Will Ohio Court Ax Satellite TV Tax?

Published August 1, 2009

Eyes are on the Ohio Supreme Court as it mulls the constitutionality of a targeted tax on the state’s satellite television providers.

The 5.5 percent tax is not applied to cable providers. It was struck down as unconstitutional by an Ohio trial judge last year, but that decision was overturned by an appellate court. Satellite providers and taxpayer advocates hope the state’s supreme court will eliminate the tax once and for all.

Ohio is one of six states levying such a tax. It became law in the Buckeye State in 2003 and has cost satellite subscribers more than $100 million already.

Called Arbitrary, Unfair

In an amicus brief submitted to the Ohio Supreme Court, an attorney for the National Taxpayers Union (NTU) wrote, “Ohio’s satellite-only tax unabashedly places its thumb on the scale of consumers’ decisions about who will be their television provider. If they purchase satellite service, consumers pay a tax that does not appear on a cable bill.”

Cable companies counter they are forced to pay franchise fees to the government for the right to lay cable lines, but groups such as NTU call this an ordinary cost of doing business, just as satellite providers must pay for the construction of satellites and their subsequent launching into space.

“Telecommunications services all tend to be taxed at a higher rate than ordinary retail goods,” said Pete Sepp, NTU vice president for policy and communications. “Policymakers should be lowering these levies across the board, rather than letting the cable industry lobby them to punish business competitors.”

Commerce Clause Argument

Some Constitutional scholars believe the satellite TV tax violates the Commerce Clause of the U.S. Constitution because it discriminates against interstate commercial activities. Under the Commerce Clause, states are prohibited from favoring in-state corporations over multi-state entities. Satellite TV companies operating in Ohio argue the state is favoring its in-state cable companies at their expense.

“Time and time again, the Supreme Court has struck down laws that do exactly what Ohio has done—favoring their own economic interests at the expense of innovation and lower-cost products,” said Andrew Reinsdorf, vice president of government affairs for satellite provider DirecTV.

At press time the state supreme court was considering whether to hear the case.

Joshua Culling ([email protected]) is state government affairs manager for the National Taxpayers Union.