Lawyer: Satellite providers don't seek tax refund

During oral arguments Wednesday, E. Joshua Rosenkranz told the Ohio Supreme Court the case brought by DirecTV Inc. and EchoStar Satellite Corp. is about fair competition with cable, not getting back more than $300 million in Ohio taxes collected from satellite customers since 2003.

The industry has challenged similar tax discrepancies in North Carolina, Kentucky, Florida, Tennessee and Massachusetts. The former two cases ended in favor of the states. The others have yet to be decided.

When asked by justices, attorneys on both sides acknowledged the likelihood Wednesday that an Ohio ruling in the case could be appealed to the U.S. Supreme Court.

Fifteen states, the National Conference of State Legislatures and the National Governors Association are among those who have signed on in support of Ohio in the case. In its brief, the bipartisan governors' group said it's interested in the case because it "calls into question the ability of all 50 states to raise revenue."

On Wednesday, Rosenkranz called the potential multi-million-dollar tax refund "the elephant in the middle of the courtroom."

Ohio is facing a looming budget gap of between $4 billion and $8 billion that could be widened by a favorable judgment for his satellite clients.

"I just want to make clear that, for our clients, this case isn't about a refund," Rosenkranz said. "This case is about leveling the playing field prospectively, and we renounce any intention to file the millions of claims individually that need to be filed to receive a refund."

Ohio has collected about $44 million a year since imposing the 5.5 percent sales tax on satellite TV in 2003. The hike was part of a budget-balancing tax package that also tacked increases onto other services, including massages, manicures and vehicle towing. Lawmakers chose not to apply the tax to cable companies, which pay local franchise fees that range from 2 percent to 5 percent.

Some powerful interest groups have also lined up behind the satellite companies, including the National Taxpayers Union and the Consumer Federation of America.

"Ohio's satellite-only tax unabashedly places its thumb on the scale of consumers' decisions about who will be their television provider," the Taxpayers Union wrote in its brief. "If they purchase satellite service, consumers pay a tax that does not appear on a cable bill."

Assistant Attorney General Lawrence Pratt, representing the state tax department, repeated the government's argument that the tax doesn't violate the Interstate Commerce Clause as satellite providers say it does.

The satellite companies' basic legal argument is that subjecting them and not their cable competitors to the tax violates their rights to interstate commerce, because their companies operate between states and cable companies operate within them.

They say state tax code is favoring cable companies because they have a large Ohio work force and extensive infrastructure in the state, whereas satellite providers don't.

Pratt told justices the argument is simply false. Satellite companies may operate through a franchise system and lease out their equipment to customers, but their physical presence is still substantial, the state noted.

"Both of these companies are huge, interstate businesses that transmit signals across state lines, they use both in-state and out-of-state equipment and employees in their service, neither is local to Ohio, and each has significant presence both within and without Ohio," he said.

Pratt said founding fathers Alexander Hamilton and James Madison didn't intend the commerce clause to apply in such cases.

"The purpose behind the Interstate Commerce Clause was to prevent trade wars between the states, not to attack or in any way control the competition between individual businesses," Pratt argued.

More information: Ohio Supreme Court: http://www.sconet.state.oh.us

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