Proposed tax plans cause cable, satellite TV fight

News & Observer
Dan Kane

A fight over taxes has broken out among the cable, satellite TV and telecommunications industries and may jeopardize tens of millions of dollars in new revenues lawmakers are seeking to include in the next state budget.

The dispute has to do with whether all three industries are being taxed fairly under various budget proposals. The House and Senate have passed proposals that would raise the tax on the industries to 7 percent. But the proposals also give cable companies such as Time Warner the right to deduct from their state taxes the amount they pay in local franchise taxes to cities and towns. Those local taxes can be as high as 5 percent of cable television bills.

The proposals also eliminate a 1 percent tax, capped at $80, on the purchase of cable transmission equipment. Meanwhile, telecommunications companies that offer similar services over high speed internet phone lines would be taxed on their transmission equipment at the regular sales tax rate of 7 percent.

"Everybody should be taxed the same, particularly if they are competitors," said Clifton Metcalf, a spokesman for BellSouth. "We've said that for many years."

The proposed tax changes for the three industries would bring in a combined $88 million annually.

The industries all have prominent lobbyists working their causes. They have created enough ruckus that Senate leaders on Thursday dropped the cable companies from proposed tax changes in a stopgap spending bill that would keep government running for 30 more days if the budget is not passed by June 30th, the end of the fiscal year.

"We've got controversy," said state Sen. David Hoyle, a Gaston County Democrat and Finance Committee co-chairman. "We only put in the bill the things that we don't have a problem with."

Satellite TV companies, however, are not entirely happy with the latest changes. While the Senate stopgap spending bill eliminates the cable companies' local tax deduction, it also no longer makes them pay any state sales tax. If they were taxed at 7 percent, as the satellite companies would be, the state would collect roughly $90 million in taxes.

"I know where they can find the money to pay for those extra teachers and teacher assistants -- don't give it away as a windfall to the cable industry," said former state House member David Miner, who now lobbies for the nation's two largest satellite TV providers -- EchoStar and DIRECTV.

Randy Fraser, a Time Warner Cable spokesman, said lawmakers made the right choice in initially proposing that cable companies be allowed to deduct the local tax. Otherwise, he said, the cable companies would be hit with a 12 percent combined state and local tax compared to the 7 percent that satellite TV companies would pay. Satellite TV companies do not pay a local franchise tax.

"What they are saying is pretty self serving and out of line," Fraser said.

Four years ago, state lawmakers passed a 5 percent sales tax on satellite TV to match the five percent local tax on cable. EchoStar and DIRECTV later sued the state, but a Superior Court judge allowed the tax to stay in place.

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