Directv, Inc. v. Levin

• Decision Date: 12 February 2009
• Docket Number: No. 08AP-32.,08AP-32.
• Citation: 907 N.E.2d 1242,2009 Ohio 636,181 Ohio App.3d 92
• Parties: DIRECTV, INC. et al., Appellees and Cross-Appellants, v. LEVIN, Tax Commr., Appellant and Cross-Appellee.
• Court: Ohio Court of Appeals

907 N.E.2d 1242

181 Ohio App.3d 92

2009-Ohio-636

DIRECTV, INC. et al., Appellees and Cross-Appellants, v. LEVIN, Tax Commr., Appellant and Cross-Appellee.

No. 08AP-32.

Court of Appeals of Ohio, Tenth District, Franklin County.

Decided February 12, 2009.

Steptoe & Johnson L.L.P., Pantelis Michalopoulos, Mark F. Horning, and Jeffrey M. Theodore, Washington, DC; Calfee, Halter & Griswold L.L.P., James F. Lang, Cleveland, Peter A. Rosato, and Flite H. Freimann, Columbus; and Heller Ehrman L.L.P., E. Joshua Rosenkranz, New York, NY, Eric Shapland, Los Angeles, CA, and Randy J. Kozel, for appellees and cross-appellants.

Richard Cordray, Attorney General, Lawrence D. Pratt, Section Chief, and Alan P. Schwepe, Julie E. Brigner, and Damion M. Clifford, Assistant Attorneys General, for appellant and cross-appellee.

Sutherland Asbill & Brennan L.L.P., Eric S. Tresh, and Walter Hellerstein, Athens, GA; and Vorys, Sater, Seymour & Pease L.L.P., Douglas R. Matthews, Columbus, and Kevin M. Czerwonka, for amicus curiae Time Warner Cable, Inc.

GREY, Judge.

{¶ 1} Defendant-appellant, Richard A. Levin, in his capacity as tax commissioner of the state of Ohio, appeals from a judgment of the Franklin County Court of Common Pleas in favor of plaintiffs-appellees, DIRECTV, Inc. and EchoStar Satellite Corporation ("DIRECTV" and "EchoStar," or collectively, "plaintiffs"). The plaintiffs have cross-appealed on some subsidiary aspects of the trial court's decision.

{¶ 2} The issue raised in this case is the constitutionality of various Ohio sales tax provisions affecting satellite television providers and cable television providers.

{¶ 3} In 2003, the Ohio General Assembly amended the state sales tax statutes to make retail sales of satellite broadcasting services subject to the general sales tax rate of six percent. (The general rate was later reduced to 5.5 percent.) Pertinent sections include R.C. 5739.01(B)(3)(q), 5739.02, and 5741.02. The amended statutes specifically define what constitutes a "satellite broadcasting service": "[D]istribution or broadcasting of programming or services by satellite directly to the subscriber's receiving equipment without the use of ground receiving or distribution equipment, except the subscriber's receiving equipment or equipment used in the uplink process to the satellite * * *." R.C. 5739.01(XX). This definition excludes cable television service providers, who necessarily employ "ground receiving or distribution equipment" to deliver programming to their customers. Although cable television providers do not collect the general state sales tax from their customers, they continue to pay local franchise taxes in areas where they provide service. The imposition of these local franchise taxes is independent of the state sales tax provisions at issue in this case and, although the parties' arguments address the relative burdens and benefits of these two tax elements, the role of the local franchise taxes is ultimately not important to our analysis of the case.

{¶ 4} Plaintiffs challenged the sales tax imposed on satellite television consumers and collected by satellite television providers, and the concomitant exemption from taxation of cable television, on the ground that it violates the Commerce Clause of the United States Constitution by favoring in-state economic interests and placing an undue burden on interstate commerce, i.e., that the differential taxation provides "a direct commercial advantage to locally franchised cable television systems that is not provided to satellite television companies * * *."

{¶ 5} After allowing extensive discovery, the trial court eventually decided the matter in successive decisions addressing two rounds of summary judgment motions filed by the parties. Although the trial court concluded that the Ohio tax statutes did not facially or purposely discriminate against interstate commerce, the trial court found that the tax scheme was discriminatory in effect and impermissibly burdened satellite providers by increasing the net costs to television consumers for satellite service in comparison to cable service. In doing so, the trial court concluded that the satellite providers were out-of-state interests engaging in interstate commerce, and conversely that the cable companies were in-state economic interests. The trial court reached this conclusion primarily by comparing the relative size of the staff and physical plant used in Ohio by the two types of pay television (both have a physical presence, including employees, in Ohio, although cable television's is substantially larger) rather than the other aspects of commercial activity and scope that might establish whether one class of competitor is engaged in interstate commerce and the other not.

{¶ 6} The commissioner brings the following nine assignments of error on appeal:

1. The Trial Court erred in entering Summary Judgment in favor of Plaintiffs DIRECTV, Inc. and EchoStar Satellite Corporation on Count I of their Complaint in that the Trial Court a) declared that R.C. §§ 5739.01(B)(3)(q) (now renumbered R.C. § 5739.01(B)(3)(p)), 5739.01(XX), 5739.01(AA)(4), 5739.02, 5739.021, 5739.023, 5739.026, 5741.02, 5741.021, 5741.022 and 5741.023, are unconstitutional to the extent that they impose sales and use taxes on the retail sales of "`satellite broadcasting services', while not imposing the taxes on the retail sales of the cable television industry" and therefore discriminate in practical effect against interstate commerce in violation of the Commerce Clause of the U.S. Constitution; and b) permanently enjoined Defendant Tax Commissioner and others "from taking any action to levy or collect sales and use taxes from Plaintiffs for the retail sales of satellite television services."

2. The Trial Court erred in denying, with the sole exception of finding no facial discrimination, Summary Judgment to Defendant Tax Commissioner on Count I of the Complaint, to wit, that R.C. §§ 5739.01(B)(3)(q) (now renumbered R.C. § 5739.01(B)(3)(p)), 5739.01(XX), 5739.01(AA)(4), 5739.02, 5739.021, 5739.023, 5739.026, 5741.02, 5741.021, 5741.022 and 5741.023, do not discriminate against interstate commerce and/or do not violate the Commerce Clause of the U.S. Constitution.

3. The Trial Court erred in entering Partial Summary Judgment in favor of Plaintiffs DIRECTV, Inc. and EchoStar Satellite Corporation on Count I of their Complaint and concomitantly denying Defendant Tax Commissioner's 6/16/04 Motion for Summary Judgment in that the Trial Court declared with respect to Count I that a) "in their practical operation, the tax provisions at issue benefit in-state economic interests and burden out-of-state economic interests"; and b) "the sales and use taxes as applied to direct broadcasting television service providers do not qualify as `compensatory taxes'."

4. The Trial Court erred in denying Defendant Tax Commissioner's 6/16/04 Motion for Summary Judgment "on the issues of whether there was purposeful discrimination and whether cable television providers and direct broadcast satellite providers are `similarly situated.'"

5. The Trial Court erred in denying Defendant Tax Commissioner's 9/20/2006 Motion for Reconsideration "[t]o the extent that the Commissioner asks the Court to modify or vacate its earlier decisions."

6. The Trial Court erred in granting Plaintiffs' 12/22/06 Second Motion for Summary Judgment and concomitantly denying Defendant Tax Commissioner's 12/26/06 (Second) Motion for Summary Judgment, thereby concluding that a) the cable broadcasting industry and satellite broadcasting industry are "similarly situated" for dormant Commerce Clause purposes; b) the "Defendant has not met the State's burden of justifying the discrimination against interstate commerce that exists in this case"; and c) "the Ohio sales and use taxes are unconstitutional to the extent, that they apply to direct broadcasting satellite television services while not applying to cable television services."

7. The Trial Court erred in granting Plaintiffs' 11/6/06 Motion for Protective Order thereby quashing Defendant Tax Commissioner's October 31, 2006, Deposition subpoenas and further prohibiting the Defendant from discovering and presenting information directly relevant and material to the Trial Court's novel rationale for determining Commerce Clause discrimination.

8. The Trial Court erred in admitting into evidence and giving substantial weight to the written positions of lobbyists as evidence of the General Assembly's purpose in adopting amendments to Ohio's sales and use tax provisions and/or as evidence of whether Satellite and Cable Companies are "similarly situated."

9. The Trial Court erred in ruling that it was proper to consider the individual thoughts of members of the General Assembly in determining the General Assembly's purpose in adopting amendments to Ohio's sales and use tax provisions and/or as evidence of whether Satellite and Cable Companies are "similarly situated."

{¶ 7} The plaintiffs have filed a cross-appeal and bring the following three assignments of error:

1. The trial court erred in finding that it lacked authority to order the repayment of unlawfully collected taxes despite the plain language of R.C. 2723.01.

2. The trial court erred in requiring plaintiffs-cross-appellants ("plaintiffs") to apply for refunds through the administrative process set forth in R.C. 5739.07, which does not apply to challenges to the validity of a tax law and which imposes requirements virtually impossible to satisfy in this type of case.

3. The trial court erred in holding that plaintiffs are not entitled to reimbursement of their attorneys' fees and costs out of the common fund that they created through this litigation.

{¶ 8} We initially note that this matter was decided in the trial court by summary judgment, which under Civ.R. 56(C) may be granted only when there remains no genuine issue of material fact, the...