DIRECTV WINS IN FLA 1ST DCA
DORMANT COMMERCE CLAUSE
Since 2005, DIRECTV has been fighting the state of Florida over a seemingly simple issue. Satellite companies, which are primarily based outside of Florida, are charged a higher communication services tax (CST) rate than our in-state cable companies. For anyone with any state and local tax knowledge, this screams of protectionism and dormant commerce clause violations. After losing at the trial court in 2013, the satellite companies appealed. One June 11, 2015 – the 1st DCA issued its opinion in favor of the taxpayer holding that the state law violates the dormant commerce clause jurisprudence by imposing discriminatory higher tax rate for out of state satellite companies when compared to similarly situated in state cable companies. You can find a link to the 1st DCA's opinion below as well as links to articles on the trial court's part in this saga.
While I have intentionally made this issue seem as clear as possible in the paragraph above, the facts behind the case are a little murkier. First, there is an underlying reason for the differing rate and it is arguably not a sinister plot to give cable companies a strategic advantage. Making a long story very short, cable companies pay an additional local tax on the easements used to run the cables throughout the state. This is a tax that the satellite companies do not have to pay and the difference between the CST rates imposed on the two industries is roughly equal to the tax imposed on the cable company easements. That being said, the CST and the local taxes on easements are completely different types of taxes and the Florida legislature created a constitutional problem by trying to create different CST rates over this issue. There are lots of expenses and taxes that satellite companies have to pay to put satellites in orbit that in state cable companies never have to pay. Therefore, the difference in rates is likely due to the better lobbying capabilities of an instate cable industry versus an out of state satellite industry when Florida's CST was first created in 2001. The lobbying advantage of cable companies did come to light at the trial court level, as addressed in the appellate opinion in this case, but it was not considered by the court.
The second murky issue, as brought up in Judge Marstiller's dissent, is whether a satellite company is really an out of state company. The reason why this is extremely relevant is because the basis of the majority's opinion is that Florida CST law is discriminatory against interstate state commerce, favoring an instate company over an out of state company. If DIRECTV is considered an instate company, then the commerce clause discrimination jurisprudence would not be relevant. DIRECTV admitted that they have a physical presence in Florida using independent contractors for sales and service and the rental of an enormous amount of satellite receivers in the hands of customers. I don't believe the state could win on this issue, but it is likely to be raised again by the state.
I honestly do not believe this case is over, despite the 1st DCA awarding costs to the taxpayer. Because the 1st DCA ruled a Florida law unconstitutional, the Florida Supreme Court has no choice but to accept the case. We will keep you up to date on whether the saga continues. If anything else, there is too much money at stake in refunds for the state not to fight the case. In the meantime, hats off to the state and local tax attorneys of Akerman LLP for winning this well fought battle. Let's hope they win the war!
ABOUT THE AUTHOR: Mr. Sutton is a Florida licensed CPA and Attorney and a shareholder in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Sutton is in charge of the Tampa office of the firm and his primary practice area is Florida sales and use tax controversy. Mr. Sutton worked in the State and Local Tax department of Andersen for a number of years and has been an adjunct professor at Stetson University College of Law since 2002 teaching State and Local Taxation, Accounting for Lawyers, and Federal Income Tax I. Mr. Sutton is also the State and Local Tax Chairman of the American Association of Attorney – Certified Public Accountants, Inc. You can read more about Mr. Sutton in his firm BIO.
AUTHORITY
ADDITIONAL RESOURCES
DIRECTV and ECHOSTAR APPEAL CST TRIAL LOSS NOV 2013, published January 1, 2014, by James Sutton, CPA, Esq.
FLORIDA TAX CONTROVERSY: DIRECTV vs FL DOR – FL COMMUNICATION SERVICES TAX – SATELLITE TV TAXED HIGHER CST RATE THAN LOCAL CABLE TV, published December 13, 2011, by James Sutton CPA, Esq.
PLETHORA OF SALES TAX LITIGATION IN FLORIDA, published June 8, 2015, by James Sutton, CPA, Esq.
WHEN SALES TAX AUDITORS MAY NOT PICK AND CHOOSE RECORDS TO USE, published April 19, 2015, by Joseph C Moffa, CPA, Esq.