of the 
satellite.  Thus, for financial accounting purposes, Mutual 
"owns" the satellite.  
The County assessed business license taxes against Mutual 
based on its gross receipts.  Mutual filed two applications 
challenging these assessments; the first application covered 
the years 1990–1993, and the second addressed years 1994 and 
1995.  In both applications Mutual asserted that the 
assessments were erroneous because it was exempt from the tax 
pursuant to Code § 58.1-3703(C)(3) and that the County's 
assessments were not fairly apportioned and, thus, 
unconstitutional.  The applications were consolidated.  The 
trial court granted the County's motion for partial summary 
judgment and dismissed Mutual's constitutional claims.  
Following an ore tenus hearing, the trial court determined 
that Mutual was entitled to the exemption from taxation and 
ordered the County to refund to Mutual $652,833.47 in taxes, 
penalties, and interest.  The County filed this appeal. 
 
3
The County assigns five errors to the trial court's 
judgment which effectively raise two issues.  First, the 
County asserts that the trial court did not strictly construe 
the broadcast exemption statute to give the statute the 
construction which would deny the exemption and resolve any 
doubt in favor of taxation.  Second, the County asserts that 
the trial court erred in finding that Mutual disseminates its 
programming to the public and transmits radio signals for 
general reception, thereby qualifying Mutual for an exemption 
under Code § 58.1-3703(C)(3).  We consider these issues in 
order. 
II. 
The trial court, relying on Chesterfield Cablevision, 
Inc. v. County of Chesterfield, 241 Va. 252, 401 S.E.2d 678 
(1991), concluded that Code § 58.1-3703(C)(3) provided an 
exemption from taxation and, as such, must be strictly 
construed.  That is to say, if the statute is subject to more 
than one interpretation, the construction denying the 
exemption must be adopted and any doubt must be resolved in 
favor of taxation.  WTAR Radio-TV Corp. v. Commonwealth, 217 
Va. 877, 879, 234 S.E.2d 245, 247 (1977); Winchester TV Cable 
Co. v. State Tax Comm'r, 216 Va. 286, 290, 217 S.E.2d 885, 889 
(1975).  Nevertheless, the County asserts that the trial court 
did not apply strict construction to this statute. 
 
4
Code § 58.1-3703(C)(3) provides: 
 
C.  No county, city, or town shall impose a license 
fee or levy any license tax . . . for the privilege 
or right of operating or conducting any radio or 
television broadcasting station or service[.] 
 
In Chesterfield Cablevision, a cable television company sought 
an exemption from taxation under this statute.  In resolving 
the issue, we applied the definition of "broadcasting" 
previously adopted in Winchester TV.  Winchester TV involved 
Code § 58-441.6(j), an exemption from sales and use taxes.  We 
concluded that "broadcasting" as used in that statute means 
"to make widely known: to disseminate or 
distribute widely or at random . . . to send out 
from a transmitting station (a radio or 
television program) for an unlimited number of 
receivers, . . ." 
 
. . . . 
 
 
. . . transmitted into space for anyone, who 
has the equipment and is within range of the signal, 
to receive. 
 
Winchester TV, 216 Va. at 290-91, 217 S.E.2d at 889.  In 
applying this definition, we have concluded that programming 
which was delivered only to paid subscribers was not 
"broadcasting" because such programming was not disseminated 
or transmitted to the general public, Chesterfield 
Cablevision, 241 Va. at 254, 401 S.E.2d at 679-80; Winchester 
TV, 216 Va. at 291, 217 S.E.2d at 889, and that equipment used 
in the production of programs was not "broadcasting equipment" 
 
5
unless it was used directly in "the act of disseminating a 
signal into the air," WTAR Radio-TV, 217 Va. at 882, 234 
S.E.2d at 248. 
 
The trial court, again relying on Chesterfield 
Cablevision, applied the construction of "broadcasting" set 
out above and held that Mutual was performing a broadcasting 
service because its activities were directly involved in 
transmitting and disseminating its radio signal to the general 
public. 
The County does not suggest that a different definition 
of "broadcasting" was required to satisfy a strict 
construction of the statute.  In fact, in its briefs before 
this Court and the trial court, the County applies the trial 
court's construction of the term.  The County's real 
disagreement is not with the trial court's interpretation of 
the statute, but with the trial court's determination that the 
evidence presented showed that Mutual's activities met the 
definition of "broadcasting."  Thus, we will turn to the 
County's remaining issue, that is, whether Mutual engages in 
activities which constitute the direct transmission and 
dissemination of its radio signal to the general public. 
III. 
 
The trial court found that Mutual's signal "is 
transmitted from the satellite into space and is picked up by 
 
6
both Mutual's affiliates, other entities . . . who are not 
affiliates, i.e., the Armed Forces Radio Network, and 
individuals with the proper equipment" and "received by 
millions of listeners who are members of the general public."  
The County asserts that this finding is erroneous because 
although Mutual produces programs which are "eventually widely 
disseminated to the public," the transmission or dissemination 
of the programs is performed by independently owned and 
operated radio stations and, thus, Mutual does not itself 
transmit the radio signal in all directions to the public.  
Mutual, the County asserts, possesses no FCC license to 
broadcast.  The broadcasters, according to the County, are the 
affiliate stations; Mutual is only a producer or distributor 
of the programs. 
 
The County argues that the portion of Mutual's 
programming that is sent to the earth station via the "T1" 
line from the Arlington facilities is not the transmission of 
a radio signal and is not available to the public.  With 
regard to the remaining programming transmitted to the earth 
station via the "KU-band" satellite, the County argues that 
Westwood, Mutual's parent company, transmits this signal and 
holds the license from the FCC to do so.  Continuing, the 
County argues that because Mutual owns neither the earth 
station nor the satellite and does not possess an FCC license 
 
7
to transmit signals from the satellite, Mutual does not 
transmit its radio signal at all. 
 
The County's position challenges findings of fact made by 
the trial court.3  The standard of review we apply to such 
challenges requires that we accept the trial court's findings 
of fact as true, unless they are without support in the 
record.  Quantum Dev. Co. v. Luckett, 242 Va. 159, 161, 409 
S.E.2d 121, 122 (1991). 
First, we reject the County's argument that Mutual's 
activities are not "broadcasting" because Mutual does not 
possess an FCC broadcasting license.  The definition of 
"broadcasting" which we have adopted does not include a 
requirement that a broadcaster have an FCC broadcasting 
license, and the failure to have such a license, while a 
factor to consider, is not dispositive in determining whether 
Mutual is disseminating its radio signal to the public.  See 
WTAR Radio-TV, 217 Va. at 880, 234 S.E.2d at 247 (FCC 
regulations do not control meaning of broadcasting). 
                     
3 The County variously states that the facts are 
"essentially undisputed" and that the "legal conclusions to be 
drawn from the undisputed facts are at issue . . . ."  The 
County also asserts that it assigned error to the trial 
court's factual finding "that the broadcast signal received by 
the public is Mutual's and not that of others, i.e., General 
Electric and the independent radio stations."  We consider 
these assignments of error as challenges to the factual 
findings of the trial court and review them accordingly. 
 
 
8
The County's basic contention is that because Mutual does 
not own the equipment utilized in the process of transmitting 
its radio signal to the public, it does not broadcast its 
radio signal and, therefore, does not qualify as operating or 
conducting a broadcasting service pursuant to Code § 58.1-
3703(C)(3).  We reject this contention. 
In determining whether an entity is operating or 
conducting a broadcasting service, we examine the entity's 
activities up to the point at which the entity releases 
control of the transmission or dissemination of its 
programming or signal.  Ownership of the equipment used in the 
process of transmission is not determinative of the scope of 
an entity's activities.  As noted above, Mutual has a "capital 
lease" for the satellite covering approximately ninety percent 
of the estimated use of the life of the satellite.  The use of 
the satellite, therefore, is controlled by Mutual through this 
contract.  The fact that Mutual chooses to lease rather than 
own the equipment used in the dissemination or transmission of 
its radio signal does not alone defeat a finding that Mutual 
engages in a "broadcasting service."  
The record does not show the contractual relationship 
between the owner of the earth station and Mutual; however, it 
is fair to infer that Mutual retains control during 
transmission of the signal to the satellite because of 
 
9
Mutual's continuing control of the use of the satellite 
through its lease.  Similarly, the record does not show the 
relationship, contractual or otherwise, between Mutual and 
Westwood, the owner of the satellite transmitting Mutual's 
radio signal to the earth station.  Nevertheless, for the same 
reason, it is fair to infer that Mutual retains control over 
its signal while the signal is transmitted by Westwood to the 
earth station because Mutual has control over the satellite 
transmission of the signal. 
 
The record supports the conclusion that Mutual retains 
control of the transmission or dissemination of its radio 
signal through the point at which the signal is transmitted by 
the satellite.  The record also shows that at that point 
Mutual's radio signal can be captured by not only affiliate 
radio stations, but also by non-affiliate radio stations such 
as colleges and other institutions of learning as well as the 
Armed Forces Radio Network.  Additionally, any member of the 
listening public who has a specific type of receiver can 
receive Mutual's broadcast signal as it is transmitted from 
the satellite.  Neither these listeners nor the non-affiliate 
radio stations pay any fee to Mutual for this programming.  
This arrangement is not analogous to cases in which 
transmission was made only to paying subscribers.  See WTAR 
Radio-TV, 217 Va. at 881, 234 S.E.2d at 247; Winchester TV, 
 
10
216 Va. at 291, 217 S.E.2d at 889.  The record supports the 
trial court's finding that Mutual created, transmitted, and 
disseminated radio signals to the public and, therefore, was 
engaged in broadcasting. 
 
Finally, the trial court also noted in its opinion letter 
that according to a deputy commissioner of revenue, the 
"import" of the broadcast exemption statute "goes to functions 
that enhance, sustain, process, refine or directly produce the 
transmission or dissemination."  This definition as well as 
the statute itself recognizes that an entity need not be a 
radio or television "station" to qualify for the exemption.  
As we stated in WTAR Radio-TV, equipment which is used 
directly in disseminating or transmitting the signal into the 
air is considered "broadcasting equipment" for purposes of the 
sales and use tax statute.  217 Va. at 882, 234 S.E.2d at 248.  
Similarly, activities which are directly related to the 
dissemination and transmission of the radio signal are 
broadcasting services for purposes of Code § 58.1-3703(C)(3).  
The trial court determined that Mutual's activities were a 
"radio broadcasting service" under this definition and we 
conclude that the record supports that finding. 
 
For the reasons stated, we will affirm the trial court's 
judgment that Mutual carried its burden of proof that it is a 
 
11
"radio broadcasting service" and qualifies for the exemption 
from a business license tax under Code § 53.1-3703(C)(3).4
Affirmed.
                     
4 In light of our holding, we do not address Mutual's 
assignments of cross-error regarding whether the apportionment 
of the taxes was unconstitutional and whether the trial court 
properly characterized Code § 58.1-3703(C)(3) as a tax 
exemption statute. 
 
12