The Issues

Cable and telecom companies have been using their money and influence to try and convince state legislators to pass unfair taxes on satellite TV services for more than a decade. These taxes include:

• taxing satellite at a different rate than cable;
• allows cable but not satellite to take a credit against taxes due, or exempts cable but not satellite property from taxation; or
• Imposes a new tax or extends an existing tax to satellite but not cable.

Discriminatory taxes are designed to raise the price of satellite TV to benefit terrestrial TV operators and unfairly discriminate against satellite providers and their customers.

Why?

Because cable and telecom companies typically pay a “Franchise Fee” to local governments and they believe satellite should have to pay that fee as well, or an equivalent amount in other taxes.

But what exactly is a Franchise Fee?

It is not a tax on providing TV services, it is actually a type of rent that a company pays to local government for the right to run cable under public streets and sidewalks, or hang wire from utility poles. Cable companies voluntarily undertake to pay these fees as part of a negotiated contract.

The Courts have addressed at every level, going back to an 1893 case concerning right of way fees for telegraph cables, and state and federal courts classifying Franchise Fees are in fact a rent paid to use public land for a private use. They are not a tax.

In fact, Franchise Rights are at the core of a cable or telecom provider’s business value. The more cable they lay, the more customers they can reach, the more Franchise Fees they pay. Cable and telecom companies’ largest assets are their Franchise Rights, and are even listed as assets, to the tune of tens of billions of dollars, on the balance sheet.

In short, Franchise Fees are a cost of doing business for cable and telecom companies; the same way launching a satellite into space is the cost of doing business for DISH and other satellite TV providers.

Requiring satellite providers to pay a Franchise Fee, or an equivalent tax, is like asking cable and telecom companies to pay for launching satellites into orbit.

Discriminatory taxes harm consumers by burdening the only major alternative to cable and specially burden consumers who rely on satellite, like rural residents and foreign-language speakers.

Since 2009, cable has pushed for a Discriminatory Tax 62 times in 25 states! Despite these efforts, NO STATE HAS ENACTED A DISRIMINATORY TAX ON SATELLITE TV!

For more detailed information on this issue, click here.

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What is OTT?

Over-the-top or “OTT” refers to the delivery of audio or video content over the Internet without the involvement of a cable or satellite provider controlling or distributing the content. Consumers access OTT content through any Internet-connected device including a desktop and laptop computers, gaming consoles (PlayStation, Nintendo Wii, and Xbox), set-top boxes (e.g. Roku or Apple TV), smartphones, smart TVs, and tablets.

There are many types of OTT video services. Some, like Sling TV, offer consumers access to regularly scheduled TV programming, offered on a specific channel, at a specific time, just delivered through a broadband connection or data (cellular) network as opposed to TV delivered over the air, via cable or through satellite. Others providers, like Netflix, Hulu, Amazon Prime and HBO Now, allow unlimited viewing of a library of video programming (movies and TV shows) for a flat monthly subscription fee.

Other providers as Vudu, CinemaNow, and iTunes offer Video-on-Demand (VOD) services, where customers pay a fee to buy or rent digital access to a particular movie or TV show. Lastly, ad-supporter providers such as YouTube and Hulu offer streaming content at no charge to viewers, relying on advertising for revenue.

As more consumers “cut-the-cord” and turn to OTT video, lawmakers are increasingly turning to OTT video as a new source of revenue. Many states already classify VOD services as “digital goods,” subject to sales and use tax just as a rented or purchased movie from a video store. However, services such as Sling TV that offer access to scheduled TV programming should be treated differently. Unlike VOD services, consumers must tune in to the programming they want to watch at set times, they do not have access to the programming at other times, nor do they ever possess a digital copy of any programming.

The video entertainment market is incredibly competitive, with traditional pay-TV providers, content providers, and subscription services all vigorously competing for many of the same customers. But OTT customers are extremely price-sensitive and new taxes on the nascent streaming internet video market will only result in higher prices for consumers and dampen the competition that has helped bring consumers more TV viewing choices than ever before.

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Some municipalities are trying to apply the Utility Use Tax, a tax traditionally applied to utility services such as gas and electric, to internet video services.

Like other innovative and disruptive technologies, the laws that created municipal UUTs were written long before internet video services such as Sling TV even existed. Lawmakers and voters alike could never have anticipated that these services would be subject to their municipality’s UUT, because internet video services are vastly different from utilities, and are even very different from traditional cable services.

Cable is often treated as a public utility because cable providers use public rights-of-way to build their networks.  Internet video services have no such infrastructure, and are no different from websites or apps that rely on the internet to reach customers

Internet video services such as Sling TV are not a “utilities” and should not be taxed like one, and any application of UUT to these services is creating a new tax on internet video services that would increase costs for customers and diminish competition.