United States

Florida: Appellate Court Concludes that the Communication Services Tax is Discriminatory

Jun 22, 2015
From KPMG TaxWatch

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Recently, a Florida appeals court held that the state’s communication services tax (CST) violated the discrimination prong of the dormant Commerce Clause. Under the CST, cable television services are taxed at a rate of 6.65 percent, but satellite TV services are subject to a 10.8 percent CST. The taxpayers, satellite service providers, argued that the CST was facially discriminatory because it had a discriminatory effect on interstate commerce and a discriminatory purpose.

The taxpayer argued that the CST was discriminatory in effect because it imposed disproportionate burdens on similarly-situated out-of-state interests and conferred advantages on in-state interests.  Although the companies provided their services in different ways, the court concluded that the differences in how television services were provided did not change the fact that the companies sold virtually identical products.  In the court’s view, the satellite and cable companies were similarly-situated entities because both companies provided programming to subscribers in the same markets. Next, the court addressed whether the CST benefited in-state interests. The cable companies, although not headquartered in Florida, delivered programming through extensive cable networks spread across the state that utilized public rights-of-way. The companies also employed Florida workers, which created an in-state economic interest not shared by satellite companies that did not need to employ in-state infrastructure or employees.  Because the sales tax portion of the CST burdened interstate commerce by imposing a higher tax rate on those service providers that did not invest in local economies, the court concluded that the tax violated the Commerce Clause.

In reaching this conclusion, the court rejected the Department’s argument that the CST does not discriminate if one views the taxing schemes of cable and satellite companies holistically. Notably, the CST law allows counties to tax cable companies—but not satellite companies—up to an additional 5.1 percent. However, in the court’s view, “this method of attaining a semblance of equality is untenable.” The court observed that there was no guarantee that the local governments charging four percent would continue to do so, and the Department failed to establish the number of counties that must charge the four percent for the tax rate to be considered equal between satellite and cable services. Finally, the appeals court rejected the taxpayer’s argument that the differential tax scheme had a discriminatory purpose. After reviewing the legislative history behind the CST, the appeals court concluded that there was no evidence that lawmakers intended to favor cable companies. For more information on Directv, Inc. v. Florida (Fla. Dist. Ct. App. June 11, 2015), please contact Jeremy Dukes at (954) 847-3971.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.