Attorney General: Honorable Pam Law, Commissioner of Revenue Services, Formal Opinion 2007-014, Attorney General State of Connecticut

Attorney General's Opinion

Attorney General, Richard Blumenthal

August 31, 2007

The Honorable Pam Law

Commissioner of Revenue Services

25 Sigourney Street

Hartford, CT 06106-5032

Dear Commissioner Law:

 

           This opinion is in response to your request for advice on whether § 33 of Public Act 07-253 (Public Act), which imposes a tax on gross earnings from the provision of community antenna television service, video programming service by satellite, and certified video programming service in the State, conflicts with and is therefore preempted by federal law that limits franchise fees or taxes imposed on cable system operators to 5 percent of gross revenues.  For the reasons set forth below, we conclude that the new tax imposed by the Public Act does not conflict with federal law.1

 

Background

 

          Connecticut law presently imposes a 5 percent tax on the gross earnings of persons operating community antenna television systems, more commonly known as cable operators.  Conn. Gen. Stat. §§ 16-256, 16-258.2  In 2003, the 5 percent gross earnings tax was extended to businesses providing one-way transmission of video programming by satellite.  Id. 

 

The Public Act, entitled “An Act Concerning Certified Competitive Video Services,” establishes a certification and regulatory framework for companies, other than franchised cable operators, that provide video programming services through wireline facilities, a portion of which are located in the public right-of-way, regardless of the technology used.  The Public Act also extends the 5 percent gross earnings tax already imposed on cable operators and satellite video providers to the certified competitive video service providers.  Id., §§ 26-27. 

 

Section 33 of the Public Act will impose an additional tax on gross earnings, at a rate of one-half percent from October 1, 2007 until October 1, 2009, and one-quarter percent thereafter.  Id., § 33(c).  This additional tax will be imposed on the gross earnings of cable operators, satellite video providers, and certified competitive video service providers.  Id.  The revenue derived from this additional tax will be placed in a separate, nonlapsing account within the General Fund, called the “public, educational and governmental programming and education technology investment account.”  Id., § 33(a).  The monies in that account will be expended by the DPUC, with (1) 50 percent available to local and statewide cable advisory councils; public, educational and governmental (PEG) programmers; and PEG studio operators, and (2) 50 percent available to boards of education and other education entities for education technology initiatives.  Id., § 33(b). 

 

          As part of Cable Communications Policy Act of 1984 (Cable Act), Congress restricted the authority of state and local governments to impose franchise fees or taxes on cable system operators.  Under the Cable Act, a cable operator may be required to pay a franchise fee not to exceed five percent of such cable operator’s gross revenues within a twelve-month period.  47 U.S.C. § 542(b).  Franchise fee is defined as “any tax, fee, or assessment of any kind imposed by a franchising authority or other governmental entity on a cable operator or cable subscriber, or both, solely because of their status as such. . . .”  Id., § 542(g)(1).  A franchise fee does not include: (1) “any tax, fee, or assessment of general applicability (including any such tax, fee, or assessment imposed on both utilities and cable operators or their services but not including any tax, fee, or assessment which is unduly discriminatory against cable operators or cable subscribers)”; and (2) “capital costs which are required by the franchise to be incurred by the cable operator for [PEG] access facilities.”  Id., § 542(g)(2)(A), (C).3 

 

Analysis

 

          Under the Supremacy Clause of the United States Constitution, state law that conflicts with federal law is preempted.  Preemption of state law occurs when: (1) Congress has expressed a clear intent to preempt; (2) it is clear that Congress intended to legislate comprehensively and to occupy an entire field; (3) compliance with both state and federal law is impossible; or (4) state law stands as an obstacle to the accomplishment of the purposes of the federal law.  Barnett Bank v. Nelson, 517 U.S. 25, 31 (1996); Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 698-99 (1984). 

 

          The Cable Act expressly provides that “[a]ny provision of law of any State, political subdivision, or agency thereof . . . which is inconsistent with [the Cable Act] shall be deemed to be preempted and superseded.”  47 U.S.C. § 556(c).  Thus, Congress has made it “unmistakably clear” that the Cable Act preempts any inconsistent state law.  Liberty Cablevision of Puerto Rico, Inc. v. Municipality of Caguas, 417 F.3d 216, 221 (1st Cir. 2005) (imposition of franchise fee that is inconsistent with § 542 of the Cable Act is preempted). 

 

          The question whether the additional gross earnings tax under § 33 of the Public Act is preempted turns on whether that tax constitutes a “franchise fee” within the meaning of the Cable Act that exceeds the Cable Act’s 5 percent cap.  The tax appears to meet the general definition of franchise fee under the Cable Act.  It is a tax imposed on a cable operator because of its status as a cable operator.  47 U.S.C. § 542(g)(1). 

 

          That is not, however, the end of the inquiry.  The Cable Act expressly exempts from the definition of franchise fee “any tax, fee, or assessment of general applicability (including any such tax, fee, or assessment imposed on both utilities and cable operators or their services but not including any tax, fee, or assessment which is unduly discriminatory against cable operators or cable subscribers).”  Id., § 542(g)(2)(A) (emphasis added).  The tax under § 33 of the Public Act is imposed not just on cable operators, but also on satellite video programming providers and certified competitive video service providers.  

 

          Guidance on the scope of this exception can be found in the legislative history of the Cable Act.  The House Report for the Cable Act explained: 

 

[A]ny tax of general applicability is not a franchise fee, and not subject to the 5 percent limitation.  This would include such payments as a general sales tax, an entertainment tax imposed on other entertainment businesses as well as the cable operator, and utility or utility user taxes which, while they may differentiate the rates charged to different types of utilities, do not unduly discriminate against the cable operators so as to effectively constitute a tax directed at the cable system.

 

H. R. Rep. No. 98-934, at 64 (1984), reprinted in 1984 U.S.C.C.A.N 4701. 

 

          Thus, the exception for generally applicable taxes is not limited only to taxes that are imposed on the broader general public, such as a sales tax or property tax.  Nor does a tax, such as a gross earnings tax, have to be imposed on all businesses to be considered a tax of general applicability.  A tax imposed on a class of businesses that includes cable operators, even a small class as here, is a tax of general applicability within the meaning of the Cable Act so long as it is not applied in a discriminatory fashion on cable operators.  In re Connecticut Cable Television Ass’n, Inc., 4 FCC Rcd 476, 477 (Jan. 3, 1989), aff’d on recon., 5 FCC Rcd 3962 (Jul. 3, 1990); TCI Cablevision of Ore., Inc. v. City of Eugene, 177 Ore. App. 433, 438-39, 38 P.3d 269, 271-72 (2001), review denied, 334 Ore. 492, 52 P.3d. 1057 (2002).

 

The tax under § 33 of the Public Act can reasonably be characterized as, or analogous to, a tax on utilities as referenced in the statute.  The tax is not imposed only on cable operators, but is extended to other providers of video services.  Moreover, the tax is the same as to cable operators, satellite video service providers and certified competitive video service providers.  It therefore cannot be considered to be unduly discriminatory against cable operators so as to effectively constitute a tax directed at the cable system.  Indeed, it treats them equally.  Accordingly, the tax imposed by § 33 of the Public Act comes within the exception for generally applicable taxes and is not a franchise fee subject to the 5 percent limitation of the Cable Act.4

 

Conclusion

 

          For these reasons, we conclude that the tax under § 33 of the Public Act is not preempted by the Cable Act.

 

Sincerely yours,

 

  

RICHARD BLUMENTHAL

ATTORNEY GENERAL

  

 

Mark F. Kohler

Assistant Attorney General



1 We note that by a decision dated July 26, 2007, the federal district court held that a new video programming service proposed to be offered by AT&T Connecticut, Inc. (AT&T) constitutes a “cable service” and that AT&T is therefore a “cable operator” for purposes of the federal Cable Act.  Office of Consumer Counsel v. Southern New England Tel. Co., No. 3:06cv1106(JBA) (D. Conn. Jul. 26, 2007).  That ruling does not directly affect the issue addressed in this opinion, and this opinion is not intended to address any issues raised by that ruling or AT&T’s status under the Cable Act.

2 The gross earnings tax on cable operators may be reduced by any assessments made to the Department of Public Utility Control pursuant to Conn. Gen. Stat. § 16-49.

3 Also excluded from the definition of franchise fee under federal law are, “in the case of any franchise in effect [as of October 30, 1984], payments which are required by the franchise to be made by the cable operator during the term of such franchise for, or in support of the use of, public, educational, or governmental access facilities.”  47 U.S.C. § 542(g)(2)(B).  This exception is inapplicable here.  It grandfathered requirements in franchises in effect in 1984 for payments supporting PEG access facilities that might exceed the 5 percent limit.  See H.R. Rep. No. 98-934, at 65 (1984), reprinted in 1984 U.S.S.C.A.N. 4702.  Because franchise terms are at most fifteen years, Conn. Gen. Stat. § 16-331(d), any franchise in existence in 1984 would have long since expired.

4 The second possible exception from the definition of franchise fee – “capital costs which are required by the franchise to be incurred by the cable operator for [PEG] access facilities,” 47 U.S.C. § 542(g)(2)(C) – does not appear to be applicable.  Although the revenues from this tax go, in part, to certain PEG programming-related activities, Public Act. § 33(b), the exception is limited to capital costs that the cable operator is obligated to incur for PEG access facilities.


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