United States

Massachusetts court upholds 5 percent excise tax on satellite providers

State supreme court rules tax does not violate Commerce Clause


On Feb. 18, 2015, the Massachusetts Supreme Judicial Court issued its decision in DIRECTV v. Massachusetts Department of Revenue, affirming on summary judgment that the state's 5 percent excise tax on video programming delivered by direct broadcast satellite did not discriminate against interstate commerce.

Effective since the 2010 fiscal year, M.G.L. ch. 64M, section 2 imposes a 5 percent excise tax on gross revenue derived from video programming provided by satellite companies. Satellite providers brought suit and alleged that the tax violated the Commerce Clause of the U.S. Constitution because it only applied to companies providing video programming via satellite and not to in-state cable companies providing video programming.

Among other criteria, a state statute may be in violation of the dormant Commerce Clause if the statute discriminates against interstate commerce. In the context of the dormant Commerce Clause, discrimination merely means differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter. Furthermore, the court noted that the concept of discrimination implicitly assumes "a comparison of substantially similar entities."

The court determined that the 5 percent excise tax did not discriminate against interstate commerce because cable and satellite companies are not similarly situated. The court explained that its analysis was not solely limited to review of the excise tax, but rather, the court was required to consider Massachusetts' regulatory scheme in full. In doing so, the court compared the relative burdens of the single state-level sales tax imposed on satellite companies to the local franchise taxes, along with other obligations such as fees to support public-oriented programming and the provision of free video programming services to various public facilities, imposed on cable companies. [1] The court indicated that cable companies and satellite companies are subject to similar tax obligations, which differ primarily in the ways in which these obligations are collected and calculated.

The differences in how the tax obligations imposed on cable and satellite companies are collected and calculated are based upon the cable and satellite companies' different methods of operation and the different regulatory provisions to which they are subject. The court concluded that "given the nuances of the divergence between the ways in which the cable and satellite companies are treated, examined in the light of the differences between the ways in which these two types of company do business, the satellite companies have no reasonable expectation of proving that the excise tax discriminates against interstate commerce in its effect."

As such, the satellite providers' claim of discrimination against interstate commerce was without merit, and the court affirmed the trial court's granting of summary judgment. The satellite providers may seek to appeal this decision by filing a petition for writ of certiorari with the U.S. Supreme Court.

[1] The federal Telecommunications Act of 1996 prohibits the imposition of fees or taxes on satellite companies at the local level.


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