Directv Inc. v. Levin

• Decision Date: 27 December 2010
• Docket Number: No. 2009–0627.,2009–0627.
• Citation: 128 Ohio St.3d 68,941 N.E.2d 1187
• Parties: DIRECTV, INC. et al., Appellants,v.LEVIN, Tax Commr., Appellee.
• Court: Ohio Supreme Court

128 Ohio St.3d 68

941 N.E.2d 1187

2010 -Ohio- 6279

DIRECTV, INC. et al., Appellants,

v.LEVIN, Tax Commr., Appellee.

No. 2009–0627.

Supreme Court of Ohio.

Submitted Oct. 13, 2010.Decided Dec. 27, 2010.

[Ohio St.3d 69]

Syllabus of the Court

1. The Commerce Clause of the United States Constitution protects the interstate market, not particular interstate firms or particular structures or methods of operation in a retail market. ( Exxon Corp. v. Gov. of Maryland (1978), 437 U.S. 117, 98 S.Ct. 2207, 57 L.Ed.2d 91, followed.)

2. The imposition of a sales tax by the Ohio General Assembly on satellite broadcasting services but not on cable broadcasting services does not violate the Commerce Clause of the United States Constitution, because the tax is based on differences between the nature of those businesses, not the location of their activities, and it does not favor in-state interests at the expense of out-of-state interests. ( Kentucky Dept. of Revenue v. Davis (2008), 553 U.S. 328, 128 S.Ct. 1801, 170 L.Ed.2d 685; Amerada Hess Corp. v. Dir., Div. of Taxation, New Jersey Dept. of Treasury (1989), 490 U.S. 66, 109 S.Ct. 1617, 104 L.Ed.2d 58; and DIRECTV, Inc. v. Treesh (C.A.6, 2007), 487 F.3d 471, followed.)

Orrick, Herrington & Sutcliff, L.L.P., E. Joshua Rosenkranz, and Jeremy N. Kudon, New York City; Steptoe & Johnson, L.L.P., Pantelis Michalopoulos, and Mark F. Horning, Washington, DC; and Calfee, Halter & Griswold, L.L.P., and Peter A. Rosato, Columbus, for appellants.

Richard Cordray, Attorney General, and Lawrence D. Pratt, Alan P. Schwepe, Julie E. Brigner, Damion M. Clifford, and Barton A. Hubbard, Assistant Attorneys General, for appellee.David Parkhurst, Los Angeles, CA; and Vorys, Sater, Seymour & Pease, L.L.P., and Robert J. Krummen, Columbus, urging affirmance for amicus curiae National Governors Association.Sutherland, Asbill & Brennan, L.L.P., and Eric S. Tresh, Atlanta, GA; Walter Hellerstein, Athens, GA; and Vorys, Sater, Seymour & Pease, L.L.P., Douglas R. Matthews, and Michael J. Hendershot, Columbus, urging affirmance for amici curiae Time Warner Cable, ComCast, and Cox Communications.John A. Swain and David C. Crago, urging affirmance for amicus curiae Ohio Cable Telecommunications Association.Fleischman & Harding, L.L.P., Arthur H. Harding, Craig A. Gilley, and Micah M. Caldwell, Washington, DC; and Ulmer & Berne, L.L.P., and Donald J. Mooney Jr., Cincinnati, urging affirmance for amicus curiae Institute for Policy Innovation.Roy Cooper, North Carolina Attorney General, Christopher G. Browning Jr., Solicitor General, Gary R. Govert, Special Deputy Attorney General, and Michael D. Youth, Assistant Attorney General; Mark L. Shurtleff, Utah Attorney General, and Annina M. Mitchell, Solicitor General, urging affirmance for amici curiae states of North Carolina, Utah, Delaware, Florida, Illinois, Kansas, Kentucky, Maryland, Michigan, Mississippi, Missouri, Rhode Island, Tennessee, Virginia, and West Virginia.Shirley K. Sicilian, and Sheldon H. Laskin, Baltimore, MD, urging affirmance for amicus curiae Multistate Tax Commission.Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., Marcus W. Trathen, Charles F. Marshall, and Julia C. Ambrose, Raleigh; and Kegler, Brown, Hill & Ritter, L.P.A., and Paul D. Ritter Jr., Columbus, urging affirmance for amicus curiae National Conference of State Legislatures.Jones Day, Douglas R. Cole, and Erik J. Clark, Columbus, urging reversal for amicus curiae Constitutional Law Professors.Hinman & Carmichael, L.L.P., and John A. Hinman, San Francisco, CA, urging reversal for amicus curiae Specialty Wine Retailers Association.Mark C. Ellison, Washington, DC, urging reversal for amicus curiae National Rural Telecommunications Cooperative.Chester, Willcox & Saxbe, L.L.P., Gerhardt A. Gosnell II, and Donald C. Brey, Columbus, urging reversal for amicus curiae Satellite Broadcasting and Communications Association, ACE Satellite, Buckeye Dish Installation, Inc., Cable Alternatives, Primeview Satellite, Kidwell Satellite, Richland County Satellite, Premiere Satellite & Electronics, Inc., Wells Family Equipment, Thobe TV, Felix Electronics, Vince's TV & Appliance, Digi–Tech Satellite, Dudley Satellites, George's Electronics, Inc., and Progressive Satellite.

O'DONNELL, J.

{¶ 1} DIRECTV, Inc., and EchoStar Satellite, L.L.C. (“the satellite companies”) appeal from a decision of the Tenth District Court of Appeals and ask us to consider whether the imposition of a sales tax on the retail sale of satellite broadcasting services without also imposing the same tax on cable broadcasting services violates the Commerce Clause of the United States Constitution. As other jurisdictions that have considered this same issue have done, we conclude that the Commerce Clause protects the interstate market, not particular interstate firms or particular structures or methods of operation in a retail market. The imposition of a sales tax by the Ohio General Assembly on satellite broadcasting services but not on cable broadcasting services does not violate the Commerce Clause of the United States Constitution, because the tax is based on differences between the nature of those businesses, not the location of their activities, and it does not favor in-state interests at the expense of out-of-state interests. Accordingly, the judgment of the court of appeals is affirmed.

Factual History

Satellite and Cable Broadcasting Services

{¶ 2} The satellite companies provide pay-television programming services to consumers in Ohio and other states using satellites in fixed orbits above the [Ohio St.3d 70] earth. The satellite companies purchase signals for this programming from local broadcast stations, broadcast television networks (ABC, CBS, Fox, and NBC), and providers of cable programming (such as CNN, ESPN, and HBO). They then transmit these signals from uplinks located outside Ohio to the satellites, which in turn send the signal directly to small satellite dish antennas mounted on or near the home of the subscriber to be received by a decoder box and displayed on the subscriber's television. Other than the antenna and receiver at the subscriber's home, this method of delivery does not require the use of additional ground-receiving and/or distribution facilities in Ohio.

{¶ 3} In the pay-television market, the satellite companies—neither of which is headquartered in Ohio—compete with cable companies, which use ground receiving and distribution facilities to provide television programming to customers. For cable television distribution, the process begins at the “headend,” a facility, usually located in or near the franchise area, that contains the collection of antennas that the cable television provider uses to gather programming from local, in-state, and out-of-state sources. However, with cable company consolidation and technological advances, there has been a reduction in the number of headends, and some cable companies use headends located out of state. From the headend, coaxial or fiber-optic cables and amplifiers located either on utility poles or below the ground carry the signal to “hubs” servicing areas of 10,000 to 20,000 customers, which then direct the signal through feeder lines to “nodes” serving particular neighborhoods.

{¶ 4} These cables run along public rights of way, and cable companies enter franchise agreements with local governments and pay a franchise fee to secure this right of access. The franchise fee may vary by locality, but federal law prohibits the fee from exceeding five percent of gross revenues. While the cable companies' mode of distribution necessitates a local footprint, none of the major cable companies operating in Ohio are headquartered in Ohio, and all serve an interstate market.

The Sales Tax on Satellite Broadcasting Service

{¶ 5} Prior to 2003, Ohio did not tax sales of cable or satellite television service. That year, however, the General Assembly considered a bill that would have taxed sales of both services equally. H.B. No. 95, as introduced in the 125th General Assembly, proposed to enact R.C. 5739.01(B)(3)(q) to define “sale” as including “transactions by which * * * [c]able and satellite television service is or is to be provided.” As a result, the cable and satellite television industries retained lobbyists to protect their interests, and ultimately the legislature amended the bill to enact a sales tax on “satellite broadcasting service” alone. See R.C. 5739.01(B)(3)(p) (150 Ohio Laws, Part I, 396, and Part II, 1996). The General Assembly's definition of “satellite broadcasting service” in R.C. 5739.01(XX) does [Ohio St.3d 71] not include transactions involving the distribution of pay-television programming using ground receiving or distribution equipment, and the sale of cable television programming is therefore not subject to the tax.

Procedural History

{¶ 6} In response to this legislation, the satellite companies filed a declaratory-judgment complaint in the Franklin County Common Pleas Court seeking a declaration that the tax on sales of satellite television service but not on sales of cable television service had both the purpose and effect of favoring in-state economic interests in violation of the Commerce Clause.

{¶ 7} The trial court entered a partial summary judgment in favor of the satellite companies, declaring the sales tax on satellite broadcasting services to be unconstitutional because “[t]he differential tax treatment of [satellite and cable television providers] is directly correlated with whether they use certain local ground receiving and distribution equipment. * * * [T]he practical effect of the differential tax treatment is to benefit in-state economic interests while burdening out-of-state economic interests, thereby discriminating against interstate commerce in violation of the Commerce Clause * * *.” (Emphasis sic.)

{¶ 8} The trial court also concluded that a genuine issue of material fact existed...