Discriminatory Taxing and Your TV Bill

March 6, 2008

Yesterday, Public Knowledge and Consumer Federation of America filed an amicus brief in support of the petition for certiorari in DIRECTV and EchoStar v. Treesh. We've asked the U.S. Supreme Court to take the case, and ultimately to declare that tax schemes like the one at issue (described below), which discriminate against out-of-state companies and hurt consumers, are unconstitutional.

Because it interferes with Congress's power to regulate interstate commerce, states are prohibited from passing laws (typically taxes) which favor in-state commercial interests over out-of state ones. This implied portion of Congress's power is called the “Dormant Commerce Clause.” This type of discrimination has become an issue in the context of Multichannel Video Programming Distributors (MVPDs) like cable and Direct Broadcast Satellite (DBS). Cable companies have a large in-state presence in every state, investing large amounts of money and hiring legions of workers to build and maintain a local infrastructure and paying local governments franchise fees for the right to do so. DBS companies, on the other hand, have almost no in-state presence at all, since all their programming is beamed into the state from orbit. This creates an incentive for states to help the cable industry at the expense of DBS, often by trying to tax DBS without taxing cable, and often running afoul of the Dormant Commerce Clause.

As described in petitioner's brief, Kentucky has constructed a scheme which attempts to accomplish this while bypassing the constitutional problem by taxing all MVPDs, but then using those taxes to pay the franchise fees that cable companies would normally have to pay to local governments. We think that this practice is still unconstitutional, that it directly contravenes Congress's policy favoring a level playing field for cable and its competitors, and that it's just plain bad policy.

When Congress passed the Cable Television Consumer Protection and Competition Act, cable was a monopoly; today, it has a mere 70% of the market. According to the FCC, DBS-based competition has been successful in improving network availability, picture quality, and to some extent pricing, for all consumers. We've asked the Supreme Court to take this case and not allow Kentucky to provide a roadmap for how to discriminate against cable's only real competitor to generate more in-state revenue at the expense of consumers everywhere.

For more information, read the petition and our brief.