Florida Communication Services Tax awaits the U.S. Supreme Court

Dec 07, 2017
State & local tax

On April 13, 2017, the Florida Supreme Court issued its decision in Florida Department of Revenue v. DirecTV, affirming the constitutionality of Florida’s Communication Services Tax (CST) statute, which imposes the tax at a higher rate on satellite television providers than on cable television providers.

In 2001, Florida enacted the CST on various communications and telecommunications, including cable video, direct-to-home satellite, and similar services. Communications subject to tax under the CST are not also subject to the state sales tax. The CST is currently imposed at a state rate of 4.92 percent on cable services and 9.07 percent on satellite services, in addition to any locally imposed communication service taxes.

The defendant-taxpayer, a national satellite television service provider, sought to have the CST found unconstitutional because of the tax rate differential as compared with cable services. The taxpayer argued that cable companies are granted an “in-state advantage” due to their interests in local infrastructure and local employment, which exceeded the local infrastructure of the taxpayer. Accordingly, the taxpayer argued that this advantage has a “discriminatory effect” on interstate commerce, negatively affecting out-of-state businesses with less presence in Florida.  

The court found that both satellite and cable companies to be similar businesses. Each organization competes in the same market for the same customers. Based on price point, the customer base may shift from one service to the other, especially with changes in pricing.  Customers see these services as fungible and equivalent, resulting in frequent competition between the services. 

However, in discussing out-of-state interests compared to in-state interests, the court noted that several of the largest cable companies operating in Florida are headquartered in states outside of Florida just like the taxpayer. Both types of companies are interstate in nature, neither having an in-state advantage over the other. In rejecting the taxpayer’s in-state advantage argument, the court noted that the U.S. Supreme Court has never found an in-state interest to exist due to a greater presence in the state because of employment or infrastructure. The court also noted that the U.S. Supreme Court has found that a state may treat two categories of companies differently so long as the unequal treatment is due to the nature of the business and not the location of the activities.  

The taxpayer also argued that the rate differential was due to a “discriminatory purpose.” In reviewing the legislative history and intent behind the CST, the court concluded that the written intent of the tax was focused on industry deregulation, federal legislation, and convergence of services. The court found no evidence that the state intended to discriminate between the two types of companies.

Accordingly, the Florida Supreme Court upheld the tax rate differential finding no unconstitutional in-state advantage or discriminatory purpose behind the CST.   


Noteworthy, the taxpayer has been in litigation over the rate differential since the suit was originally filed in 2005. The litigation continues as the taxpayer has subsequently challenged the Florida Supreme Court decision by filing a petition with the U.S. Supreme Court, under the name, Echostar Satellite LLC v. Florida. It is anticipated that the U.S. Supreme Court will decide whether to grant the petition in early 2018.  

RSM contributors