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Taxes on Cable TV Bills Take Weird Turn

Posted on: Saturday, 3 December 2005, 12:00 CST

By Bob Bernick Jr. Deseret Morning News

Attention, Utah's 300,000 cable TV subscribers: You may soon be paying sales tax on part of your cable TV bill that doesn't exist.

What? That makes no sense, you may say.

Welcome to the odd world of taxation, fairness and simplicity.

"Awkward, isn't it?" said Sen. Curt Bramble, R-Provo, co- chairman of the special Tax Reform Task Force, in explaining how the strange tax compromise was worked out.

The task force has unanimously endorsed legislation that -- in attempting to level the taxation playing field between cable TV and satellite TV -- would give cable TV operators state-funded rebates of between $7 million and $8 million a year to offset the cable industries' current local government franchise fee payments.

That $7 million to $8 million would be passed on to cable TV subscribers, so overall monthly customer bills would decrease.

But not wishing to also lose state and local sales tax revenues, the proposed legislation says sales tax will be applied as if there were no rebates on the franchise fees -- thus the situation of subscribers paying sales tax on something that's not there.

The proposed legislation will now go to the 2006 Legislature, which convenes Jan. 16. If passed, the new tax structure would start July 1.

"We imposed the cable/satellite TV tax several years ago to balance (the state) budget," Bramble said. And that started the whole debate of tax fairness in the very competitive home entertainment business.

"Now we are going to extraordinary lengths to bring back equity and level the competitive playing field" between cable and satellite TV operators, said Bramble -- a plan that raises taxes on no one while giving a bit of tax relief to cable TV subscribers.

By federal law, satellite TV firms can't be assessed the franchise fees by local governments for rights of way use because satellite TV doesn't actually use local governments' rights of way. Cable TV firms do use rights of way when they run cables on electric poles or underground.

And so the Legislature was asked to make the highly competitive home video/audio market fairer.

Cable TV operators argued that they were already losing market share to satellite TV companies (who often don't have the huge infrastructure costs of cable TV) and they shouldn't be further economically disadvantaged by paying franchise fees up to 5 percent that satellite operators don't have to pay.

Legislators came up with the rather convoluted solution: Since cable TV firms were paying local utility franchise right-of-way fees, just give those fees back to the cable firms in the form of state tax rebates. The taxation for both operations is thus fairer. The state loses the money, but the cities, towns and counties still get their franchise fees.

However, not wanting to give cable TV firms a $7 million or $8 million tax break, the legislation orders that the franchise fee assessments -- now passed on to customers via their bills -- must come off.

Great, cable TV bills would go down slightly.

But wait.

The state and local governments don't want to lose any sales tax monies coming from cable TV subscribers. And since the pass-through would lower cable bills, the sales tax would bring in less revenue to the state and local entities.

Solution: Tax the subscriber's bill as if the franchise rebate pass-through were not there.

"If you (currently) had a $100 monthly cable TV bill and the (franchise fee) credit equaled $10 to you and your bill goes to $90, you would still pay the sales tax on the $100," a legislative attorney explained to the task force earlier this week.

"Overall, this bill means (cable TV) subscribers' bills will go down, although there may be some fine-tuning that is still needed," said Steve Proper, government affairs director for Comcast, the state's largest cable TV operator which serves customers from Logan to Nephi.

It's a solution that seems to work, Bramble said, even if cable TV subscribers pay sales tax on part of a bill that is not there.

E-mail: bbjr@desnews.com

Source: Deseret News (Salt Lake City)

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