Court Opinion

ID: 1075818
Source: CourtListenerOpinion
Date Created: 2013-10-09 20:16:29.561617+00
Date Added: 2024-06-11T12:06:42.230174
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                                  AT NASHVILLE

                                                               FILED
HBO DIRECT, INC.,                     )
                                      )                          July 1, 1999
       Plaintiff/Appellee,            )      Davidson Chancery No. 97-1688-I
                                      )                       Cecil Crowson, Jr.
v.                                    )                     Appellate Court Clerk
                                      )      Appeal No. 01A01-9804-CH-00221
RUTH E. JOHNSON, Commissioner of      )
Revenue, State of Tennessee,          )
                                      )
       Defendant/Appellant.           )

           APPEAL FROM THE CHANCERY COURT OF DAVIDSON COUNTY
                         AT NASHVILLE, TENNESSEE

                 THE HONORABLE IRVIN H. KILCREASE, CHANCELLOR

For the Plaintiff/Appellee:           For the Defendant/Appellant:

Charles A. Trost                      John Knox Walkup
Michael G. Stewart                    Steven D. Thomas
Nashville, Tennessee                  Nashville, Tennessee

Bernard Nash
Leslie R. Cohen
Laura B. Feigin
Appearing Pro Hac Vice
Washington, D.C.

                                      AFFIRMED

                                      HOLLY KIRBY LILLARD, J.

CONCURS:

BEN H. CANTRELL, J.

WILLIAM C. KOCH, JR., J.
                                             OPINION

       This case involves a contest of Tennessee sales and use tax assessed by the defendant

Tennessee Commissioner of Revenue. The plaintiff satellite programming television company

argues that its services are not taxable telecommunications because, as “broadcast[s] . . . for public

consumption,” the satellite television services are excluded from the definition of taxable

telecommunications. The trial court granted summary judgment in favor of the plaintiff satellite

programming television company. The defendant Commissioner appeals. We affirm.

       Plaintiff/Appellee HBO Direct, Inc. (HBO) provides direct-to-home television service to

subscribers’ homes through satellite technology. Its television programming services are transmitted

by satellite to individual satellite dishes located at subscribers’ residences. Subscribers make

periodic payments for HBO’s services and must have a satellite dish to receive the services.

Nonsubscribers are prevented from receiving the services.

       In 1997, the Defendant/Appellant Tennessee Commissioner of Revenue (Commissioner)

audited HBO and issued a notice of assessment for sales and use tax for the period from August 1994

to November 1996. The notice of assessment was adjusted on July 25, 1997 for a total tax of

$639,849. In addition, HBO was fined a penalty of $159,965 and interest of $88,555. The total

deficiency therefore was $888,369.

       The Commissioner assessed the taxes, penalty and interest pursuant to the Retailers’ Sales

Tax Act, which taxes, among other things, “telecommunications.” See Tenn. Code Ann. §§ 67-6-

101 to 67-6-713 (1998). Tennessee Code Annotated § 67-6-102(30) defines “telecommunications”:

       (A)    “Telecommunication” means communication by electric or electronic
       transmission of impulses;

       (B)     “Telecommunications” includes transmission by or through any media, such
       as wires, cables, microwaves, radio waves, light waves, or any combination of those
       or similar media;

       (C)      Except as provided in subdivision (D), “telecommunications” includes, but
       is not limited to, all types of telecommunication transmissions, such as telephone
       service, telegraph service, telephone service sold by hotels or motels to their
       customers or to others, telephone service sold by colleges and universities to their
       students or to others, telephone service sold by hospitals to their patients or to others,
       WATS service, paging service, and cable television service sold to customers or to
       others by hotels or motels;

       (D)     "Telecommunications" does not include public pay telephone services,
       television or radio programs which are broadcast over the airwaves for public
       consumption, coaxial cable television (CATV) which is offered for public
       consumption, interstate WATS service, private line service, or automatic teller
       machine (ATM) service, wire transfer or other services provided by any corporation
       defined as a financial institution under § 67-4-804(a)(9), unless the company
       separately bills or charges its customers for specific telecommunication services
       rendered;

Tenn. Code Ann. § 67-6-102(30)(A)-(D) (1998) (emphasis added). Thus, under subsection (D),

television services that are “broadcast over the airways for public consumption” are not considered

“telecommunications,” and are therefore excluded from the taxes assessed pursuant to the Retailers’

Sales Tax Act.

       Several months after the Commissioner issued the original notice of assessment, HBO filed

this lawsuit contesting the tax assessment. HBO filed a motion for summary judgment, arguing that

its services are not “telecommunications” as defined in Tennessee Code Annotated § 67-6-

102(30)(A)-(D), and therefore are not subject to the Tennessee sales and use tax. The Commissioner

filed a motion for partial summary judgment arguing that HBO’s services are “telecommunications”

under the statute. On March 23, 1998, the trial court granted HBO’s motion for summary judgment

and denied the Commissioner’s motion for partial summary judgment. From this order, the

Commissioner now appeals.

       The parties agree that the trial court’s grant of summary judgment in favor of HBO must be

based on an implicit finding that HBO’s television programs are “broadcast over the airwaves for

public consumption” within the meaning of Tennessee Code Annotated § 67-6-102(30)(D), and thus

are not considered “telecommunications” which are subject to the sales and use tax.              The

Commissioner argues on appeal that the phrase “broadcast over the airwaves for public

consumption” does not include services, such as HBO’s satellite direct-to-home television services,

for which consumers must pay and which require special equipment. HBO contends that the phrase

“broadcast over the airwaves for public consumption” is not limited to free services, but also

includes services such as those sold by HBO. Therefore, this case turns on whether the phrase

“broadcast . . . for public consumption” in Tennessee Code Annotated § 67-6-102(30)(D) is limited

to only television programming which is free to any consumer.

       A motion for summary judgment should be granted when the movant demonstrates that there

are no genuine issues of material fact and that the moving party is entitled to a judgment as a matter

of law. See Tenn. R. Civ. P. 56.04. Summary judgment is only appropriate when the facts and the

legal conclusions drawn from the facts reasonably permit only one conclusion. See Carvell v.

Bottoms, 900 S.W.2d 23, 26 (Tenn. 1995). Since only questions of law are involved, there is no

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presumption of correctness regarding a trial court's grant of summary judgment. See Bain v. Wells,

936 S.W.2d 618, 622 (Tenn. 1997). Therefore, our review of the trial court’s grant of summary

judgment is de novo on the record before this Court. See Warren v. Estate of Kirk, 954 S.W.2d 722,

723 (Tenn. 1997).

         When interpreting a statute, the role of the Court is to “ascertain and give effect to the

legislative intent.” Sharp v. Richardson, 937 S.W.2d 846, 850 (Tenn. 1996). Unless the statute is

ambiguous, legislative intent is derived from the face of a statute, and the court may not depart from

the “natural and ordinary” meaning of the statute’s language. Davis v. Reagan, 951 S.W.2d 766, 768

(Tenn. 1997); Westland West Community Ass’n v. Knox County, 948 S.W.2d 281, 283 (Tenn.

1997).

         The Commissioner argues that HBO’s services are not “broadcast . . . for public

consumption” under the natural and ordinary meaning of the term “broadcast,” and therefore are not

excluded from the sales and use tax by Tennessee Code Annotated § 67-6-102(30)(D). The

Commissioner notes that the term “broadcast” is not defined in the statute or its legislative history.

The Commissioner contends that “broadcast” means “television services which are freely available

to all listeners within the receiving area and excludes television services which are only available

by subscription and require special decoding equipment in order to be received.”

         In support of its definition of “broadcast,” the Commissioner cites the definition of

“broadcast” utilized by the Federal Communications Commission (FCC). The FCC defines

“broadcast” as the “transmission of radio communications intended to be received by the public,

directly or by intermediary of relay stations” under Title III of the Communications Act of 1934. 47

U.S.C. § 153(o) (1994). The Commissioner also cites several cases for the proposition that if the

entity transmitting the data uses a transmission technique that prevents a nonsubscriber from

receiving the transmission, then it is not “intended to be received by the public” and is therefore not

“broadcasting” within the meaning of the federal Communications Act. See National Ass’n for

Better Broad. (NABB) v. FCC, 849 F.2d 665, 669 (D.C. Cir. 1988); Intermountain Broad. &

Television Corp. v. Idaho Microwave, Inc., 196 F. Supp. 315, 325 (D. Idaho 1961); cf. Winchester

TV Cable Co. v. State Tax Comm’r, 217 S.E.2d 885, 889 (Va. 1971) (holding that a community

antenna television provider is not “broadcasting” within the state’s sales and use tax because its

signals are only transmitted to paid subscribers).

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       The Tennessee Department of Revenue (the Department) has considered satellite television

services in relation to the sales and use tax in several Letter Rulings involving satellite television

services other than HBO. The Department originally found direct broadcast satellite television

programming exempt from the sales and use tax, reasoning that these services were “broadcast . .

. for public consumption” because, when the satellite signals are directed at individual homes, they

are “intended to be received by [the] general public, despite the fact that [they] can be received by

only those with appropriate reception equipment.” Ltr. Rul. 92-15 (Dec. 8, 1992).

       In 1994, the Department issued two Letter Rulings in which it reversed its position on direct

satellite television programming. In Letter Ruling 94-13, dated June 9, 1994, the Department

determined that a satellite programming service was not subject to tax pursuant to Tennessee Code

Annotated § 67-6-212(a)(5), which taxes cable television services. See Ltr. Rul. 94-13 (June 9,

1994). The Department reasoned that the satellite services “d[id] not fit within the plain meaning

of the statute because they transmit programming via microwave signals rather than cables.” Id. In

contrast, the Department found that satellite programming services were not exempt from Tennessee

Code Annotated § 67-6-221, which taxes interstate telecommunication services. See id. In

interpreting the exemption for services that are “broadcast . . . for public consumption,” the

Department looked to federal law defining “broadcasting” as that “intended to be received by the

public.” Id. The Department concluded that the satellite programming service

       would not be considered a “broadcaster” under the policy adopted by the FCC
       because it has manifested an intent to limit who can receive its signals. Similarly, .
       . . because [the satellite programming service] has taken active steps to exclude its
       programming from the non-subscribing public, its services are not “for public
       consumption” and therefore are not exempt from tax under [the exemption].

Id.

       Letter Ruling 94-24, dated October 10, 1994, again interpreted the exemption for services

“broadcast . . . for public consumption.” See Ltr. Rul. 94-24 (Oct. 10, 1994). Once more, the

Department considered federal law finding that scrambled programming, inaccessible without a

decoder, and a contractual relationship between the subscriber and the satellite programmer shows

an intent that the services are not “intended to be received by the public,” and therefore are not

“broadcasting.” See id. Because the satellite programming services that were the subject of the

letter ruling prevented non-subscribers from receiving their programming, the Department reasoned

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that they were neither “broadcasters” nor “for public consumption,” and therefore were not exempt

from sales tax. See id.

       The Commissioner, in this appeal and in the 1994 Department of Revenue letter rulings,

relied on a federal statute which defines “broadcasting” as “the dissemination of radio

communications intended to be received by the public, directly or by the intermediary of relay

stations,” as well as federal case law interpreting this definition. Communications Act of 1934, 47

U.S.C. § 153(o) (1994).        In particular, the Commission cites National Ass’n for Better

Broadcasting (NABB) v. FCC, 849 F.2d 665, 669 (D.C. Cir. 1988), which upheld the FCC’s

reinterpretation of the Communications Act of 1934 to define “broadcasting” as excluding

transmission techniques which limit the reception of television programming to paid subscribers.

       In NABB, the court reviewed some of the history of the definition of “broadcasting” as used

in the federal Communications Act of 1934. The Communications Act gives the FCC broad

authority to regulate television communications. See NABB, 849 F.2d at 666. It distinguishes

between stations engaged in “broadcasting” and stations which provide fixed point-to-point services.

See id. The Communications Act imposes particular restrictions only on stations that engage in

“broadcasting,” which is defined in the statute as the “dissemination of radio communications

intended to be received by the public, directly or by the intermediary of relay stations.” Id. (citing

47 U.S.C. § 153(o) (1982), § 3(o) of the Communications Act of 1934).

       The Court in NABB noted that for many years the FCC interpreted the Communications Act

by looking at whether the transmission was designed to appeal to mass audiences, determining that

“broadcasting” did not occur when transmissions were of interest to only a limited number of

listeners. See id. During this time period, the FCC stated that “ ‘broadcasting remains broadcasting

even though a segment of the public is unable to receive programs without special equipment . . .

.’ ” Id. at 667 (quoting Further Notice in the Matter of Subscription Television Serv., 3 F.C.C.2d

1, 9-10 (1966)).

       Subsequently, in light of changing technology, the FCC published a Notice of Proposed

Rulemaking, changing its interpretation of the Communications Act and abandoning the focus on

program content. See id. at 668. The FCC proposed to classify subscription video services “as

point-to-multipoint nonbroadcast video services rather than as broadcasting.” Id. at 668. Therefore,

if the programmer intended for the signal to be received only by the subscribers and not by the

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general public, the service would be reclassified as “point-to-multipoint” services rather than

broadcasting. See id.

        The court in NABB noted its standard of review of the FCC’s determination, finding that the

principle of deference to the agency’s choice required that the FCC’s new rule be upheld unless it

was “arbitrary and capricious.” See id. at 669. The NABB court found the new rule to be neither

arbitrary nor capricious, and thus it was upheld. See id.

        Thus, NABB involved a statutory definition of the term “broadcast” contained in a federal

Act which regulated telecommunications, rather than taxing them. The federal court looked at

whether direct broadcast satellite services constituted “broadcasting” or “point-to-multipoint”

services. Given the statutory definition of broadcasting as “intended to be received by the public,”

the NABB court in actuality reviewed whether the FCC’s revised interpretation, excluding services

to paying subscribers, was consistent with the phrase “intended to be received by the public.” Under

the arbitrary and capricious standard, the FCC’s new interpretation was upheld.

        In contrast, this case involves a taxation statute with no statutory definition of the term

“broadcast” and no classification such as “point-to-multipoint” for HBO’s services. Unlike NABB,

the term “broadcast” is modified by the phrase “for public consumption,” and must be interpreted

in light of that modifier.

        The Commissioner also cites Winchester TV Cable Company v. State Tax Commissioner,

217 S.E.2d 885 (Va. 1975), for the proposition that the natural and ordinary meaning of the term

“broadcast” does not encompass television services receivable only by paid subscribers. In

Winchester, the issue before the court was whether a community antenna television (CATV) system

was entitled to an exemption from the state’s sales and use tax statute. See id. at 886. The CATV

system in Winchester received television signals broadcast from distant commercial television

stations and then boosted the strength of the signals before sending the amplified signals though

cables to a subscriber’s television set. See id. at 887.

        In Winchester, the Virginia Retail Sales and Use Act provided an exemption from taxation

for a “broadcaster” utilizing “broadcasting equipment” used by television companies which were

“under the regulation and supervision of the Federal Communications Commission.” Id. at 886-87.

The statute did not define “broadcasting” and did not include a modifier such as “for public

consumption” in the instant case. See id. at 889. Moreover, the Virginia statute referred directly to

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entities regulated by the FCC. See id. at 887. Consequently, the Winchester court looked at federal

courts interpreting federal law concerning broadcasters. See id. at 889-90 (citing Teleprompter

Corp. v. Columbia Broad. Sys., Inc., 415 U.S. 394, 94 S. Ct. 1129, 39 L. Ed. 2d 415 (1974) (holding

that under the federal Copyright Act, a CATV system is not a “performer” of copyrighted broadcast

programming and is also not a “broadcaster.”)). Winchester, therefore interpreted a state statute

which referred to FCC regulation and which utilized the term “broadcaster” without a modifier as

in this case. The Winchester court concluded that CATV services were distinguishable from radio

or television broadcasters because CATV services are not transmitted randomly or widely to the

public. See id. at 889.

       Intermountain Broadcasting & Television Corp. v. Idaho Microwave, Inc., 196 F. Supp.

315 (D. Idaho 1961), cited by the Commissioner, also involved a community antenna service which

received television signals and then transmitted them through coaxial cables to subscribers’

television sets. The issue before the court was whether the antenna service, which received the

television signals without the permission of the television stations, infringed on any interests of the

television stations. See id. at 316. The Intermountain court noted, as background for its analysis

of the infringement issue, that the FCC does not consider CATV services to be “broadcasts” within

the meaning of the Federal Communications Act because CATV systems disseminate the broadcasts

directly to their subscribers by means of microwave and cable, rather than “by radio communications

intended to be received by the public.” Id. at 323. Thus, while the Intermountain court mentions

the FCC’s determination that CATV services are not “broadcasts” under the federal statute, the issue

is not that which is presented in this case and the analysis is inapplicable.

       The statute at issue, Tennessee Code Annotated § 67-6-102(30)(D) exempts from sales and

use tax: “television . . . programs which are broadcast over the airwaves for public consumption” and

“coaxial cable television (CATV) which is offered for public consumption.” Tenn. Code Ann. § 67-

6-102(30)(D) (1998). It is undisputed that coaxial cable television services are not considered

“telecommunications” under Section 67-6-102(30)(D) and thus are not taxed under the Retailers’

Sales Tax Act. It is also undisputed that coaxial cable television is a fee-based service which non-

subscribers are prevented from receiving. Thus, the phrase “for public consumption” as used in the

exemption for CATV services clearly includes a fee-based service. It is a well settled rule of

statutory construction that “the component parts of a statute should be construed, if practicable, so

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that the parts are consistent and reasonable.” Cohen v. Cohen, 937 S.W.2d 823, 827 (Tenn. 1996).

This is particularly important in construing language within the same sentence of a statute.

        Given the fact that the statute exempts from the definition of telecommunications “coaxial

cable television . . . offered for public consumption,” a fee-based service, it would be incongruent

to hold that the phrase immediately preceding this in the statute, “broadcast over the airwaves for

public consumption,” is limited to only broadcast services which are free to the public. In the

context of the Tennessee statute, it is clear that the phrase “broadcast over the airwaves” refers to the

manner in which the signal is disseminated, not to whether a fee must be paid for the service. This

is consistent with the “natural and ordinary meaning” of the word “broadcast.” See National Gas

Distribs., Inc. v. State, 804 S.W.2d 66, 67 (Tenn. 1991).

        The Commissioner notes that coaxial cable television, excluding basic service, is “separately

subject to the sales tax as an amusement service.”1 The Commissioner argues that holding that

HBO’s services are not taxable telecommunications under the Retailers’ Sales Tax Act would result

in HBO paying less tax than a coaxial cable television company and therefore having a competitive

advantage over coaxial cable television. The Commissioner’s interpretation, however, would result

in sales tax assessed on basic services delivered by satellite but not by coaxial cable. Thus,

consideration of the amusement tax does not indicate that the Tennessee legislature intended services

such as HBO’s to be considered taxable “telecommunications” under Tennessee Code Annotated

§ 67-6-102(30)(D).

        Consequently, we conclude that HBO’s services must be deemed “broadcast over the

airwaves for public consumption” and therefore are not taxable “telecommunications” under

Tennessee Code Annotated § 67-6-102(30)(D). Accordingly, the trial court’s grant of summary

judgment in favor of HBO is affirmed.

        The decision of the trial court is affirmed. Costs are taxed to Appellant, for which execution

may issue if necessary.

        1
               T.C.A. § 67-6-212(a)(5) provides an amusement tax on “[f]ees for subscription to,
access to or use of cable television services in excess of those charges made for the basic rate
charged by the supplier of such services.” Tenn. Code Ann. § 67-6--212(a)(5) (1998).
Tennessee Sales and Use Tax Rule 1320-5-1-1.27 provides that “[b]asic cable television service”
means a “a basic package of broadcast channels, local origination channels, advertiser supported
channels, and access information channels or home shopping channels,” while “[c]harges for
pay-per-view, FM connection, program guide, remote control, premium channels, duplicate
premium channels, and installation are in excess of the basic rates.”

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                           HOLLY KIRBY LILLARD, J.

CONCUR:

BEN H. CANTRELL, J.

WILLIAM C. KOCH, JR., J.

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