DirecTV, Inc. v. State

• Decision Date: 11 June 2015
• Docket Number: Nos. 1D13–5444,1D14–0292.,s. 1D13–5444
• Parties: DIRECTV, INC., n/k/a Directv, LLC, and Echostar Satellite, L.L.C., n/k/a Dish Network, L.L.C., Appellants, v. STATE of Florida, DEPARTMENT OF REVENUE, Marcus and Patricia Ogborn, on Behalf of Themselves and Others Similarly Situated, Jim Zingale, Acting in his Official Capacity as the Director of the Florida Department of Revenue, and Florida Cable Telecommunications Association, Appellees.
• Court: Florida District Court of Appeals

218 So.3d 895

DIRECTV, INC., n/k/a Directv, LLC, and Echostar Satellite, L.L.C., n/k/a Dish Network, L.L.C., Appellants,

v.STATE of Florida, DEPARTMENT OF REVENUE, Marcus and Patricia Ogborn, on Behalf of Themselves and Others Similarly Situated, Jim Zingale, Acting in his Official Capacity as the Director of the Florida Department of Revenue, and Florida Cable Telecommunications Association, Appellees.

Nos. 1D13–5444

1D14–0292.

District Court of Appeal of Florida, First District.

June 11, 2015.

ROBERTS, J.

This appeal arises from a final summary judgment finding that section 202.12(1), Florida Statutes, which imposes a higher tax rate on satellite services than on cable services, is constitutional. The Appellants, Directv, Inc. and Echostar, L.L.C. ("the satellite companies"), contend that the statute unconstitutionally discriminates against interstate commerce in both effect and purpose, which is in violation of the Commerce Clause. We agree and reverse.

I. Factual background

A. Cable and satellite companies

The satellite companies provide multi-channel video programming to subscribers in Florida and nationwide by means of satellites stationed above the earth. These satellites gather and transmit the programming signals from uplink facilities located in Arizona, California, Colorado, and Wyoming. Subscribers in Florida receive programming by means of small satellite dishes mounted on or near their homes. As such, satellite companies do not utilize local infrastructure because they transmit their signals directly to their subscribers.

Cable companies, on the other hand, provide multi-channel video programming using local distribution facilities. Specifically, cable companies distribute their programming from headends spread throughout the state that compile the programming and deliver the packages to customers using coaxial or fiber optic cables that are laid across the state in a ground-based network and usually utilize public rights-of-way.

B. The Communications Services Tax

Before 2001, Florida's sales tax on television services was six percent for all subscribers regardless of whether the provider was a cable or satellite company. § 212.05, Fla. Stat. (1999). Cable companies were required to pay franchise fees or rent to local governments in order to use the local rights-of-way for their ground-based networks. However, in 2001, the Florida Legislature passed the Communications Services Tax Simplification Law ("the CST"), which imposed a differential tax rate for cable and satellite services. § 202.12(1), Fla. Stat. (2001) (taxing cable service at 6.8 percent and satellite service at 10.8 percent). Currently, cable service is taxed at a rate of 6.65 percent, and satellite service is taxed at a rate of 10.8 percent. § 202.12(1), Fla. Stat. (2014). It is this difference in taxation rates that the satellite companies allege violates the dormant Commerce Clause.

II. Procedural background

The satellite companies filed suit in 2005 seeking a declaratory judgment holding the sales tax provision in the CST unconstitutional, a permanent injunction against the enforcement of the provision, and a refund of the taxes paid pursuant to the provision.¹ In ruling on cross-motions for summary judgment, the trial court held that section 202.12(1), Florida Statutes, does not violate the Commerce Clause because it does not benefit in-state economic interests or similarly-situated entities.

III. Standard of review

An order granting summary judgment is reviewed de novo to determine whether there are genuine issues of material fact and whether the trial court properly applied the correct rule of law. Futch v. Wal-Mart Stores, Inc., 988 So.2d 687, 690 (Fla. 1st DCA 2008). "Summary judgment should be affirmed only if the movant has proven the nonexistence of any material factual dispute." Auto-Owners Ins. Co. v. Young, 978 So.2d 850, 852 (Fla. 1st DCA 2008). In considering a motion for summary judgment, the court must draw all reasonable inferences from the evidence in favor of the non-moving party, and even the slightest doubt as to the existence of a disputed issue of material fact will preclude summary judgment. See Laidlaw v. Krystal Co., 53 So.3d 1128, 1129 (Fla. 1st DCA 2011).

IV. Tax refund — facial challenge

The Appellee, the Department of Revenue ("the Department"), argues that the satellite companies cannot seek a tax refund because they failed to exhaust the available administrative remedies. To receive a tax refund, a taxpayer must file a refund application with the Department. § 215.26(2), Fla. Stat. (2005). If the refund application is denied, the taxpayer can contest the denial in the circuit court. § 72.011(2)(a), Fla. Stat. (2005). Here, there is no evidence in the record that the satellite companies filed a refund application. As such, the Department is correct that the parties failed to exhaust the available administrative remedies.

However, there is an exception to the process required by Chapter 215. If a taxpayer is seeking a refund pursuant to section 215.26, Florida Statutes, and the sole basis for the refund is that the statute imposing the tax is facially unconstitutional, the circuit court will have jurisdiction despite the taxpayer's failure to exhaust administrative remedies. Sarnoff v. Fla. Dep't of Highway Safety & Motor Vehicles, 825 So.2d 351, 357 (Fla.2002). This exception is known as the direct-file exception. Id.

The Department argues the direct-file exception is inapplicable here because this is not a facial challenge to the statute. This Court describes a facial challenge as follows:

A facial challenge to a statute is more difficult than an "as applied" challenge because the challenger must establish that no set of circumstances exists under which the statute would be valid. Except in a First Amendment challenge, the fact that the act might operate unconstitutionally in some hypothetical circumstance is insufficient to render it unconstitutional on its face; such a challenge must fail unless no set of circumstances exists in which the statute can be constitutionally applied. A facial challenge considers only the text of the statute, not its application to a particular set of circumstances, and the challenger must demonstrate that the statute's provisions pose a present total and fatal conflict with applicable constitutional standards.

Cashatt v. State, 873 So.2d 430, 434 (Fla. 1st DCA 2004).

Here, the satellite companies argue that there is no set of circumstances in which the CST would be valid because the text of the statute shows it was enacted with a discriminatory purpose and has a discriminatory effect, which violates the Commerce Clause. The Department counters that arguments regarding discriminatory purpose and effect cannot be facial challenges. For the basis of its argument, the Department references the following United States Supreme Court quote: "[A] tax may violate the Commerce Clause if it is facially discriminatory, has a discriminatory intent, or has the effect of unduly burdening interstate commerce." Amerada Hess Corp. v. Dir., Div. of Taxation, N.J. Dep't of Treasury, 490 U.S. 66, 75, 109 S.Ct. 1617, 104 L.Ed.2d 58 (1989). The Department has interpreted this statement to mean that arguments regarding discriminatory intent or effect cannot be facial challenges. This is an incorrect interpretation of this statement. The Department is conflating a type of general constitutional challenge with a specific type of Commerce Clause challenge. A party can pose a facial challenge to a statute by arguing that there is no set of circumstances where it could apply constitutionally because of its discriminatory purpose or its discriminatory effect on interstate commerce. Because this is the satellite companies' argument, the direct-file exception applies, and this Court can properly consider the effect and purpose arguments.

V. Commerce Clause

The Commerce Clause states, "The Congress shall have power to ... regulate Commerce with foreign Nations, and among the several states." Article I, § 8, cl. 3, U.S. Const. Attendant with this grant of authority to Congress, the United States Supreme Court has recognized a dormant Commerce Clause, which limits the states' power to regulate interstate commerce. Simmons v. State, 944 So.2d 317, 329 (Fla.2006). A state or local regulation violates the dormant Commerce Clause if the regulation treats out-of-state commerce differently from in-state commerce. Reinish v. Clark, 765 So.2d 197, 211 (Fla. 1st DCA 2000). To discriminate, the statute must place a greater economic burden on those industries or companies outside the state and give an economic advantage to those operating within the state. Id.; see also Simmons, 944 So.2d at 330 ("[S]tatutes that openly discriminate against out-of-state economic interests in order to protect in-state interests are subject to a per se rule of invalidity."). Where a law is found to be discriminatory, it will be stricken as a violation of the Commerce Clause without any additional inquiry. Reinish, 765 So.2d at 211.

There are three ways in which a statute can discriminate against out-of-state interests: (1) it may be facially discriminatory; (2) it may discriminate in its practical effect; or (3) it may have a discriminatory intent. Amerada Hess, 490 U.S. at 75, 109 S.Ct. 1617. Here, the satellite companies argue that the sales tax portion of the CST is discriminatory in effect and purpose.

1. Discriminatory effect

A state law is discriminatory in effect if it affects similarly-situated entities in a market by imposing disproportionate burdens on out-of-state interests and conferring advantages upon in-state interests. Family Winemakers of Cal. v. Jenkins, 592 F.3d 1, 10 (1st Cir.2010) (citing to Or. Waste Sys., Inc. v. Dep't of Envtl. Quality, 511 U.S. 93, 99, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994) & Gen. Motors Corp. v. Tracy, 519 U.S. 278, 298, 117 S.Ct. 811, 136 L.Ed.2d 761 (1997)). Here, the sales tax portion...