Cable and Satellite Providers Square Off Over Tax Break

Cable television providers, who pay more than $200 million in annual sales taxes on top of local franchise fees their satellite TV competitors don't have to pay, are attempting to end a disparity they characterize as an unfair advantage for their business rivals.

The break, if granted, wouldn't go directly to the companies, but to the customers to whom they pass along those costs. House Bill 1900, authored by Craig Eiland, D-Galveston, would free 5.3 million cable TV customers from sales taxes on the first $75 of their monthly bills, effectively lowering the price they pay for programming. That would “equalize a tax burden” that Eiland says cable companies have had unfairly placed upon them by local municipalities. 

At issue is the 6.25 percent tax levied on cable bills in Texas and up to 2 percent more attached in local taxes. The companies — Time Warner, AT&T, and Grande are examples — also pay franchise fees in return for use of right of way and for the legal right to provide service in communities throughout the state. The satellite companies, which don't use right of way for cables and poles, don't pay those franchise fees. The cable companies contend that gives companies like DirectTV and DISH an unfair price advantage.

Satellite providers, on the other hand, say the fees paid by cable companies are warranted because they use public rights of way the satellite companies don't, and because of the expensive technology costs the satellite companies incur themselves. It is a difference in business choices — cable vs. satellite — and not a tax difference that should be solved by the state, they argue. Giving cable customers a tax break would encourage the switch from satellite to cable, creating a new advantage for the cable companies.

“Why should our customers not receive the benefit of technological innovation?” asked Damon Stewart, vice president for state government affairs at DirectTV.

At a House Ways and Means Committee hearing on Monday, Stewart argued that the tax rate cable providers pay is justified because they use the resources of a local municipality — such as public easements — to deliver their service. He said those municipal expenses should be treated as a cost of doing business, much like the costs satellite companies incur from maintaining satellites in space.

Eiland and other members of the committee seemed to disagree with that characterization. Eiland said that the government had created an unfair advantage for satellite TV, and that his legislation is seeking to equalize the tax burden for industries that provide an identical service.

“If the government gave a competitive business advantage to me by the way they taxed my competitors, I would fight like hell to keep it,” said Eiland. “And I think you can see by the number of lobbyists in this room that satellite is doing exactly that.”

Tom Giovanetti, the president of the Institute for Policy Innovation, a conservative think tank based in Lewisville, testified in favor of the tax break for cable customers, saying there was a “gross disparity” in the taxing of satellite and cable. He said the taxes borne by cable providers is passed on to consumers, creating an unlevel playing field.

“We want the winners to be determined by who has the best product offerings,” said Giovanetti. “We don’t want winners determined by some historical quirk or glitch in the tax code that no one got around to fixing because it was hard.”

The fiscal note on the bill indicates that Texas could lose $440.6 million in sales tax revenue over the next two years by instituting the change. State Rep. Trey Martinez Fischer, D-San Antonio, worried what state services might have to be cut as a result of the lost revenue. “Even if we cut it in half, we can fully fund Pre-K education with $200 million,” he said.

He said a solution might be to look at the federal law that gives a tax advantage to satellite TV companies and to encourage the cable companies, in the meantime, to renegotiate the franchise fees they pay to cities and other  local jurisdictions.