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STATE VIDEO TAX FAIRNESS ACT OF 2007 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

ON

H.R. 3679 

FEBRUARY 14, 2008 

Serial No. 110–170 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

BETTY SUTTON, Ohio 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

PERRY APELBAUM, Staff Director and Chief Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

LINDA T. SA ́ NCHEZ, California, Chairwoman 

JOHN CONYERS, JR., Michigan 

HANK JOHNSON, Georgia 

ZOE LOFGREN, California 

WILLIAM D. DELAHUNT, Massachusetts 

MELVIN L. WATT, North Carolina 

STEVE COHEN, Tennessee 

CHRIS CANNON, Utah 

JIM JORDAN, Ohio 

RIC KELLER, Florida 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

MICHONE JOHNSON, Chief Counsel 

DANIEL FLORES, Minority Counsel 

(III) 

C O N T E N T S 

FEBRUARY 14, 2008 

Page 

THE BILL 

H.R. 3679, the ‘‘State Video Tax Fairness Act of 2007’’ ....................................... 3 

OPENING STATEMENT 

The Honorable Linda T. Sa ́nchez, a Representative in Congress from the 

State of California, and Chairwoman, Subcommittee on Commercial and 

Administrative Law ............................................................................................. 1 

WITNESSES 

Mr. Mike Palkovic, Executive Vice President, Operations, DIRECTV Group, 

Inc. 

Oral Testimony ..................................................................................................... 8 

Prepared Statement ............................................................................................. 10 

Howard J. Symons, Esq., Mintz, Levin, Cohn, Ferris, Glovsky and Popeo 

PC 

Oral Testimony ..................................................................................................... 23 

Prepared Statement ............................................................................................. 25 

Ms. Kristina Rasmussen, Director of Government Affairs, National Taxpayers 

Union 

Oral Testimony ..................................................................................................... 37 

Prepared Statement ............................................................................................. 38 

Mr. David C. Quam, Director of Federal Relations, National Governors Association 

Oral Testimony ..................................................................................................... 42 

Prepared Statement ............................................................................................. 43 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Chris Cannon, a Representative in 

Congress from the State of Utah, and Ranking Member, Subcommittee 

on Commercial and Administrative Law ........................................................... 5 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Chairman, Committee on the 

Judiciary, and Member, Subcommittee on Commercial and Administrative 

Law ........................................................................................................................ 47 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Letter from Gary Shapiro, President and CEO, the Consumer Electronics 

Association (CEA) ................................................................................................. 54 

Letter from Andrew Jay Schwartzman, President and CEO, Media Access 

Project ................................................................................................................... 55 

Letter from Pete Sepp, Vice President for Communications, the National 

Taxpayers Union (NTU) ...................................................................................... 56 

Letter from Gigi B. Sohn, President, Public Knowledge ...................................... 57 

Prepared Statement of the Federation of Tax Administrators ............................ 58 

Letter from Chris Murray, Senior Counsel, Consumers Union ........................... 60 

Page

IV 

Letter from Niel Ritchie, Executive Director, League of Rural Voters ............... 61 

Letter from Mark C. Ellison, Senior Vice President, Business Affairs & General Counsel, the National Rural Telecommunications Cooperative (NRTC) . 62 

Response to Post-Hearing Questions submitted to Mike Palkovic by the Honorable Linda T. Sa ́nchez, a Representative in Congress from the State 

of California, and Chairwoman, Subcommittee on Commercial and Administrative Law ........................................................................................................... 63 

Response to Post-Hearing Questions submitted to Howard Symons, Esq., by 

the Honorable Linda T. Sa ́nchez, a Representative in Congress from the 

State of California, and Chairwoman, Subcommittee on Commercial and 

Administrative Law ............................................................................................. 72 

Response to Post-Hearing Questions submitted to Kristina Rasmussen by 

the Honorable Linda T. Sa ́nchez, a Representative in Congress from the 

State of California, and Chairwoman, Subcommittee on Commercial and 

Administrative Law ............................................................................................. 74 

Response to Post-Hearing Questions submitted to David Quam by the Honorable Linda T. Sa ́nchez, a Representative in Congress from the State of 

California, and Chairwoman, Subcommittee on Commercial and Administrative Law ........................................................................................................... 75 

(1) 

STATE VIDEO TAX FAIRNESS ACT OF 2007 

THURSDAY, FEBRUARY 14, 2008 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:15 p.m., in room 

2141, Rayburn House Office Building, the Honorable Linda T. 

Sa ́nchez (Chairwoman of the Subcommittee) presiding. 

Present: Representatives Sa ́nchez, Conyers, Johnson, Cannon, 

Keller, and Franks. 

Staff Present: Norberto Salinas, Majority Counsel; Adam Russell, 

Majority Professional Staff Member; and Stewart Jeffries, Minority 

Counsel. 

Ms. SA ́ NCHEZ. This hearing of the Committee on Judiciary, Subcommittee on Commercial and Administrative Law will now come 

to order. And I apologize for the late start, but we had votes across 

the street, and we are expecting more, so we have decided to press 

on with the hearing and get as much done as we can before the 

next votes. I would like to recognize myself first for a short statement. 

In an era where genre-specific networks rule the airways and the 

public wants their entertainment on demand, cable and satellite 

services are more popular than ever. Nearly 100 million U.S. 

households receive their television programming either from cable 

or satellite providers. Consumers choose their television service 

provider based on a variety of factors, including the benefits offered, the availability in the particular location and the cost. No 

matter which other considerations are important, for most consumers the total cost of a subscription will always be one of the deciding factors. State and local taxes and fees are often overlooked 

by consumers trying to make smart choices. Because consumers 

don’t know how much those fees might be or how those fees might 

change if the chosen service provider changes few can make an informed decision between satellite and cable on the basis of price. 

Many simply are not aware that, depending on the State, a consumer may pay more depending on the chosen television service. 

Considering the current economic outlook the differences in the 

taxes could lead some consumers in a particular State to choose 

one television programming service provider over another to save 

money. Such decisions taken together could reduce competition for 

all consumers and therefore lead to higher prices. Today’s hearing 

2 

will discuss whether there is discriminatory tax treatment by State 

governments in the video programming services industry. Additionally we will examine what accounts for the differences in tax treatment between the two industries. 

Finally, we will examine H.R. 3679, the ‘‘State Video Tax Fairness Act of 2007,’’ and whether this approach ensures competition 

in the industry for the benefit of consumers. Accordingly, I look forward to hearing today’s testimony. 

[The bill, H.R. 3679, follows:] 

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Ms. SA ́ NCHEZ. At this time, I would now like to recognize my colleague, Mr. Cannon, the distinguished Ranking Member of the 

Subcommittee and co-author of the legislation, for his opening 

statement. 

Mr. CANNON. I thank you, Madam Chair. And I want to thank 

you for holding the hearing in my—or holding the beginning of the 

hearing in my absence. And I apologize to our panelists for being 

late. In light of the shortness of time that we encounter, I would 

ask unanimous consent to have my statement included in the 

record. 

[The prepared statement of Mr. Cannon follows:] 

PREPARED STATEMENT OF THE HONORABLE CHRIS CANNON, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF UTAH, AND RANKING MEMBER, SUBCOMMITTEE ON

COMMERCIAL AND ADMINISTRATIVE LAW

I am pleased that we are holding this hearing after the passage of the Internet 

Tax Freedom Act Amendments Act of 2007. As the Chairwoman well knows, while 

I am supporter of this bill, I was also a supporter of the Internet tax moratorium. 

I am pleased that we are finally having a hearing on this bill, and equally pleased 

that its consideration did not slow the passage of the Internet tax moratorium extension. 

Multichannel video programming distribution services such as cable television 

and direct broadcast satellite (DBS) providers are the methods by which most Americans receive their television programming. There are currently two DBS providers: 

DirecTV and EchoStar, which operates the DishNetwork. In addition, a number of 

the large phone companies, such as Verizon and AT&T, are beginning to roll out 

new television services over the Internet, which are frequently referred to as IPTV. 

Each of these platforms for providing television is subject to various state and local 

taxes. 

For example, some states have the same sales tax rate for both DBS and cable 

providers. Some states have differing rates. Under federal law, DBS providers are 

exempt from the collection and remittance of local taxes and fees. However, DBS 

providers must collect and remit sales taxes to the states, which are free to send 

a portion or all of that money to the localities. By contrast, both cable and phone 

companies are subject to a multitude of local taxes and fees. It should be noted that 

in all cases the applicable sales taxes and franchise fees are passed directly onto 

the consumer. 

One of those fees is the franchise fee that cable companies pay localities for the 

right to do business in that community. In several jurisdictions around the country, 

including Utah, cable companies have successfully lobbied state legislatures to adopt 

discounts in the state sales tax for the franchise fees that cable companies pay. 

These franchise fees are paid by cable companies for the right-of-way that they must 

use to lay down their infrastructure for delivering cable TV to consumers’ homes. 

But satellite TV does not tear up the streets of a town in order to deliver satellite 

TV to consumers. Yet satellite consumers still have to pay a higher tax even though 

their service does not utilize a locality’s rights of ways and telephone poles. 

In still other jurisdictions, satellite TV subscribers face a higher state sales taxes 

rate than do cable customers. In Florida, satellite customers pay 13.17% in state 

sales tax whereas cable customers pay 9.17% in state sales tax—a difference of 4%. 

In Ohio, only satellite customers pay a 5% state sales tax; cable subscribers pay no 

sales tax, and this tax was recently struck down as a violation of the Commerce 

Clause but is under appeal. 

The cable companies will argue that they are merely trying to equalize the state 

and local tax burden that their customers must bear. That, at least, is an argument 

I can understand. On the other hand, the evidence suggests that at least in some 

jurisdictions, cable companies are lobbying the state legislatures to raise their competitors’ costs. While understandable, that is a bad deal for consumers. In the long 

run, I would agree most with our witness from the National Taxpayers’ Union, who 

argues that we should be lowering taxes for all customers. 

The states will certainly argue that they should be free to tax corporate entities 

in any way that they see fit. However, state legislatures and Congress should not 

be picking technological winners and losers. That is for the market to decide. If satellite TV provides better picture and service at a lower price, then consumers will 

move toward satellite TV. If cable is the better service provider, consumers will flock 

6 

to cable. Government should not be advantaging—or disadvantaging—one platform 

over the other in the form of tax policy. 

I think this bill goes a long way to establishing that platform tax neutrality, and 

I support it. 

Madam Chairwoman, I commend you for holding a hearing on this legislation, 

there are yet other issues affecting interstate commerce that I hope we will consider. To that end, may I suggest that the Subcommittee hold hearings on bills that 

prevent states from imposing discriminatory taxes on pipelines, rental cars, and cell 

phones, just to name a few. In the case of wireless industry, I would like to put 

on the record that discriminatory and regressive taxes imposed on this industry are 

estimated to be nearly $5 billion a year. An astonishing number and something that 

warrants study by this Committee. 

I thank the Chair for her indulgence and yield back. 

Ms. SA ́ NCHEZ. Without objection, so ordered. 

Mr. CANNON. I will yield back. 

Ms. SA ́ NCHEZ. Thank you. 

Without objection, the Chair will be authorized to declare a recess of the hearing at any point. 

I am now pleased to introduce our witnesses for today’s hearing. 

Our first witness is Mike Palkovic. Did I pronounce that correctly? 

Mr. PALKOVIC. You did. 

Ms. SA ́ NCHEZ. Thank you. 

Mr. Palkovic is executive vice president of operations for 

DIRECTV, Inc. In his role, Mr. Palkovic oversees primary contacts 

with customers from the initial point of sale through the life of the 

customer’s programming service, including customer service, field 

services and supply chain management. Prior to his current role, 

Mr. Palkovic was executive vice president and chief financial officer 

of DIRECTV. He also served as the director of financial planning 

for DIRECTV. Prior to joining DIRECTV, Mr. Palkovic spent 14 

years at Times Mirror Cable Television, where he held a number 

of positions, including director of business operations; director of 

contract negotiations and pricing; and director of financial planning 

and analysis; and corporate accounting manager. 

Welcome to our panel today. 

Our second witness is Howard Symons. Mr. Symons is a member 

of Mintz, Levin, Cohen, Ferris, Glovsky and Popeo. Is that correct? 

Mr. SYMONS. Yes. 

Ms. SA ́ NCHEZ. Thank you. And practices in the communications 

section where he represents a wide range of cable, wireless and 

telecommunication companies and trade associations in regulatory 

and legislative matters, including implementation of the Telecommunications Act of 1996. Before joining the firm, Mr. Symons 

served as senior counsel to the Energy and Commerce Subcommittee on Telecommunications in the U.S. House of Representatives. During his 4 years in that capacity he was responsible for 

the development of legislation on matters ranging from domestic, 

telephone policy to cable franchising and international communications. He was also responsible for the Subcommittee’s oversight of 

Federal Communications Commission activities in the areas of telephone and cable policy. Welcome to you as well. From 1978 to 

1981, Mr. Symons was a staff attorney with Public Citizen’s Congress Watch where he was responsible for telecommunications policy issues. And for 10 years, he was an adjunct professor of the National Law Center of George Washington University, teaching a 

7 

course in telecommunications law and regulations. That is quite a 

background. 

Our third witness is Kristina Rasmussen. Is that correct? 

Ms. RASMUSSEN. Rasmussen. 

Ms. SA ́ NCHEZ. I am sorry, can you repeat that again? 

Ms. RASMUSSEN. Rasmussen. 

Ms. SA ́ NCHEZ. Rasmussen. Thank you. 

Ms. Rasmussen serves as the National Taxpayers Union’s director of government affairs. Her primary duties are lobbying on Federal and State issues; conducting policy research and analysis; assisting in taxpayer education efforts; and formulating reports and 

opinion editorials. Ms. Rasmussen has been with the National Taxpayers Union since the summer of 2005. Ms. Rasmussen—pardon 

me, repeat that again. 

Ms. RASMUSSEN. Rasmussen. 

Ms. SA ́ NCHEZ. Rasmussen. I will get that correct by the end of 

the hearing. Ms. Rasmussen previously hailed from the National 

Federation of Independent Business, where she served as a Federal 

public policy assistant and intern for former Congresswoman Katherine Harris. In 2003, Ms. Rasmussen traveled to Copenhagen, 

Denmark, to serve as a research fellow for the Organization for Security and Cooperation in Europe. Ms. Rasmussen’s opinion pieces 

have been featured in the Washington Post, Forbes Magazine, National Review online, Investor’s Business Daily, The Hill and the 

Baltimore Sun, among others. Her television appearances include 

CNN and C-SPAN, and she has been a guest on numerous radio 

shows. 

Our final witness is David Quam, director of the Office of Federal 

Relations for the National Governors Association. Mr. Quam manages NGA’s legal and advocacy efforts, working closely with Governors, Washington D.C. Representatives and NGA’s standing committee to advance the association’s legislative priority. Prior to 

working at NGA, Mr. Quam served as director of International Affairs and general counsel of the International AntiCounterfeiting 

Coalition, Inc. He was also an associate of the law firm, Powell, 

Goldstein, Frazer and Murphy, LLP. Additionally, Mr. Quam was 

counsel on the U.S. Senate Subcommittee on the Constitution, Federalism and Property Rights for the Committee on the Judiciary. 

I want to thank you all for your willingness to participate in today’s hearing. Without objection, your written statements will be 

placed into the record. And we are going to ask that you limit your 

oral remarks to 5 minutes. You will note that we have a lighting 

system on the table. And it begins with a green light when your 

testimony time starts. At 4 minutes, you will get a yellow indicator 

light letting you know you have about a minute to finish your testimony. And then the light will turn red when your time has expired. 

If the light turns red and you are in mid sentence, we will allow 

you to complete your final thought before moving on to our next 

witness. After each witness has had an opportunity to present his 

or her testimony, Subcommittee Members will be permitted to ask 

questions subject to the 5-minute limit. 

With that, I am going to try to squeeze in Mr. Palkovic’s testimony prior to the next series of votes. So would you please begin 

your testimony. 

8 

TESTIMONY OF MIKE PALKOVIC, EXECUTIVE VICE 

PRESIDENT, OPERATIONS, DIRECTV GROUP, INC. 

Mr. PALKOVIC. Thank you. Good afternoon. 

Chairwoman Sa ́nchez, thank you for the opportunity to comment 

today in support of Chairman Conyers and Ranking Member Cannon’s proposed State Video Tax Fairness Act, the bill that would 

benefit all 100 million paid TV subscribers in the United States. 

The essence of this fight is a clear matter of consumer welfare; 

30 million of your constituents have fled cable largely because satellite companies have offered them more channels, better customer 

service, better picture quality and typically do it all at a lower 

price. Now cable is fighting back, but not by competing in the marketplace. Rather cable is persuading State legislatures to raise consumer prices by asking satellite customers to subsidize one of the 

cable industry’s costs of doing business, a franchise fee. It makes 

no sense, and this Committee and Congress have rejected this 

premise once before. 

H.R. 3679 is a simple amendment to current law that proclaims 

no discrimination. That is all this bill says. Consumers should be 

free to choose TV service based on what they care about: price, 

quality and service. States should not be allowed to punish consumers for their choices by hitting them with higher taxes. Congress has long accepted this nondiscrimination principle clarifying 

just last fall in a protected IP video from discriminatory State 

taxes. It should do the same for all competitors in the market. Congress has repeatedly embraced the premise of this bill. 

Fair competition benefits everyone. Congress bet on fair competition 16 years agowhen they bet on satellite TV at a time when 

cable was the only game in town. Competition has kept prices 

down and improved the quality of service, spurring innovations 

that consumers now take for granted, like all digital programming, 

hundreds of Spanish and multicultural channels, DVR technology 

and a recent explosion in the number of high definition channels. 

Competition is taking hold, and consumers of video programming 

are increasingly price-sensitive. Thus, adding 5 percent or more to 

a satellite subscriber’s bill to compensate the cable industry for 

their franchise fees hurts the competitive balance. 

When cable urges you to vote no on H.R. 3679, it is arguing that 

States should be allowed to discriminate against satellite, literally. 

Just look at the language of the bill. It is that simple. Cable calls 

it tax parity. What does tax parity mean to cable? It means that 

satellite customers should pay higher taxes in order to offset a cost 

that is unique to cable. The cost comes in the form of local franchise fees. Cable companies voluntarily negotiate these payments 

with local governments for the privilege of digging up public streets 

and running cable on public property to subscribers’ homes. So 

franchise fees are not taxes; they are rent. 

Don’t take my word for it. NGA says it in their written testimony. And cable repeatedly tells its shareholders in their SEC filings, franchise fees are not taxes; they are payments for highly valuable property rights worth billions of dollars. Should satellite TV 

customers pay franchise fees? Of course not. Their service does not 

rely on an infrastructure built by digging up public streets or hangVerDate Aug 31 2005 11:01 Feb 27, 2009 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6601 H:\WORK\COMM\021408\40744.000 HJUD1 PsN: 40744
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ing wires on utility poles. This is particularly unfair for those rural 

customers who do not even have the option of choosing cable. 

Congress understood all of this. In the Telecommunications Act 

of 1996, Congress made it illegal for local governments to impose 

franchise fees on satellite, even while continuing to allow local governments to collect franchise fees from cable. The House report explained the difference, quote, unlike other video programming distribution systems, satellite-delivered programming services do not 

require the use of public rights-of-way or physical facilities or services of a community, unquote. 

In short, Congress prohibited local governments from charging 

rent for property rights satellite TV providers don’t use and don’t 

need. The latest trend of discriminatory State taxes in six States 

with more following suit is an end run around congressional intent. 

The States act as the local government’s collection agent, essentially collecting the same franchise fees from satellite that they collect from cable and handing the proceeds right back to their local 

governments. 

In conclusion, we urge you to close this loophole. We are not 

alone. Groups across the political spectrum support H.R. 3679. You 

will hear from the National Taxpayers Union momentarily. They 

are joined by the National Rural Telecommunications Cooperative, 

Consumers Union, The Media Access Project, Public Knowledge 

and the Consumer Electronics Association in urging you to adopt 

this nondiscrimination policy. These diverse consumer groups all 

understand what is going on here. They know the difference between discrimination and parity. They know the difference between 

rent and taxes. They know cable once again is angling for an unfair 

advantage, a way to win in the marketplace without actually competing. Congress has prohibited these ploys before, and it should 

prohibit them now by passing H.R. 3679. 

Thank you, and I look forward to your questions. 

[The prepared statement of Mr. Palkovic follows:] 

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PREPARED STATEMENT OF MIKE PALKOVIC


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Ms. SA ́ NCHEZ. Thank you very much for your testimony. We have 

been called across the street for votes, so we will stand in recess. 

We will return immediately following the last vote. 

[Recess.] 

Ms. SA ́ NCHEZ. The Subcommittee will come to order. And I believe we left off with Mr. Symons. And I have been advised that 

I have been mispronouncing your name, and my apologizes. 

Mr. SYMONS. That is quite all right, Madam Chairwoman. 

Ms. SA ́ NCHEZ. I would invite you to please give your testimony 

at this time. 

TESTIMONY OF HOWARD J. SYMONS, ESQ., MINTZ, LEVIN, 

COHN, FERRIS, GLOVSKY AND POPEO PC 

Mr. SYMONS. Thank you very much, Madam Chairwoman, and 

Members of the Subcommittee. 

My name is Howard Symons, and I am here today on behalf of 

the National Cable and Telecommunications Association. Thank 

you for inviting NCTA to testify today. We strongly oppose H.R. 

3679. We believe it represents an unjustified interference into efforts being undertaken by State legislatures to ensure that consumers have a choice of video providers that is neutral as to government-imposed taxes and fees. 

The Telecommunications Act of 1996 exempted DBS operators 

from the administrative burden of collecting and remitting local 

taxes and fees, but it did not exempt the DBS industry from having 

to pay taxes that benefit local governments. In practice, however, 

the law has resulted in a significant disparity between what DBS 

pays and the taxes and fees imposed on cable operators. In many 

States, for instance, both DBS and cable operators are subject to 

State sales taxes, but only cable operators pay additional taxes and 

fees to localities. In Santa Monica, California, for instance, local 

taxes and fees add $7.50 to a monthly cable bill of $50.00. Six 

States have determined that this situation is unfair to cable customers, and they have enacted legislation that equalizes the tax 

burden between cable and DBS providers taking into account all 

taxes and fees that both providers pay at the State as well as at 

the local level. The DBS industry unsuccessfully opposed legislation 

in these six States. And its subsequent court challenges have likewise been unsuccessful save for one local trial court. 

Unable to prevail in the State legislatures or in Federal Court, 

the DBS industry has come to Congress asking you to substitute 

your judgment for the judgment of State legislatures. We do not believe such a radical step is necessary or appropriate. The DBS industry has ample opportunity to argue against tax parity. In each 

State legislature that considers this issue, it simply prefers not to 

do so. DBS argues that States should be federally foreclosed from 

considering local taxes and fees when determining cable’s overall 

tax burden. It claims that local franchise fees are nothing more 

than payments for local public resources and that allowing an offset to State tax is unfair to DBS operators who do not use these 

resources. But State governments should be the final arbiters of 

the tax structure in their own States as long as they exercise that 

judgment within constitutional bounds, as they have. 

24 

And DBS’s core assertion that franchise fees represent no more 

than a payment for rights-of-way is incorrect. As the Fourth Circuit 

noted in rejecting this claim, franchise fees are spread among a 

wide proportion of the population because they are passed through 

to all cable subscribers. And the proceeds go to general operating 

funds of localities, not for rights-of-way maintenance. In fact, cable 

operators generally pay separately for any repairs to the rights-ofway related to the installation and upgrade of their networks. DBS 

also argues that franchise fees must be rent for rights-of-way because businesses don’t get rights-of-way for free, but that is simply 

not true. Telephone companies, for instance, generally do not pay 

for public rights-of-way. And as a Sixth Circuit explained, State 

and local governments are under no mandate to charge for rightsof-way. This is readily apparent from the fact that not every road 

is a toll road. And there are other taxes imposed on cable operators 

at the local level that are separate and apart from franchise fees 

that have no link whatsoever to the use of rights-of-way. There is 

certainly no rationale for excluding such fees from a comparison of 

cable and DBS’s tax burdens. 

Today, DIRECTV and Echostar are the second and third largest 

video distributors in the United States with more than 30 million 

subscribers and $25 billion in annual revenue. They certainly don’t 

need an unfair tax advantage over cable, phone and wireless competitors. It is wholly appropriate for State legislatures to let the 

marketplace rather than artificial distinctions in taxes and fees 

drive consumer choice from among multichannel video alternatives. 

The Federal Courts, having found that the States are acting appropriately, there is simply no problem that requires congressional 

intervention. Thank you very much, and I would be happy to answer any questions. 

[The prepared statement of Mr. Symons follows:] 

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PREPARED STATEMENT OF HOWARD J. SYMONS


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Ms. SA ́ NCHEZ. Thank you very much for your testimony. 

Ms. Rasmussen, I would invite you to give your testimony at this 

time. 

TESTIMONY OF KRISTINA RASMUSSEN, DIRECTOR OF 

GOVERNMENT AFFAIRS, NATIONAL TAXPAYERS UNION 

Ms. RASMUSSEN. Thank you. Once again, my name is Kristina 

Rasmussen. I am director of government affairs for the National 

Taxpayers Union. We are a grassroots organization of taxpayers 

with 362,000 members nationwide. 

NTU believes that H.R. 3679, the ‘‘State Video Tax Fairness Act 

of 2007,’’ would help ensure that consumers, not State governments, pick marketplace winners and losers. Americans really expect nondiscriminatory tax treatment; yet six States, that of Ohio, 

Florida, Kentucky, North Carolina, Tennessee and Utah, levy discriminatory taxes on satellite TV. In the case of Ohio, lawmakers 

approved a special tax on satellite TV viewers but completely exempted cable users. As a result, satellite consumers paid over $26 

million in extra taxes in 2005. In Tennessee, the first $15 of 

monthly cable service charges is exempted from a tax paid by both 

cable and satellite. For price-sensitive consumers, these differences 

can determine which service they ultimately purchase. At the end 

of the day, consumers shouldn’t have to pay higher taxes just because they use satellite instead of cable or vice versa. 

Now the need for this bill rests largely on how we measure and 

compare the various government-imposed burdens on the video 

services industry. Defining a franchise fee as a cost of doing business as opposed to an outright tax has much to do with reconciling 

the situation at hand. Yes, a franchise fee remains a mandatory 

burden that customers, employees and shareholders ultimately 

bear. However, NTU believes that the recovery of an actual and legitimate expense of a given government service, especially those for 

which an entity voluntarily avails itself, can meet the definition of 

a user cost rather than a tax. We have a long record of opposing 

unreasonable fees, especially when they have no connection to the 

resulting services. However, there are distinct benefits received in 

exchange for cable franchise fees, such as rights-of-way for laying 

cable and, historically, exclusive rights to provide service within a 

given jurisdiction. 

If cable companies believe they are being overcharged by localities, they should negotiate to reduce their fees. If franchise fees 

are used solely as revenue spigots for local governments, we support efforts to change existing law to remedy that. Until then, NTU 

believes that H.R. 3679 provides a logical starting place, the State 

level, for reconciling some of these tax burdens to ensure that no 

one is put at a competitive disadvantage. From NTU’s viewpoint, 

our laws should reflect low taxes and free markets. We are not ignorant of the federalism concerns involved with this issue. However, we need to recognize the urgency of protecting residents of all 

50 States from predatory taxes at the non-Federal level. As a practical matter, States and localities can sometimes be oblivious to the 

blight of consumers and businesses facing unfair taxation. Until 

citizen activists can establish comprehensive tax limitation and reduction measures in their communities, we believe it is perfectly 

38 

reasonable for Congress to set some sensible boundaries through 

Federal law and the Constitution’s commerce clause. We have seen 

this occur with great success with the Internet Tax Freedom Act, 

and similar nondiscrimination protection for wireless service is 

being pursued in this Congress. Consumers of video services should 

not be forgotten. 

Now, much of this debate over tax discrimination has focused on 

a form of fairness that only fills government coffers further. That 

is making sure providers of similar services suffer the misery of 

equally harsh taxes. While we recognize that some States could 

abuse H.R. 3679 and raise taxes on cable instead of lowering them 

on satellite systems, we understand the bill’s intent as one that 

would keep any additional taxes on television service at bay when 

we would welcome language clarifying this point. But at the very 

least, State governments should not discriminate among products 

or services by disadvantaging one with heavier taxes. 

Thank you for allowing me to submit this testimony. While we 

see merits on both sides of the discussion, we ultimately feel that 

satellite consumers should not be forced to pay additional taxes to 

reach or surpass parity with franchise fees. At this time, we would 

classify a vote in favor of H.R. 3679 as the pro-taxpayer position 

in our annual rating of Congress. 

Thank you very much. 

[The prepared statement of Ms. Rasmussen follows:] 

PREPARED STATEMENT OF KRISTINA RASMUSSEN

I. INTRODUCTION

Chairwoman Sa ́nchez and Members of the Committee, my name is Kristina Rasmussen. I am Director of Government Affairs for the National Taxpayers Union 

(NTU), a grassroots organization of taxpayers with 362,000 members nationwide. I 

encourage you to find out more about NTU on our website: www.ntu.org. 

I offer this testimony in support of H.R. 3679, the State Video Tax Fairness Act. 

This bill would address the issue of discriminatory video services tax policy by prohibiting inequitable state taxes that are dependent on the mode of programming delivery. 

NTU approaches this bill not from the corporate or government perspective, but 

that of the taxpayer and the consumer. We look for indications of neutrality, simplicity, and transparency when we review proposals to change tax policy, and we 

believe all three goals are furthered by this bill. In deciding to support H.R. 3679, 

we were particularly mindful of tax/fee distinctions and issues of federalism, as evidenced by the following testimony. NTU believes that passage of H.R. 3679 would 

help ensure that consumers—not the states—pick marketplace winners and losers. 

II. TELECOM TAXATION VERSUS OTHER PRODUCTS AND SERVICES

Telecommunication services of all varieties have been targets for disproportionate 

and punitive taxes since the Spanish-American War. These taxes have slowed much 

of the progress and productivity that could have emerged to enrich our society sooner. 

Indeed, a recent survey completed by researchers at the Heartland Institute found 

that taxes and fees on telecommunication services (e.g., TV and telephone) were 

typically more than twice as high as those on other retail goods. The average difference was a rate of 13.4 percent for telecommunication, versus 6.61 percent for 

other products. The same study noted that taxes and fees on communication services directly cost taxpayers more than $37 billion annually, not to mention the yearly ‘‘deadweight loss’’ to the economy of more than $11 billion. 

There is a clear need to reduce overall telecommunication tax burdens, promote 

consumer choice, and provide a neutral playing field among similar products. As 

such, NTU regularly supports efforts to cut or eliminate telecommunication taxes 

and fees. We have also advocated in favor of statewide franchising reforms that 

allow the entry of new competitors into the video, voice, and data delivery markets. 

39 

At the federal level, we have endorsed efforts to prevent discriminatory taxation of 

Internet and wireless services (specifically, the Permanent Internet Tax Freedom 

Act of 2007 and the Cell Phone Tax Moratorium Act), and we support the application of this principle to video services. 

III. STATE TAXATION AMONG VIDEO SERVICES

‘‘Playing favorites’’ is an accusation often leveled at authority figures like bosses 

and teachers, but TV fans never expected discriminatory treatment to come from a 

state’s Tax Code. Currently, six states (Ohio, Florida, Kentucky, North Carolina, 

Tennessee, and Utah) levy state video service taxes on satellite TV that are higher 

than those levied on cable TV or other similar consumer products. 

In the case of Ohio, lawmakers approved a special 5.5 percent tax on TV viewers 

getting their signal from a satellite service. Cable users, on the other hand, are completely exempt from the tax. So a viewer and his neighbor could be enjoying the 

same TV program, but one would be paying more in taxes if he uses a satellite dish 

while the other viewer uses cable. And the resulting bill isn’t insignificant—satellite 

consumers in Ohio paid $26.2 million in extra taxes in 2005. In Florida, satellite 

TV is taxed by the state at a higher rate than cable (13.17 percent versus 9.17 percent). 

In the state of Kentucky, recent statewide reforms levied a combined 5.4 percent 

tax on both satellite and cable, and then sent revenues back to localities proportionate to the franchise fees they had been receiving from cable prior to the reform. 

North Carolina employs a similar set-up. We are concerned that satellite consumers 

are now being squeezed by new taxes to pay funds toward fee totals they would 

never have had to pay. We believe this system violates Congress’s intent in the Telecommunications Act of 1996 to keep local franchise fees off satellite service. 

In Utah, both cable and satellite pay a 6.25 percent tax, but cable can apply half 

of any franchise fees paid toward this burden, thereby lowering the operative tax 

rate. In Tennessee, both cable and satellite consumers pay a sales tax of 8.25 percent, but the first $15 of monthly cable service charges are exempted from this tax 

(charges above $27.50 are taxed at a 7 percent state rate). For price-sensitive taxpayers, these differences can determine which service they ultimately purchase. 

Imagine paying a higher tax rate if you received your salary via direct deposit 

instead of a check. Or paying taxes on chocolate ice cream but not vanilla. The same 

thing goes with TV service: Consumers shouldn’t have to pay higher taxes just because they use satellite instead of cable, or vice versa. 

IV. TAX PARITY AND FRANCHISE FEES: A DIFFICULT RECONCILIATION

The need for H.R. 3679 rests largely on how the various government-imposed burdens of the video services industry are measured—which, in turn, could help determine what types of taxes are discriminatory in nature. The answer is, admittedly, 

not a simple one. Yet, this very question is reason to embrace rather than shun enactment of H.R. 3679. 

Opponents of the legislation contend that the ‘‘franchise fees’’ local governments 

often extract from cable companies are not sufficiently accounted for when comparing state-level tax policies toward cable and satellite television products. Defining a franchise fee as a ‘‘cost of doing business’’ as opposed to an outright tax has 

much to do with reconciling differences at the state level. While this fee remains 

a mandatory burden that customers, employees, and shareholders ultimately bear, 

NTU believes that the recovery of an actual and legitimate expense of a given government service, especially those for which an entity voluntarily avails itself, can 

meet the definition of a user cost rather than a tax. 

We recognize that a franchise fee is a form of extraction by the government, and 

we have supported and will continue to support efforts to reduce this cost. NTU has 

a long record of opposing fees and efforts to increase them, especially when they 

bear little relation or have no connection to the services they are supposed to support. For example, NTU recently opposed attempts to prolong the existence of a special Virginia vehicle registration fee that had been created to fund the now-concluded Jamestown 2007 celebration. The extension of this fee beyond the life of the 

event it was created to fund would be a clear example of a fee bearing no relation 

to the promised service. 

However, there are distinct benefits received in exchange for cable franchise fees, 

such as ‘‘rights of way’’ for laying cable necessary for delivering a product. As an 

aside, we note the strange logic between tying a company’s right-of-way cost to an 

unrelated measurement such as gross revenues. Presumably the cost of ‘‘renting’’ 

space to run cable is fixed to local property values, so why should the cost be a set 

portion of their earnings? Regardless, if cable companies believe they are being overVerDate Aug 31 2005 11:01 Feb 27, 2009 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6621 H:\WORK\COMM\021408\40744.000 HJUD1 PsN: 40744
40 

charged by localities for this benefit, we strongly believe they should be working to 

convince state and local governments to reduce their fees. 

There is, however, another important consideration in the debate over H.R. 3679. 

Unlike many user charges, which entities simply figure as a baseline necessity in 

order to do business, franchise fees actually deliver a reverse benefit to the payer: 

historically, in the case of cable TV, the exclusive right to provide service within a 

given jurisdiction. Surely the value of these franchises is considerable to their holders. Despite various government pricing and service-provision regulations, a franchise fee confers protection from competitors using the same mode of transmission 

and, in the case of competition from other modes of transmission, serves as a way 

to muddy the fiscal waters and argue for higher taxation. 

In truth, comparing the tax burdens of video providers depends upon many variables. Cable companies contend that the franchise fees they pay constitute a dollarfor-dollar tax burden that their competitors don’t face, but the situation is not cut 

and dry. Some states provide a credit for franchise fees paid in order to offset other 

taxes. Meanwhile, for many years, satellite providers have had to competitively bid 

for the use of federally owned spectrum over which they can transmit their signals. 

One could argue that this ‘‘right of way’’ through space is somewhat analogous to 

the terrestrial rights of way cable companies are paying for under franchise agreements. For their part, however, satellite providers do not seem to be operating 

under the premise that cable companies should pay an equivalent of spectrum auction costs in order to ‘‘level the playing field.’’ 

Certainly, satellite companies also pay a ‘‘cost of business’’ in preparing, launching, and maintaining their satellites as a precondition of getting their products into 

homes and businesses. This cost is reflected in the price of their product as opposed 

to a separate line-item charge on a cable bill. We don’t begrudge the right of cable 

companies to pass along their business costs to consumers. NTU recognizes that visibility and transparency of government costs are good things for the consumer and 

the tax reform movement as a whole. However, satellite consumers shouldn’t be 

forced to pay an additional tax for the appearance of parity, especially when satellite’s delivery costs are already accounted for in its price. 

Insomuch as franchise fees are used solely as revenue spigots for local governments instead of a payment rendered in exchange for certain tangible benefits, we 

support efforts by the cable industry to change existing law to reflect this actuality. 

Until then, NTU must work toward parity for taxpayers among truly comparable 

costs. NTU believes that H.R. 3679 provides a logical starting place—the state 

level—for reconciling some of these tax burdens to ensure that no one is put at a 

competitive disadvantage. 

V. FEDERALISM AND COMPETITION ISSUES

From NTU’s viewpoint, the color of law should always take on a hue that reflects 

low taxes and free markets, which is a major reason why we support H.R. 3679. 

However, we are not unmindful of federalism considerations surrounding this measure. During NTU’s nearly 40-year history, we have often observed the benefits of 

tax competition in America’s vibrant ‘‘laboratory of the states.’’ This phenomenon 

has, among other things, kept taxpayers in nine states free from a homegrown income tax, and, in five states, unburdened by a general sales tax. 

Some elected officials have raised an objection to H.R. 3679 on the grounds that 

the legislation would further curtail the ability of states and localities to craft tax 

policy that can be tailored to the specific conditions and outcomes they seek. This 

concern is not completely devoid of merit, but it does not approach the urgency of 

protecting residents of all 50 states from predatory taxes at the non-federal level. 

Surely, state and local officials would concede that their current taxation powers 

are far from unlimited, and are often proscribed by other levels of government. California, Oregon, and Washington, for example, limit the rate of tax and/or the annual 

growth of assessments allowable under city and county property tax systems. Other 

states, such as Colorado, Michigan, Missouri (and again, California), specifically 

compel localities to seek the approval of voters prior to levying some or all types 

of new taxes. Further limitations are established through regulatory decisions, one 

of the more notable being the California Franchise Board’s ruling earlier in this decade that the Los Angeles County Assessor could not claim situs for property tax purposes on satellites in permanent earth orbit simply because they were once manufactured in the County. 

There are more direct analogies to the legislation before us today. For all of its 

regulatory drawbacks and lack of clarity in some areas, the federal Cable Communications Act has for nearly 25 years capped the level of franchise fees that local 

governments can charge at 5 percent. This provision, incidentally, had strong supVerDate Aug 31 2005 11:01 Feb 27, 2009 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 H:\WORK\COMM\021408\40744.000 HJUD1 PsN: 40744
41 

port from the cable industry, which at the time made many of the same arguments 

on behalf of a federal limit that we are making today. 

Established law has long recognized—sometimes to the detriment but mostly for 

the good of taxpayers—that telecommunications services can often defy state boundaries as well as the jurisdiction of taxing authorities. Subsequent FCC rulings and 

legislative acts in the 1970s and 1980s lifted the restrictions on cable operators that 

traditional broadcasters sought to impose so as to avoid competition. 

The federal Internet Tax Freedom Act, which became law in 1998 and has been 

renewed under various names since, has shielded online consumers from discriminatory tax burdens on Internet access. Current legislation in Congress, H.R. 436, 

would provide for a three-year moratorium on new mobile telephone service taxes 

whose rates exceed those on comparable non-mobile products. Both approaches have 

strong support from NTU. 

But why should federal intervention be the solution to taxpayer protection issues 

such as these? Don’t citizens have other options, including the electoral process, to 

effect change? In several senses they do. In addition to participating in elections, 

citizens can—in some states—initiate binding statewide legislation through the petition process. 

As a practical matter, however, states and localities can sometimes be oblivious, 

and often contemptuous, toward the plight of consumers and businesses facing unfair taxation. The City of Corvallis, Oregon provides but one example of where elected leaders resorted to a noxious tax scheme to make wireless phone services far less 

affordable. Voters demolished this proposal when it was referred to them in 2006, 

but this laudable outcome entailed extraordinary efforts on the part of local residents (including our own members) to beat back the tax hike. Until citizen activists 

can establish comprehensive tax limitation and reduction measures in their communities, it is perfectly reasonable for Congress to set some sensible boundaries under 

federal law and the Constitution’s Commerce Clause. 

What about cases in which tax collusion, dressed up as tax competition, poses a 

direct threat to the well-being of taxpayers and consumers across the nation? For 

example, many officials are seeking Congress’s blessing for a ‘‘Streamlined Sales 

and Use Tax Agreement’’ (SSUTA) that would establish a common regime for the 

application of sales taxes across state borders. 

Yet, the SSUTA battle is not being fought over the small share of retail sales that 

are not subject to direct purchase taxes; the ultimate objective is to dramatically increase sales tax rates and their reach through interstate collusion, and put a padlock on the ‘‘laboratory of the states.’’ Such an action may not be on the immediate 

horizon for taxes on cable and satellite television service, but legislation that would 

increase discrimination between these modes of video is being introduced throughout the nation. Moreover, federal jurisprudence in this area is not as well established as it has been on the question of state taxation of remote sales. These factors 

argue in favor of an ‘‘insurance policy,’’ in the form of H.R. 3679, to prevent harm 

to taxpayers in the future. 

VI. FAIRNESS, COMPLEXITY, AND TRANSPARENCY

The fight over what does and does not constitute a tax, an offset, and so forth, 

reflects the complexity found in our tax laws. Many of the taxpayers who make up 

our membership believe that the entire Tax Code is desperately in need of an overhaul that promotes simplicity and transparency. Although H.R. 3679 is aimed at one 

narrow area of our tax laws, NTU supports it because it provides for a crisp prohibition against discrimination and sets up strong ‘‘base rules’’ for future reform efforts. 

Much of the debate over tax discrimination in the video services community has 

improperly focused on a form of ‘‘fairness’’ that only fills government’s coffers further—that is, making sure providers of similar services suffer the misery of equally 

harsh taxes. Policymakers would do well to remember that the ‘‘fairest’’ fee or tax 

rate—for providers and taxpayers alike—is zero. 

Failing the most far-sighted tax policy of a zero rate (which happens to be simple 

and transparent), at the very least, state and local governments should not discriminate among products or services by disadvantaging one with heavier taxes. Yet, as 

I just mentioned, inflicting the same measure of pain on all entities is no solution 

to the question of ‘‘fairness.’’ Rather, taxes should be eased across the board. This 

is why NTU has championed reforms that would lower the tax burdens on all participants in the video services market. 

While we recognize that states could abuse H.R. 3679 and raise taxes on cable 

instead of lowering them on satellite systems, we understand the bill’s intent as one 

that would keep any additional taxes on television service at bay. 

42 

VII. CONCLUSION

Thank you, Chairwoman Sa ́nchez, for allowing me to submit this testimony. Many 

issues of interest to taxpayers are found within the debate over state tax treatment 

of video services. While we see merit on both sides of the discussion, we ultimately 

feel that satellite consumers should not be forced to pay additional taxes that demand ‘‘parity’’—or more—with fees imposed for unrelated benefits. 

If the House and Senate were to consider the State Video Tax Fairness Act today, 

we would classify a vote in favor of H.R. 3679’s original language as the ‘‘pro-taxpayer’’ position in our annual Rating of Congress. 

And again, on behalf of our 362,000 members, NTU is pleased to offer our 

thoughts to the Subcommittee as you move forward with this important measure. 

Ms. SA ́ NCHEZ. Thank you Ms. Rasmussen, is that correct? By the 

end of this hearing I promise you I will have that down. 

Mr. Quam. 

TESTIMONY OF DAVID C. QUAM, DIRECTOR OF FEDERAL 

RELATIONS, NATIONAL GOVERNORS ASSOCIATION 

Mr. QUAM. Chairwoman Sa ́nchez, Representative Cannon, and 

Members of the Subcommittee. Thank you for inviting NGA, National Governors Association, to testify here again. It seems like I 

was here just a few months ago. Since I think we all have maybe 

Valentines reservations we have to get to, I will be brief. 

NGA opposes H.R. 3679 because decisions about State and local 

taxes must be made by State and local elected officials, not the 

Federal Government. It is a common refrain I have had before this 

Committee on several issues. Today I am also joined in opposition 

to this particular bill by the National Association of Counties, the 

U.S. Conference of Mayors and the National League of Cities. I 

should note that I believe it was 2 years ago I was before this Committee, and we were having a general discussion on communications taxes and what needed to be done to reform them. There was 

a lot of recognition that the silos that we currently have with regard to communications, and I would say video services as well, do 

not necessarily serve us in the current climate that we face, both 

from a competitive standpoint, a regulatory standpoint and a tax 

standpoint. We discussed the need for possibly technology neutrality, competitive neutrality and also finding solutions that are 

revenue neutral for State and local government. From those basic 

principles, the NGA had hosted several industry meetings trying 

find some solutions that could work at the State and local level to 

address those concerns. 

One thing that became very clear, and it is one thing that I think 

we face with this particular bill, is that, from an industry standpoint, industry stakeholders either want to preserve any advantage 

they currently have or disadvantage their competitor if they can. 

The bill today, unfortunately, I think mirrors more of those concerns rather than finding technology neutrality, competitive neutrality and revenue neutrality for States. 

What I would argue is that several States have actually taken 

the steps since that hearing to try to find a more competitive 

framework, to try to bring the taxation or the treatment of two different types of video services into a single solution at the State 

level that works for both State and local government. This bill unfortunately would undo some of those solutions. Because we have 

a system whereby cable traditionally has been subject to franchise 

43 

fees and satellite services have not—as a matter of fact, it is the 

Federal Government who said local governments cannot tax DBS 

service—we have a natural unbalance that was caused really under 

Federal law. When you have apples and oranges, it becomes very 

difficult to reconcile those in some single one-size-fits-all. Leaving 

the solutions to State and local government and allowing State and 

local government to create parity is the solution to moving this forward and to finding a way to either get out from under a traditional silo approach or to move forward with something that is 

more streamline and ultimately can encompass all communications 

technologies, both on the video side and ultimately communications. Because I think that is where States and localities will have 

to go, I believe that is where they have started to go. 

Unfortunately, the bill before us, because it is unclear, because 

some of its definitions are not well-founded, ultimately what it 

would do is increase litigation; it would actually discourage State 

efforts to create tax parity; and together with existing Federal prohibitions, it would further entrenchestablished disparities between 

multichannel video providers. At the end of the day, Governors and 

State legislators, when you are talking about State taxes, need to 

make the decisions and find the solutions. You don’t need another 

Federal restriction that would actually hamper those efforts at the 

State level. I think that is what this bill does, and that is why you 

see opposition from NGA and several of the local and national 

groups. Thank you. 

[The prepared statement of Mr. Quam follows:] 

PREPARED STATEMENT OF DAVID C. QUAM

Chairwoman Sa ́nchez, Ranking Member Cannon, and members of the Subcommittee, thank you for inviting the National Governors Association (NGA) to testify today. 

My name is David Quam, and I am the Director of Federal Relations for NGA. 

I am pleased to be here on behalf of the nation’s governors to discuss the organization’s perspective on H.R. 3679, the ‘‘State Video Tax Fairness Act of 2007.’’ 

NGA opposes H.R. 3679 because decisions about state and local taxes must be 

made by state and local elected officials—not the federal government. The ability 

of states to structure their revenue systems is a core element of sovereignty that 

must be respected. If H.R. 3679 were to become law, it would effectively remove the 

authority of states to craft common-sense solutions that modernize existing state 

and local tax systems. If Congress is truly interested in encouraging states to reform 

taxes on multichannel video services, it should remove federal barriers to reform 

rather than imposing new restrictions. 

Although the U.S. Constitution grants Congress broad authority to regulate interstate commerce, the federal government, historically, has been reluctant to interfere 

with states’ ability to raise and regulate their own revenues. State tax sovereignty 

is a basic tenet of our federalist system and is fundamental to the inherent political 

independence and viability of states. For this reason governors generally oppose any 

federal legislation that would interfere with states’ sovereign ability to craft and 

manage their own revenue systems. 

The problem H.R. 3679 purportedly seeks to address—inequality in the taxation 

of multichannel video services—stems from the long-standing tax treatment of cable 

television and satellite services. Historically, cable services have been required to 

obtain franchises from local governments to operate and provide multichannel video 

services in specific areas. Franchise fees, which cover the costs of using local rightsof-way and provide compensation for the franchise, are capped by the federal government at 5 percent of gross receipts. Revenues from franchise agreements typically flow into the general funds of local governments and support a wide range of 

government operations and services. 

In contrast, federal law prohibits local governments from imposing taxes or fees 

on multichannel video services delivered by direct broadcast satellite (DBS) providers. Federal law does, however, allow states to tax such services and distribute 

44 

a portion of the proceeds to local governments. This prohibition on local government 

taxation was enacted as part of several 1996 telecommunications reforms to spur 

growth of DBS services and increase competition for incumbent cable service providers. Today DirecTV and Echostar, the two predominate providers of DBS services, serve more than 30 million subscribers and earn $25 billion in annual revenue. 

The differing federal treatment of cable and satellite services has resulted in a 

variety of state and local tax scenarios: 47 states authorize local governments to impose franchise fees on cable services; 29 states tax DBS services; 24 states impose 

a sales tax on video services provided by cable companies; and 18 states allow local 

governments to impose sales taxes on cable video services. 

Recently, several states worked within the framework of existing federal restrictions to modernize their tax systems and create parity in the tax treatment of multichannel video providers. Specifically, some states have used their authority to impose taxes on satellite services to craft a new tax on both DBS and cable services. 

The tax replaces traditional local franchise fees in return for the states redistributing a portion of the taxes to local governments to compensate for lost local revenues. This is the case in North Carolina where in 2006 the state legislature replaced 

the authority of local governments to charge franchise taxes on cable service providers with a 7 percent state sales tax on gross receipts of both cable and DBS providers. The state uses a portion of the proceeds to compensate local governments 

that formerly collected franchise fees and provides revenues on a formula basis to 

non-franchise localities. 

Alternatively, some states have chosen to retain the local franchise system, while 

imposing a new tax on all multichannel video providers. To help equalize the payments of satellite and cable providers, the state allows a cable provider to credit a 

portion of the franchise fees it pays against the state tax. This is the system in 

Utah, where the state imposes a 6.25 percent sales tax on all multichannel video 

services, but allows cable providers to credit 50 percent of its franchise fees against 

the tax. These different approaches to taxing multichannel video services reflect the 

fiscal and political realities of individual states and their local governments and 

have withstood constitutional challenges in both state and federal court. (See 

DirecTV, inc, et al. v. Treesh, No. 3:05–CV–00024 (2007), and DirecTV, inc, et al. 

v. Treesh, No. 05–CI–01623 (2007); and DirecTV, Inc. v. Tolson, No. 07–1250 (4th 

Cir., Jan. 10, 2008)). 

H.R. 3697 would disrupt state efforts to streamline and modernize their tax systems by imposing yet another restriction on the authority of states to develop and 

manage their own systems of taxation. H.R. 3697 would prohibit a state from imposing a discriminatory tax on any provider multichannel video service regardless of 

the technology used to provide the service. The bill defines a discriminatory tax as, 

‘‘any form of direct or indirect tax that results in different net State charges being 

imposed on substantially equivalent multichannel video programming services.’’ The 

terms ‘‘net State charge’’ and ‘‘substantially equivalent’’ are not defined. It is unclear how the net charge would be calculated or what type of taxes and charges it 

would include. This uncertainty would generate increased litigation, discourage 

state efforts to create tax parity, and together with the existing federal prohibition 

on local taxation of satellite services, further entrench established tax disparities between multichannel video providers. 

CONCLUSION: 

Governors remain steadfast in their insistence that decisions regarding state and 

local taxation should remain with state and local officials. The independent and sovereign authority of states to develop their own revenue systems is a basic tenet of 

self government and our federal system. Governors also support and promote competition and encourage the development of tax and regulatory frameworks that are 

technology neutral, level the playing field for all competitors and provide necessary 

revenues to promote the public interest and support government services. Governors 

oppose H.R. 3697 because it unnecessarily interferes with state and local efforts to 

craft reasonable and constitutional tax systems that reflect market realities and 

serve the interests of state and local governments and consumers. 

Ms. SA ́ NCHEZ. I want to thank the panel for their testimony and 

for their patience with respect to our voting schedule. We will now 

begin our round of questioning. And I will begin by recognizing myself first for 5 minutes. 

45 

Mr. Palkovic, how do you respond to Mr. Quam’s assertions that 

H.R. 3679 would remove the authority of States to modernize existing State and local tax systems? 

Mr. PALKOVIC. It is our view that that is not the case. It is not 

what we are asking them to do. What we are asking them to do, 

whether it is modernizing the tax system or whether it is entertaining any tax of any kind, to simply not discriminate against satellite. This is simply a bill that we support because it eliminates 

their right to take into their own hands and apply their judgment 

on interpreting what Congress intended to do. So if they do it in 

a fair basis and a nondiscriminatory basis, we have got no argument with them. 

Ms. SA ́ NCHEZ. Okay. 

Mr. Symons, a Fifth Circuit decision in 1977 held that a franchise fee is not a tax but in fact a form of rent. Other courts and 

even Congress have agreed, if that is true, then franchise fees 

should be considered simply a cost of conducting business and 

therefore not related to tax. Why should we or States consider 

taxes and fees when determining parity in the tax treatment of 

video programming providers? 

Mr. SYMONS. Well, Madam Chairwoman, in fact, franchise fees 

really are much more closely akin to a tax than to a fee for a particular benefit. They go into general revenues, and cities use them 

for whatever they want to use them for. They are called franchise 

fees. That is what the Cable Act calls them, but in fact, they bear 

no relationship to the cost of rights-of-way or rent. They are simply 

a fee for doing business, which really amounts to the same thing 

as a tax. And we think that it is completely fair and in fact just 

for the States to take those into account in determining the total 

taxes and fees that cable operators have to pay. In fact, they are 

wholly unrelated to being a regulated cable operator. If you are a 

deregulated cable operator, you still pay a franchise fee. There is 

simply another way for a city to collect money from an entity doing 

business in a town, and we believe that for these purposes are appropriately treated as a tax. And this is an issue that was presented to the courts in this particular context, putting aside the 

Fifth Circuit case. And in each case, five, four or five Federal 

Courts disagreed with the DBS industry’s characterization of these 

as fees that shouldn’t be counted and found that they should be 

counted as taxes as part of the overall burden that cable operators 

pay within a State. 

Ms. SA ́ NCHEZ. Thank you. 

Ms. Rasmussen, am I getting there, am I getting close? 

Ms. RASMUSSEN. Rasmussen. 

Ms. SA ́ NCHEZ. Can I just call you Ms. R? 

Ms. RASMUSSEN. That would be fine. 

Ms. SA ́ NCHEZ. I think that would eliminate a lot of trouble on my 

part. 

You represent a grassroots organization of taxpayers and therefore have the interest of consumers in mind. And you indicated in 

your written testimony that H.R. 3679 provides a logical starting 

place for reconciling some of the tax burdens placed on taxpayers. 

How would you improve this legislation to minimize or at least 

equalize the burden on all cable and satellite providers? 

46 

Ms. RASMUSSEN. Well, as I indicated in my oral remarks, I definitely think it could benefit from the conclusion that this is not 

meant to equalize upwards. We don’t want taxpayers to have to 

suffer the misery of equally harsh taxes. We are trying to keep 

their burdens as low as possible. 

Ms. SA ́ NCHEZ. Okay. Thank you. 

And Mr. Quam, welcome back to our humble little Subcommittee. 

Do you think that franchise fees should be considered a form of tax 

instead of a license to conduct business or rents for right-of-ways. 

Mr. QUAM. Franchise fees, really, I think the discussion before 

sort of points out, they are somewhat of a hybrid really. You have 

got the courts saying that they should be treated more like a tax 

and actually look like a tax in the way they are collected; they are 

based on gross revenues, or gross receipts, and go into general 

funds, especially of local governments, much more akin to a tax. At 

the same time, there is a strong argument to say that this is for 

rent, rent of the use of the public right-of-way. And so I don’t think 

really you can characterize them as one or another. 

However, one thing is true, and that is, ultimately the decision 

as to how franchise fees, franchises in particular, are handled, really again it has to be done—it has been done at the local level because it was with regard to local rights-of-way. Right now you are 

seeing many more States take up the mantle and do it on a statewide basis. I think it is critical that in this time of transition, both 

on a technology standpoint and a competitive standpoint, that decision has got to remain with the State and local government. 

Ms. SA ́ NCHEZ. Even when adding taxes and fees in some States, 

such as Ohio, still imposes a higher burden on satellite providers. 

Can you explain the rationale for that disparity? 

Mr. QUAM. I think you would have to ask the Ohio State legislature for where they came up. But ultimately the decision rests with 

the elected officials. And much as the debate we had before, if they 

make the wrong decision, that is what votes and elections are for. 

But ultimately those decisions on taxation and tax systems at the 

State level need to be made with the State. 

Ms. SA ́ NCHEZ. Thank you. And I thank you all. 

At this time, I would recognize the distinguished Ranking Member, Mr. Cannon, for questions. 

Mr. CANNON. Madam Chair, I would just as soon pass and come 

back and do my questions last if that is okay with you. But I 

thought I would make a comment first. I think I am the first Cannon in my family that married a Dane, and so the name Rasmussen comes easily to me. I am happy to help you out with that. 

She is in fact a Rasmussen a generation or two back. Thank you. 

Ms. SA ́ NCHEZ. I think that is the only name in the history of this 

Subcommittee which has truly stumped me. I usually get it by the 

end of the—— 

Mr. CANNON. It is a culture that ought to be separated from the 

rest of us, except through their Viking ships that invaded my—— 

Ms. RASMUSSEN. I will be sure to tell my Danish husband all of 

this tonight. 

Ms. SA ́ NCHEZ. Okay, so Mr. Cannon will pass until later. I would 

invite the Chairman of the full Committee and distinguished Member of the Subcommittee, Mr. Conyers, for 5 minutes. 

47 

Mr. CONYERS. Well, I was here to celebrate the Ranking Member 

and I being back on the same track, and now he’s backing out on 

me. 

Mr. CANNON. I was just going to make sure that everything 

works out fine. In fact, if you are going to take the last question, 

I will go now and you can wrap up. 

Mr. CONYERS. Well, actually, there is another Subcommittee. 

And since you and I are all on board, and we even have Trent 

Franks, I am feeling pretty good about this. 

The one we don’t know about is the Chairperson herself. I mean, 

she’s been holding her cards pretty close here. 

Ms. SA ́ NCHEZ. I am waiting for a full and fair hearing on the 

matter before I determine which position to take. 

Mr. CONYERS. Oh, gosh. This is wonderful. But I will put my 

statement in the record. 

Ms. SA ́ NCHEZ. Without objection. 

[The prepared statement of Mr. Conyers follows:] 

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, CHAIRMAN, COMMITTEE ON THE JUDI- CIARY, AND MEMBER, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

Some economists suggest that our Nation may be on the verge of a recession in 

light of tightening credit in the financial marketplace, the growing mortgage foreclosure crisis, and the uncertain employment sector, among other concerns. 

In this climate of economic insecurity, American families are increasingly forced 

to pay even more attention to how they spend their money. Sadly, these decisions 

sometimes must be made based on the difference of only a few cents or dollars. 

For example, many households that pay for television programming service can 

choose to receive very similar services from cable or satellite providers. In certain 

states, however, consumers who receive television programming from satellite providers pay more in taxes than subscribers of cable television. 

Discriminatory taxes imposed on one type of service provider not only increases 

the cost to the consumer, but undermines the benefits of competition. Less competition usually means higher prices for all consumers. 

To address this imbalance with respect to the imposition of these taxes, I introduced—along with my colleagues from Utah (Representative Chris Cannon) and Arizona (Trent Franks)—H.R. 3679, the ‘‘State Video Tax Fairness Act of 2007.’’ 

This bipartisan legislation accomplishes three critical goals. First, it will allow 

consumers to benefit from the lower prices that will result when a state imposes 

a fair and nondiscriminatory tax on all providers. 

Second, it will reinvigorate competition in the paid television programming industry by ensuring a level playing field for all providers. 

Third, it will preserve a state’s ability to raise revenue. Although taxes constitute 

a significant state and local revenue source, they should be imposed evenly within 

an industry. 

This legislation is supported by various consumer rights groups, including the 

Consumers Union and the Media Access Project as well as the National Taxpayers 

Union, which is represented at our hearing today. 

Discriminatory taxation among similarly situated providers in an industry creates 

an economically unbalanced marketplace of winners and losers that is based on who 

receives the most favorable tax treatment, rather than who provides the best value 

to consumers. 

H.R. 3679 addresses this imbalance in imposed state taxes so that consumers will 

be the winners. 

Accordingly, I look very much look forward to hearing from the witnesses today. 

Mr. CONYERS. And I am going to ask for a debriefing from the 

rest of our staff when I get back. 

But I am happy about the fact that we’re keeping our word. We 

said when we’d introduce the legislation we would hold a hearing. 

And this looks like a very representative group of witnesses you’ve 

brought forward, Madam Chair. Thank you very much. 

48 

Ms. SA ́ NCHEZ. Thank you, Mr. Chairman. We strive to be fair on 

this Committee. 

My distinguished colleague from Florida—the State eluded me 

for a moment—Mr. Keller, you are recognized for 5 minutes of 

questions. 

Mr. KELLER. Thank you, Madam Chairwoman. 

Mr. Quam, you said that you’d be brief because of your Valentine’s Day reservations. That really hurt my feelings. The fact that 

you would rather be at a romantic dinner with your wife instead 

of discussing comparative tax policy with a bunch of middle-aged 

politicians is just shocking. 

Ms. SA ́ NCHEZ. Hey, hey, hey, middle-aged, that’s quite a stretch. 

Mr. KELLER. All right. 

Mr. CANNON. Madam Chair, he has averaged the two of us. 

Mr. KELLER. Mr. Palkovic, let me start with you, tell you what 

my concerns are. Just to simplify the issue a bit, you look at Florida. The cable TV service is taxed at 6.8 percent, and satellite is 

at 10.8 percent. And it’s your position, essentially, that that is an 

unfair discriminatory tax, because they pay substantially more, 

correct? 

Mr. PALKOVIC. That’s correct. 

Mr. KELLER. Mr. Symons, your view is that it’s really not fair because the cable companies, unlike the satellite companies, also 

have to bear the burden of paying the local franchise fee, is that 

correct? 

Mr. SYMONS. That’s correct. 

Mr. KELLER. And Mr. Palkovic says, yeah, but that’s for right of 

way and other issues that you guys don’t have to buy, whereas you 

guys have to go through the big expense of purchasing and maintaining satellites, correct? 

Mr. PALKOVIC. That’s correct. 

Mr. KELLER. All right. Now, with that as background, my concern, Mr. Palkovic, if we pass this legislation—and it sounds good 

on the face—is that instead of cable paying 6.8 and satellite paying 

10.8 in my State, I would be worried about the State legislature 

saying, ‘‘Okay, you want it fair? Then we will then turn around and 

increase the cable service tax rate up to 10.8 as well.’’ And that 

would cause me grief, because I don’t want taxes to go up on anyone. 

How would you alleviate that concern? 

Mr. PALKOVIC. Well, we don’t want that either. We’re not here 

saying that we’re in favor of higher taxes for consumers. There are 

other ways that you could resolve the issue in Florida. You could 

average the tax. You could lower the 10.8 to 6.8. You know, you 

could do a number of things that would not affect the consumer. 

And if it is a revenue issue for the State, you could align them both 

at 8.8 percent. And we would live with whatever it is, as long as 

it’s fair. 

Mr. KELLER. So if we amended this language to essentially make 

sure that type of scenario didn’t happen, that there was equalization but not through mandatory tax increases, is that something 

you could live with? 

Mr. PALKOVIC. Yes, we would live with that. We just want it to 

be fair. 

49 

Mr. KELLER. Mr. Symons, same question. Would you be concerned, if we passed this legislation, that instead of in Florida paying cable 6.8 and satellite 10.8, the response from the legislature 

was just an increase to make you guys now pay 10.8 on top of the 

local fees? 

Mr. SYMONS. Well, we would certainly object to that. The—— 

Mr. KELLER. I mean, I know you’d object to that, but is that one 

of your concerns? 

Mr. SYMONS. Sure, if this bill passed, it would require—or, it 

would require all equalization to be equalization up. 

Mr. KELLER. Okay. 

Mr. SYMONS. And if you would indulge me for a second. In Florida, in fact there are two taxes imposed on cable, and the taxes are 

in fact equal. There is a pending challenge right now in the Florida 

courts to the tax scheme that the Attorney General down there, a 

former Member of this Committee, is defending against these very 

kinds of claims, I think very compellingly, I might add. 

Mr. KELLER. Well, the 10.8 stat that I’m giving you versus 6.8, 

that’s Congressional Research Service, so I’m just going to use that 

for now for the sake of argument. 

Let me ask you a question, though, since I have you here. One 

the major points in your testimony is that Congress shouldn’t interfere with the State’s power to tax here. But isn’t it true, in the interest of straight talk, that cable companies have supported legislation before this Committee that prevent States from enacting discriminatory taxes, such as the Internet Tax Freedom Act? 

Mr. SYMONS. Absolutely, Mr. Keller. We strongly supported the 

Internet Tax Freedom Act. And we believe that, when you are talking about the Internet and maintaining the competitiveness of that 

very important medium, the action of this Committee and Congress 

is very appropriate. By contrast, passing a tax break for the DBS 

industry doesn’t rise to the level of justifying preemption. 

Mr. KELLER. Okay. 

Ms. Rasmussen, I saw that you spent some time working for a 

Florida congresswoman there. You, as someone who is known to be 

a champion of taxpayers, your organization, I know you want low 

taxes for everybody. Are you concerned at all that in a State like 

Florida that the response of the legislature may be just to increase 

taxes on the cable companies versus lowering the satellite taxes? 

And if so, what are your thoughts about how we deal with that? 

Mr. RASMUSSEN. That’s absolutely a concern of ours. And you can 

be guaranteed that, were that situation were to be suggested, we 

would be on the ground with our many, many thousands of Florida 

members, fighting such an increase. But as it stands right now, the 

status quo isn’t acceptable to taxpayers either. 

Ms. SA ́ NCHEZ. The time of the gentlemanhas expired. 

Mr. KELLER. Thank you. I yield back. 

Ms. SA ́ NCHEZ. Thank you. 

I would now like to recognize Mr. Johnson for 5 minutes of questions. 

Mr. JOHNSON. Thank you, Madam Chair. 

The satellite TV industry feels that it is being discriminated 

against by States that would tax satellite service as those States 

50 

tax cable TV service, either through franchise fees or through other 

fees or taxes, whatever you would call them. 

What I want to ask is, does the satellite TV industry consider 

franchise fees to be in the nature of taxes? Of course it’s been described as a hybrid, but isn’t it a fee that’s in the nature of a tax? 

Mr. PALKOVIC. No, we do not agree with that. We think it’s fundamentally an operating cost that is required to negotiate a franchise agreement to get the right to provide service. There’s a number of things in any of the franchise agreements that the cable operators signed. They have a number of obligations that they step 

up to in order to get the right to be the—if not the legal exclusive 

provider, the de facto exclusive provider of cable in these communities. And that’s a cost they have been paying for decades. Literally decades they’ve been paying franchise fees and agreeing to 

that every time they renew these agreements. 

Mr. JOHNSON. And the States and localities to which they pay 

those franchise fees, the money goes into the general fund or for 

some other public purpose; is that correct? 

Mr. PALKOVIC. I believe that statement is correct. Our view 

is—— 

Mr. JOHNSON. And so those services for the people are paid for 

through taxes, fees, whatever you call them, but it is a stream of 

income to the State and/or local governments? 

Mr. PALKOVIC. Typically it is the local. 

Mr. JOHNSON. And there are some States that, I suppose, States 

and localities, that do not levy a tax in addition to the franchise 

fee.Would that be accurate? 

Mr. PALKOVIC. That’s correct. 

Mr. JOHNSON. And in those cases, would it not be fair to conclude 

that satellite TV would have a competitive pricing advantage over 

cable TV providers, because they don’t have to pay any fees to the 

State for a public purpose? 

Mr. PALKOVIC. Well, we have our own set of operating costs that 

are different in terms of the way we deliver the signal. The cable 

industry doesn’t have to put billions of dollars of satellites up and 

pay fees to the FCC to secure satellite spectrum to operate those 

satellites. 

Mr. JOHNSON. And, of course, there is no benefit to the State and 

local governments from the standpoint of fees or taxes that would 

be levied on the satellite TV provider if there is not the same fees 

being levied or the same tax being levied on the cable providers. 

Mr. PALKOVIC. Well, our issue today that we’re talking about is 

not about various taxes that are applied at the local level. We’re 

talking about—— 

Mr. JOHNSON. Well, I know, but I’m just trying to get to the— 

I guess what I’ll say is this. States and local governments benefit 

from the cable TV fees, franchise fees that are paid. And some 

States and localities also benefit from taxes that are paid. But 

when you have a situation where cable TV franchise fees are being 

paid, no taxes are being paid by the cable TV providers, it puts the 

satellite industry in a superior competitive position, but it leaves 

the taxpayers without the benefit of the services that they would 

get from the fees generated by the provider. 

51 

Mr. PALKOVIC. Yes, that’s correct. I think that’s what Congress 

intended when they wrote the law the way they did. 

Mr. JOHNSON. And so now we’re faced with a situation where the 

satellite industry is asking Congress to prevent States from imposing discriminatory taxes, or, in other words, taxing the satellite TV 

but not taxing cable TV to the same extent, with no offset for franchise fees. 

Mr. PALKOVIC. That’s correct. We believe that’s unfair. 

Mr. JOHNSON. And isn’t it unfair to the taxpayer that—isn’t it 

unfair to the taxpayer that the cable franchise fees would subsidize 

the general fund in such a way that the satellite TV does not? 

Mr. PALKOVIC. Well, you’re describing what the local communities decide to do with the money that they charge. Our view is 

that—— 

Mr. JOHNSON. Well, they would actually have no money to decide 

how to allocate if—— 

Mr. PALKOVIC. They negotiated a fee in exchange for allowing a 

cable operator the rights to provide cable service to that community. It was a negotiated agreement between the cable operator and 

the local community. 

Ms. SA ́ NCHEZ. The time of the gentleman has expired. 

I would now like to recognize Mr. Cannon, batting clean-up for 

the Subcommittee in the area of questioning. You’re recognized for 

5 minutes. 

Mr. CANNON. You know, one of the really nice things about many 

of the hearings we had this year, including this one, is that we’ve 

had great witnesses that have different viewpoints and have expressed them all pretty well. 

Is there any point that any of you feel like you need to make 

still? Because I think it has been a pretty darn good hearing and 

a very clarifying hearing. 

I am not seeing any looks or hands on the table, so I would yield 

back my time, Madam Chair. 

Ms. SA ́ NCHEZ. That’s a first. 

Mr. CANNON. Actually, in defense, it’s not a first. But this is a 

great panel. 

Ms. SA ́ NCHEZ. It feels like a first. 

I think we have had tremendous testimony from the witnesses. 

And, again, I want to thank you all for your patience, in particular 

with the delays, given the votes that we had across the street. 

Without objection, Members will have 5 legislative days to submit any additional written questions, which we will forward to the 

witnesses and ask that you answer as promptly as you can, so 

they, too, can be made a part of the record. 

And, without objection, the record will remain open for 5 legislative days for the submission of any other additional materials. 

Again, I thank everybody for their time and their participation. 

And this hearing of the Subcommittee on Commercial and Administrative Law is adjourned. 

[Whereupon, at 4:45 p.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

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LETTER FROM GARY SHAPIRO, PRESIDENT AND CEO, 

THE CONSUMER ELECTRONICS ASSOCIATION (CEA) 

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LETTER FROM ANDREW JAY SCHWARTZMAN, PRESIDENT AND CEO, 

MEDIA ACCESS PROJECT

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LETTER FROM PETE SEPP, VICE PRESIDENT FOR COMMUNICATIONS, 

THE NATIONAL TAXPAYERS UNION (NTU) 

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LETTER FROM GIGI B. SOHN, PRESIDENT, PUBLIC KNOWLEDGE

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1The ‘‘fee’’ rationale is weakened as states and localities allow other video service providers 

(e.g., telecommunications companies) to provide video services via fiber optic cable they have in 

place, making the franchise fee even more like a tax. 

PREPARED STATEMENT OF THE FEDERATION OF TAX ADMINISTRATORS (FTA) 

The Federation of Tax Administrators (FTA) is an association of the tax administration agencies in each of the 50 states, the District of Columbia, Puerto Rico, and 

New York City. We are pleased to have the opportunity to present our views on legislation that would authorize states to require certain remote sellers to collect state 

and local sales taxes on goods and services sold into a state. 

FTA opposes The State Video Tax Fairness Act of 2007 (H.R. 3679) as an unwarranted intrusion into state sovereignty. The bill would: 

• Result in significant litigation, 

• Reverse state action upheld by state and Federal appellate courts to reach 

parity in the tax treatment of cable and video service providers, 

• Freeze into place and exacerbate the preferential tax treatment that satellite 

video service providers currently have over cable video service providers. 

BACKGROUND. 

Cable Video Service Taxes. Twenty-four states impose a sales tax on video services 

provided by cable companies. Local governments in 18 states impose sales taxes on 

cable video services. In addition, 47 states authorize local governments to impose 

a franchise fees on cable services. Such fees are capped at 5 percent of gross revenues by federal law. Franchise fees are intended, in part, to capture the costs of 

using the public rights of way by the cable companies and to provide compensation 

for the franchise granted to the cable company.1 From an economic standpoint, franchise fees operate like a tax in that they are based (in most cases) on gross receipts 

from sales of cable services and are assumed to be shifted forward to the consumer. 

Satellite Video Service Taxes. Federal law (P.L. 104–104, Title VI, § 602, Feb. 8, 

1996) prohibits the imposition of local taxes and fees (i.e., sales taxes and franchise 

fees) on direct broadcast satellite services, but it preserves the ability of states to 

tax such services and distribute a portion of the proceeds of the taxes to local governments. Twenty-seven states impose a sales tax on satellite video service providers. Some states rebate a portion of the state sales tax to local governments. One 

state, Ohio places a sales tax on satellite companies that is higher than the regular 

state sales tax and pays over the extra amount to local governments. 

Legislative Analysis. The State Video Tax Fairness Act of 2007 (H.R. 3679) prohibits a ‘‘discriminatory tax,’’ which is defined as any direct or indirect tax that ‘‘results in different net State charges’’ on substantially equivalent video services based 

on the means by which those services are delivered. The term ‘‘net State charges’’ 

has no meaning in state tax law, which will undoubtedly lead to litigation. 

H.R 3679 seeks to prohibit the two different approaches that several states have 

used to provide parity of tax treatment between cable and satellite service providers. 

The prohibition of these approaches would eliminate the steps taken to provide parity and freeze into place the preferential tax treatment of satellite service providers. 

The two approaches addressed in the legislation are: 

(1) Some states have used the authority granted in a602 to levy a state sales 

or excise tax on satellite services that is roughly equivalent to the combined 

state and local sales or excise tax on cable television services and have redistributed a portion of the state tax back to localities. 

(2) Some states have considered a portion of the franchise fee levied against 

cable service providers to be a tax and allowed a portion of the franchise 

tax to be taken as a credit against the state sales tax in an effort to bring 

the rate of combined taxes and franchise fees on cable services into closer 

alignment with the tax on satellite services. 

Judicial History. There have been several state and Federal judicial decisions 

that have ruled the various aspects of laws regulating the taxation of cable and satellite video service providers. All Federal and state appellate decisions have upheld 

the approaches taken by the states to the taxation of cable and satellite video service providers. H.R. 3679 would reverse the appellate decisions. The following is a 

summary of the various judicial decisions[F1]. 

59 

2 North Carolina has since revised its tax laws to prohibit local taxation of both cable and satellite TV and substituted a state level sales tax in its place. 3State law in Kentucky has been amended to subject both satellite and cable services to the 

same system of state taxation. 

FEDERAL APPELLATE DECISIONS

In DirecTV Inc. and Echostar Satellite, L.L.C. v. State of North Carolina, 632 

S.E.2d 543 (N.C. Ct. App., 8/1/06) two satellite companies contended that North 

Carolina’s sales tax on satellite providers discriminated against interstate commerce 

in violation of the Commerce Clause, by favoring the cable companies against which 

they compete. The sales tax was not applicable to cable service, although cable companies had to pay a local franchise tax that did not apply to satellite companies. 

The satellite companies contended that they use satellites, which they characterized 

as ‘‘out-of-state facilities,’’ to deliver their programming, while cable companies use 

‘‘in-state facilities,’’ their transmission facilities and cable infrastructure, to deliver 

their programming. The appellate court ruled that the tax did not discriminate 

against satellite providers. The court determined that whether a company is subject 

to the tax ‘‘depends only upon how companies deliver television programming services to its subscribers, and not whether delivery of the programming services occurs 

inside or outside the state of North Carolina.2

In DirecTV, Inc. and Echostar Satellite, L.L.C. v. Tolson, No. 07–1250 (4th Cir., 

1/10/08) the Fourth Circuit Court of Appeals has upheld the dismissal of a case that 

rejected claims by satellite companies that the elimination of a franchise fee by the 

State of North Carolina violated the Commerce and Supremacy Clauses of the U.S. 

Constitution. Previously the Court of Appeals of North Carolina rejected claims that 

a five-percent state sales tax on satellite subscriber service violated the federal and 

state constitutions. Two satellite companies had claimed that North Carolina’s sales 

tax on satellite providers discriminated against interstate commerce in violation of 

the Commerce Clause, by favoring the cable companies against which they compete. 

The tax was not applicable to cable service, although cable companies had to pay 

a five-percent local franchise fee that did not apply to satellite companies. 

STATE APPELLATE DECISION

In Treesh v. DirecTV, Inc.n et al., No. 2006-CA-001983-MR (Ky. Ct. App., 9/7/07) 

the Kentucky Court of Appeals ruled the Federal Communications Act does not prevent the imposition of a school district utilities gross receipts license tax can be imposed on a satellite company. The Court determined that the Act contemplated the 

Kentucky tax structure. The Act exempts satellite video services from local taxes 

but does not prevent a state from taxing such services. The Act allows local governments to receive revenues from the state tax. The state required school districts to 

impose the tax unless the district opted out. The tax was paid to the state and the 

state distributed the revenues.3

STATE TRIAL COURT DECISION

In Ohio Judge Daniel Hogan of the Franklin County Court of Common Pleas in 

Columbus ruled Nov. 7 that the state’s four-year-old 5% sales tax on satellite television is unconstitutional for it does not apply to cable. The ruling was not unexpected; in October 2005 the judge issued a summary judgment on some of the issues 

in the case, finding before trial that there were enough facts to invalidate the tax. 

Ohio’s Department of Taxation has indicated it will appeal the judge’s decision, and 

ask the court to allow the tax to be collected as the appeal is pending. 

Conclusion. To a considerable degree, the state efforts at which H.R. 3679 addresses were intended to promote a greater degree of parity between the total taxation (including franchise fees) of cable services vs. satellite video service providers. 

FTA believes such decisions should be within the authority of states and localities 

as long as constitutional standards of non-discrimination are not violated. By dealing only with state level taxation, H.R. 3679 could prohibit the methods of achieving 

parity between state and local taxes on satellite and cable video service providers 

and lead to a higher local and state tax burden on cable companies than satellite 

companies. 

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LETTER FROM MARK C. ELLISON, SENIOR VICE PRESIDENT, BUSINESS AFFAIRS & GENERAL COUNSEL, THE NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE

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