Capitol Cablevision Corp. v. Hardesty

• Decision Date: 18 December 1981
• Docket Number: No. 15062,15062
• Citation: 168 W.Va. 631,285 S.E.2d 412
• Parties: , 8 Media L. Rep. 1057 CAPITOL CABLEVISION CORP. v. David C. HARDESTY, Jr., Tax Commissioner, etc.
• Court: West Virginia Supreme Court

Page 412

285 S.E.2d 412

168 W.Va. 631, 8 Media L. Rep. 1057

CAPITOL CABLEVISION CORP. v. David C. HARDESTY, Jr., Tax Commissioner, etc.

No. 15062.

Supreme Court of Appeals of West Virginia.

Dec. 18, 1981.

Syllabus by the Court

1. A corporation, such as a cable television system, which is an integral part of interstate commerce, but which derives its gross income from business activities conducted wholly within the borders of the state, is liable for payment of the state business and occupation tax measured by 100% of the gross West Virginia receipts of such corporation.

2. The constitutional requirement of equal and uniform taxation means that as to classes of property, businesses, or incomes there shall be uniformity of taxation and a tax upon all businesses of the same class, which is uniform as to that class of business, is not unconstitutional.

3. For purposes of imposing the business and occupation taxes, cable television systems are not engaged in the business of "broadcasting" as are conventional television broadcasters.

4. Cable television systems are engaged in a business of a unique nature and the State may enforce a different taxing policy with respect to such companies than it does with respect to conventional television broadcasting companies without violating the constitutional guarantees of equal protection and equal and uniform taxation.

Charles W. Loeb, William D. Highland, Robert J. Kroner, Payne, Loeb & Ray, Charleston, for appellant.

Chauncey H. Browning, Jr., Atty. Gen., E. Wayne Basconi, Asst. Atty. Gen., Charleston, for appellee.

McGRAW, Justice:

Capitol Cablevision Corporation appeals from the judgment of the Circuit Court of Kanawha County which affirmed the decision of the Tax Commissioner of the State of West Virginia ordering the appellant to pay business and occupation taxes. The appellant contends that the Commissioner's decision violates the equal protection provisions of the federal and state constitutions and the mandate of equal and uniform taxation contained in article 10, section 1 of the Constitution of West Virginia. We find no error in the judgment of the circuit court and we affirm the decision.

Capitol Cablevision Corporation (Capitol) is a West Virginia corporation which owns and operates a cable television system, sometimes referred to as a community antenna television system (CATV), in the cities of Charleston, South Charleston and Dunbar. Capitol, which commenced cable television operations in the spring of 1968, operates a typical CATV system. By means of a strategically located antenna, it intercepts the signals of conventional television broadcasting, amplifies them and then transmits the signals by wire or cable to the homes of subscribing viewers. The boosted signal is received only by those persons who subscribe to the CATV system service and arrives in the subscriber's home at almost the same moment it is broadcast. In this manner Capitol is able to offer its subscribers "imported" signals from distant markets which would be impossible to receive on a home antenna, as well as to boost local signals to overcome the obstacles of local terrain.

In addition, Capitol offers its subscribers certain programming not available from conventional broadcasters by means of direct transmissions from the corporation's local studio, independent of over-the-air signals, on its own "local origination" channel. Locally originated programs take two forms. First, Capitol purchases syndicated programs such as film classics and religious programs on the open market and transmits them to its subscribers on the local origination channel. Capitol also produces its own programming, such as local sports events and public service programs, and transmits it to subscribers. Both kinds of "cablecasts" are sent out over the same distribution system as the retransmitted over-the-air signals. During the tax assessment period at issue here, October 1, 1967 to September 30, 1971, Capitol performed both the function of retransmitting conventional broadcast signals and the cablecasting function. ¹

Capitol's revenues were derived principally from subscription and installation fees paid by individual viewers, all of whom live within the state. Capitol attempted to sell advertising time on its local origination channel, but advertising revenues did not form a significant part of its gross receipts. All of Capitol's equipment is located, and all of its employees work, within the boundaries of the state.

On December 19, 1972, the Tax Commissioner issued an assessment against Capitol for unpaid business and occupation taxes in the amount of $16,395.10. Added to the amount of the tax liability was a penalty of $4,169.05, for a total assessment of $20,564.15. The assessment was levied against the gross receipts of Capitol's business activities during the assessment period. After the issuance of the assessment, Capitol filed a petition for reassessment with the Tax Department, and a hearing was held upon the petition on November 21, 1977.

At the hearing, Capitol contended that the assessment was levied against income which was a product of interstate commerce and that the imposition of the tax violated the Commerce Clause of the United States Constitution. Capitol also challenged the assessment on equal protection grounds, alleging that the Commissioner's taxation of cable television operators was disparate and discriminatory in relation to the treatment of conventional broadcasters. It was stipulated that between 1957 and 1974 it was the general policy of the State Tax Department to exempt the gross income of conventional radio and television broadcasters from the business and occupation tax on the ground that broadcasting companies were engaged in business activity that was interstate in nature. ²

By decision dated March 2, 1978, the Commissioner affirmed the assessment of the tax, but waived the penalty. The Commissioner found that while Capitol was engaged in interstate activity insofar as it imported programming from outside the state, the totality of Capitol's revenue was derived from business activities conducted solely within the State of West Virginia. Accordingly, the Commissioner concluded that the imposition of the business and occupation tax against Capitol's gross revenue did not create a burden on interstate commerce. The Commissioner also concluded that since Capitol was not an interstate broadcaster, as were conventional broadcasters, there was no violation of the guarantee of equal protection by virtue of the disparate tax treatment.

Capitol appealed this decision to the Circuit Court of Kanawha County, which, by order filed March 20, 1980, affirmed the final decision of the Commissioner, holding Capitol liable for the assessed business and occupation taxes. It is from that decision that Capitol now appeals.

Capitol's primary assignments of error are the circuit court's findings that Capitol was not engaged in interstate commerce and that the State's exemption of radio and television broadcasting revenues from the business and occupation tax did not violate the guarantee of equal protection. Capitol asserts that it is engaged in interstate commerce and that it is in the same business and offers the same product or service as do conventional broadcasters. Capitol contends that the imposition of the business and occupation tax upon its gross income for the tax assessment period in question subjected it to greater taxation than that imposed upon local broadcasters in violation of the equal protection provisions of the state and federal constitution.

There is little question that the broadcasting of radio or television signals is an activity in interstate commerce. In Fisher's Blend Station, Inc. v. Tax Commissioner, 297 U.S. 650, 56 S.Ct. 608, 80 L.Ed. 956 (1936), the United States Supreme Court, in striking down a state privilege tax assessed against the gross receipts, derived from the sale of air time to advertisers, of a radio broadcasting station whose signals were received by listeners in adjoining states, noted the interstate nature of broadcasting. Comparing the station's radio broadcasts to the transmission of telegraph or telephone messages across state lines, the Court concluded that any transmission of information over state lines, including broadcasting, is a form of "intercourse" which is commerce.

The essential purpose and indispensable effect of all broadcasting is the transmission of intelligence from the broadcasting station to distant listeners. It is that for which the customer pays. By its very nature, broadcasting transcends state lines and is national in its scope and importance- --characteristics which bring it within the purpose and protection, and subject it to the control, of the commerce clause. 297 U.S. at 655, 56 S.Ct. at 610.

See also, Federal Radio Commission v. Nelson Bros. Bond & Mortgage Co., 289 U.S. 266, 53 S.Ct. 627, 77 L.Ed. 1166 (1933).

However, the mere fact that a business is engaged in interstate commerce does not in itself preclude the State from laying a tax on the privilege of doing business in the state. The Court in Fisher's Blend, supra, intimated that had the assessment in that case been apportioned so as to tax only the purely local revenue-generating activities of the radio broadcaster, it would have survived judicial scrutiny. The apportionment rule was succinctly stated in Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823 (1938):

It was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden even though it increases the cost of doing the business. "Even interstate business must pay its way," Postal Telegraph-Cable Co. v. Richmond, 249 U.S. 252, 259, 39 S.Ct. 265, 266, 63 L.Ed. 590; Ficklen v. Shelby County Taxing District, 145 U.S. 1, 24, 12 S.Ct. 810 , 36 L.Ed. 601; Postal Telegraph Cable Co. v....