Policy

Kentucky Draws DBS Into the Tax Pool

3/13/2005 7:00 PM Eastern

Kentucky legislators have approved a tax-parity measure that will draw direct-broadcast satellite into the state’s revenue pool.

In response, the satellite-TV industry is mulling a legal challenge of the new tax scheme.

Late March 8, the state House approved a tax overhaul that contained multiple new levies and revised tax rates. The bill effectively eliminates local cable franchise fees and replaces them with a 3% excise tax on video service, including DBS, plus a 2.4% gross receipts tax on the companies. The excise tax will be passed through to subscribers.

Members of the Kentucky Cable Telecommunications Association are pleased with the end result of the taxation bill.

“For five years our association has been working toward tax parity. This bill achieves it,” said Paul Butcher, owner of Big Sandy TV Cable of Paintsville, the association president.

Cable operators lobbied cities and counties for support of the proposed tax policy, noting the revenue drain municipalities have suffered when consumers switch from franchise fee-paying cable operations in favor of DBS providers, who paid no local taxes. Cable companies will also achieve some savings through streamlined auditing, since they will be able to calculate and remit tax checks to the state, instead of multiple locations throughout Kentucky.

As the proposal was pending, satellite services advised their 450,000 customers in the state to fight any tax. The original tax proposal would have added 7.62% taxes on satellite users, but the compromise bill brought that down to the 5.4% final levy. On their anti-tax site, stopsatellitetaxesnow.com, the DBS companies said both tax rates are unacceptable.

DirecTV spokesman Bob Marsocci said the DBS providers still think the tax is discriminatory. The satellite industry has been an aggressive litigant against state assessments, and has filed suits challenging tax levies in Ohio, Tennessee and North Carolina. All remain pending in court, Marsocci said.

“We don’t feel this tax is fair,” he said of the Kentucky policy. “There’s a greater burden on satellite customers. A legal challenge is certainly an option.”

The bill now goes to Gov. Ernie Fletcher for approval. The governor has been the driving force behind tax reform and the new levies.

September