DIRECTV, LLC v. Dep't of Revenue

• Decision Date: 18 February 2015
• Docket Number: SJC–11658.
• Citation: 25 N.E.3d 258,470 Mass. 647
• Parties: DIRECTV, LLC, & another v. DEPARTMENT OF REVENUE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

470 Mass. 647

25 N.E.3d 258

DIRECTV, LLC, & another¹

v.DEPARTMENT OF REVENUE.

SJC–11658.

Supreme Judicial Court of Massachusetts, Suffolk.

Submitted Nov. 4, 2014.

Decided Feb. 18, 2015.

E. Joshua Rosenkranz, of New York (Jeremy N. Kudon & Nicholas G. Green, of New York, Eric A. Shumsky, of the District of Columbia, & Kelley A. Jordan–Price, Boston, with him) for the plaintiffs.

Pierce O. Cray, Assistant Attorney General (Kirk G. Hanson, Assistant Attorney General, with him) for the defendant.

The following submitted briefs for amici curiae:

Eric S. Tresh, Amelia Toy Rudolph, & Zachary T. Atkins, of Georgia, & Nicholas M. O'Donnell & David Nagle, Boston, for New England Cable & Telecommunications Association.

John Bergmayer, of the District of Columbia, & Karen A. Pickett, Boston, for Public Knowledge.

Kristen S. Scammon, Boston, for Satellite Broadcasting & Communications Association.

John A. Hinman, of California, & Allison M. O'Neil & Jamie C. Notman, Boston, for National Association of Wine Retailers.

Sheldon H. Laskin & Lila D. Disque, of the District of Columbia, for Multistate Tax Commission.

David Parkhurst, of the District of Columbia, & David Hadas, Boston, for National Governors Association.

Present: GANTS, C.J., SPINA, CORDY, BOTSFORD, DUFFLY, LENK, & HINES, JJ.

Opinion

LENK, J.

General Laws c. 64M, § 2, imposes a five per cent excise tax on video programming delivered by direct broadcast satellite (tax). The plaintiffs are two companies that provide services subject to the tax (satellite companies). They brought a complaint for declaratory and injunctive relief in the Superior Court, alleging that the tax violates the commerce clause of the United States Constitution.² The satellite companies contend that the tax discriminates against interstate commerce, both in its effect and in its purpose, by disfavoring them as compared with those companies that provide video programming via cable (cable companies). The satellite and cable companies that operate in Massachusetts are all incorporated and headquartered in other States; the satellite companies argue, however, that the cable companies represent in-State interests inasmuch as their in-State commercial operations are substantially greater than those of the satellite companies.

A Superior Court judge granted summary judgment in favor of the defendant, the Department of Revenue (department). The satellite companies appealed, and we allowed their application for direct appellate review.

We conclude that summary judgment was warranted. The cable companies and the satellite companies are subject to similar tax obligations, which differ primarily in the ways in which they are collected and calculated. These differences are grounded in important characteristics of the cable and satellite companies' respective methods of operation, and in the different regulatory regimes to which they are subject. The satellite companies thus have raised no genuine issue as to the facts material to their claim of discrimination against interstate commerce, and the department

is entitled to judgment as a matter of law.³

1. Facts. We summarize the undisputed facts important to our analysis, focusing on the nature of the video programming industry; the similarities and differences between the methods of operation used by the participants in this industry, namely cable companies and satellite companies; these companies' respective economic impacts on Massachusetts; their respective tax obligations; and the changes to those obligations introduced by the Legislature in 2010.

a. The video programming industry. The service that permits customers to view a variety of video channels on their television sets is known as multi-channel video programming. The satellite companies compete in the market for video programming services primarily with cable companies, including Comcast Corporation (Comcast) and Charter Communications Inc. Verizon Communications, Inc. (Verizon), a telephone company, participates in this market as well. All of the major participants in the market for video programming services, including Verizon, are incorporated and headquartered outside of Massachusetts.

The cable companies and the satellite companies both offer several programming packages. These packages generally include local broadcasts, basic cable channels, premium cable channels, pay-per-view movies and events, and on-demand programming. Customers typically choose between cable and satellite on the basis of considerations such as price, customer service, reception quality, and program offerings.

b. Methods of operation. The methods of operation used by the cable and satellite companies overlap substantially. Both types of company purchase the rights to distribute programming from content providers. Both designate certain percentages of their channel capacity to public, educational, and government programming.⁴ Both advertise their services using television, billboards, mail, newspapers, and the Internet. Both lease some equipment, such as set-top boxes (which convert signals for viewing on television sets) and recording devices, to their subscribers.

The cable companies and the satellite companies differ, however, in the methods by which they assemble and deliver programming to their customers. The cable companies assemble their programming in local facilities known as “headends.” There are approximately sixty headends in Massachusetts. At the headends, programming signals are gathered by satellite dishes and fiber optics equipment. These signals are then processed, packaged, and delivered to customers' homes through networks of cables laid on the ground or hung from buildings and poles.⁵

The satellite companies, by contrast, collect, process, and package their programming at “uplink centers.” Each of the satellite companies has two primary uplink centers nationally. These uplink centers are located outside Massachusetts. Programming signals are transmitted from the uplink centers to satellites orbiting the earth, and then relayed to small receiver dishes mounted on or near customers' homes. The satellite companies maintain small, intermittently-staffed “collection facilities,” which gather content from local broadcast stations and transmit it to the uplink centers.

c. Economic impact. The methods of assembly and delivery used by cable and satellite result in different impacts on the Commonwealth's economy. From 2006 to 2010, the cable companies spent more than $1.6 billion in Massachusetts, including investments in headend facilities, cable networks, and vehicles. As of 2010, the cable companies employed approximately 5,500 people in Massachusetts.

The satellite companies, on the other hand, hire relatively few employees in Massachusetts. Their expenditures on facilities and equipment are concentrated primarily on their out-of-State uplink centers. The satellite companies also pay fees to the Federal government for the right to locate their satellites in outer space and to use certain transmission frequencies.

d. Tax obligations. Both the cable companies and the satellite companies are subject to real property taxes in Massachusetts, and both pay personal property taxes on possessions located in the Commonwealth. They both pay State income taxes, and they collect and remit sales tax on certain transactions.

The cable companies, in addition, pay “franchise fees” to local governments. The rates of these fees are determined in negotiated

agreements. Under Federal law, franchise fees may be no higher than five per cent of a cable company's gross revenue from the provision of cable services. See 47 U.S.C. § 542(b) (2012). Typically, the fees charged in Massachusetts are three to five per cent of gross revenue. Local governments also usually impose an additional fee on cable companies, at an average rate of 1.09% of gross revenue, dedicated to supporting public, educational, and government programming. In addition to these fees, cable companies ordinarily are required by local governments to (a) provide services, facilities, and equipment for the use of public, educational, and governmental channels; (b) deliver free video programming services to municipal buildings, schools, and libraries; and (c) meet certain service quality and customer service requirements.⁶ A Federal statute prohibits the imposition of any such fees or taxes on the satellite companies at the local level, but it permits the taxation of the satellite companies by the States. See Telecommunications Act of 1996 § 602, P.L. 104–104, 110 Stat. 144 (reprinted in notes following 47 U.S.C. § 152 [2012] ) (Telecommunications Act).

e. Changes introduced in 2010. The Act making appropriations for the fiscal year 2010,⁷ St. 2009, c. 27 (2010 appropriations act), introduced two significant changes to the scheme of taxation that governs the video programming industry. First, the 2010 appropriations act established the excise tax. See St. 2009, c. 27, § 61, enacting G.L. c. 64M. The excise tax is imposed upon the satellite companies at a rate of five per cent of their gross revenues derived from the provision of video programming in Massachusetts. See G.L. c. 64M, §§ 1, 2. The satellite companies pass on the cost of the excise tax to their customers. See G.L. c. 64M, § 3.⁸

The 2010 appropriations act also imposed a personal property

tax on “[p]oles, underground conduits, wires and pipes of telecommunications companies.” St. 2009, c. 27, § 25, amending G.L. c. 59, § 18. “[T]elecommunications companies” are defined to include “cable television, [I]nternet service, telephone service, data service and any other telecommunications service providers.” Id. In essence, this provision increased the personal property tax liability of the cable and telephone companies, but not of the satellite companies (which do not use poles, wires, and the like).

2. Legal framework. a. Summary judgment. We review a grant of summary judgment de novo. See Federal Nat'l Mtge. Ass'n v....