Cable companies seeking a new tax on satellite TV

by Marc Lifsher, Los Angeles Times

In the long-running battle between cable television and satellite, the cable TV industry is quietly trying to persuade the Legislature to levy a tax on its competitors.

With just six days left in the legislative session, cable advocates in Sacramento want lawmakers to slap a new 5% tax on satellite service to match the 5% franchise fee that cable companies pay to string or bury their wires across public property and into homes.

Cable companies argue that it’s matter of fairness. They say it is not right for them to pay a fee, while fast-growing satellite providers — DirecTV and Dish Network — don’t have to pay anything for the right to beam their signals into people’s homes from space.

Satellite companies disagree, saying such a tax discriminates against their 3.6 million customers in California, especially rural residents living in remote areas not served by cable. Satellite providers shouldn’t be penalized with a tax because they use innovative technology and don’t have to dig up the streets or people’s backyards, DirecTV says.

Discussion of the proposed satellite TV tax has been mostly hush-hush in Sacramento, with no bill actually being written and no committee hearings held.

But consumers, when told about the proposal, were critical. Rick Okikawa, a Sacramento lawyer who is shopping for basic digital TV service, said he doesn’t think "it’s fair to tax someone for the use of satellite" when it doesn’t encroach on public property. Cable is getting a valuable benefit for its franchise fee, the right to run wires that carry television, Internet and telephone signals, to people’s homes, he said.

The drive by the cable companies mirrors similar proposals debated in several other states. So far, it’s passed in Massachusetts and failed in eight other states, said Larry D. Hunter, the chief executive of El Segundo-based DirecTV. Some lawmakers say the California effort may have to be put on hold until next year.

Cable’s tax-the-other-guy proposal is being shopped to legislators with the idea of adding it to a noncontroversial bill, currently focused on Indian gambling, that is close to winning final passage and being sent to the governor.

"This is a competitive issue for our industry," said Carolyn McIntyre, president of the California Cable and Telecommunications Assn. Forcing satellite companies to pay taxes could pump $170 million a year into the coffers of local governments that have been hard hit by the economic recession, she argued.

The satellite advocates are fighting back, aiming to stop a last-minute effort to tax them this year and stake out a defensive position for a likely, more protracted battle next year.

The proposed sales tax is "a bailout for a cable industry that is losing ground in the marketplace," said DirecTV’s Hunter.

Even some cable customers aren’t buying the cable industry’s arguments for taxing satellite providers. "I think this whole level-playing-field argument is fallacious reasoning," said Larry Stanfill of Sacramento. Satellite companies shouldn’t be punished for developing a new technology, said Stanfill, a fan of high-definition TV, who has used both cable and satellite systems.

Cable’s effort to push through a satellite TV tax is known to Capitol insiders as a "gut and amend." The maneuver allows them to ignore parliamentary rules and deadlines so that a bill can be approved with minimal review by lawmakers, interested parties or the public.

"Gut-and-amend bills are by definition an attempt to avoid public scrutiny," said Richard Holober, director of the Consumer Federation of California.

A decision to move the bill forward is up to Sen. Roderick Wright (D-Inglewood), the chairman of the committee that has jurisdiction over the measure being considered as a vehicle for a possible satellite TV tax. For now, "there’s no movement on this," said Fahizah Alim, a spokeswoman for Wright. "There’s just discussion."

The cable industry’s McIntyre concedes that it’s late in the year to move a tax bill that would have to win approval from two-thirds of both houses of the Legislature and be signed into law by the governor. In the meantime, she said, her group is looking ahead and "talking to folks" about the benefits of treating cable and satellite TV providers equally and the extra revenues that would go to local governments.

If campaign contributions are any indication, the cable companies shouldn’t have trouble getting a hearing in the statehouse. Between Jan. 2, 2008, and June 30, the cable association gave $340,000, according to reports filed with the secretary of state.

Three top cable companies — Comcast Corp., Time Warner Cable and Cox Cable — contributed $994,500. DirecTV reported only $741 in that period. Dish Network, none.

Moving forward on the tax bill, whether this month or next year, is consistent with efforts by the cable business to put new taxes on satellite services, McIntyre said.

The cable companies are putting a new twist on the practice of promoting special-interest bills, said Dan Schnur, director of the USC Unruh Institute of Politics.

"Normally, you look for tax breaks for your own industry and don’t worry about the competition," he said. "But, when the state is dealing with budget deficit, if you ask for a tax break, you’re being greedy.

"If you ask for a tax increase on someone else, you’re thinking about the greater good for the state and its people. Substantively, there’s no difference at all, but it sounds a lot better."