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United States Supreme Court May Hear Kentucky Case Holding Telecommunications Act Preempts Local Taxation of Direct Broadcast Satellite Services


In DirecTV, Inc. and Echostar Satellite, LLC v. Treesh, 2007-SC-000714-DG (Ky. Jun. 25, 2009), Petition for Certiorari pending, No. 09-355 (U.S. Supreme Ct.), the Supreme Court of Kentucky held that Section 602(a) of the Telecommunications Act of 1996 (“Telecommunications Act”) preempts local taxation of direct-to-home broadcast satellite programming.

KRS 160.613 authorizes local district boards of education to levy a utility gross receipts license tax for schools on the gross receipts derived from furnishing utility services within the district.  In 2005, House Bill 272 was enacted, which expanded the gross receipts tax base to gross receipts derived from the furnishing of direct satellite broadcast and wireless cable service.

DirectTV, Inc. and Echostar Satellite, LLC (collectively, “Taxpayers”), the multi-channel television industry’s largest suppliers of direct broadcast satellite services, brought suit seeking: (1) a declaration that the gross receipts tax was preempted by Section 602(a) of the Telecommunications Act; and (2) an injunction barring the Department of Revenue from enforcing the tax against them. 

Section 602(a) of the Telecommunications Act provides:

Preemption. A provider of direct-to-home satellite services shall be exempt from the collection or remittance, or both, of any tax or fee imposed by any local taxing jurisdiction on direct-to-home satellite service.

The Franklin Circuit Court granted summary judgment in favor of Taxpayers, but the Court of Appeals reversed and held that because the gross receipts tax was levied to fund schools it was in effect a state tax and thus, was not preempted by federal law.

On appeal to Kentucky’s Highest Court, the Court reviewed the legislative history of Section 602(a) of the Telecommunications Act, stating that Congress intended:

to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies [and] … to spare national businesses with little impact on local resources from the administrative costs and burdens of local taxation in the myriad of local jurisdictions where their services would be sold.

Opinion, p. 3 (citing Pub. L. 104-104 (preamble)).

 Further, the Court stated that the tax had “apparent local characteristics” and, although collected by an agent of the State, was imposed on a “district-by-district, and not a statewide, basis.” 

Accordingly, on June 25, 2009, the Court reversed the decision of the Court of Appeals and held that Section 602(a) of the Telecommunications Act preempts local taxation of direct-to-home broadcast satellite programming.  Time Warner Cable, Inc. (“Time Warner”) participated as amicus curiae in support of the Department’s position.  The Court granted Time Warner’s Motion to participate in briefing, but denied its Motion to participate in Oral Argument.  On September 14, 2009, the Court issued a corrected Opinion which did not affect the holding of the original Opinion, and on September 23, 2009, the Department filed a Petition for Writ of Certiorari with the United States Supreme Court.

If you have questions about this topic or any other legal issue, please contact any member of the firm's State and Local Tax Team.

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