Fla. Dep't of Revenue v. DirecTV, Inc.

• Decision Date: 13 April 2017
• Docket Number: No. SC15–1249,SC15–1249
• Citation: 215 So.3d 46
• Parties: FLORIDA DEPARTMENT OF REVENUE, et al., Appellants, v. DIRECTV, INC., etc., et al., Appellees.
• Court: Florida Supreme Court

215 So.3d 46

FLORIDA DEPARTMENT OF REVENUE, et al., Appellants,

v.DIRECTV, INC., etc., et al., Appellees.

No. SC15–1249

Supreme Court of Florida.

[April 13, 2017]

Pamela Jo Bondi, Attorney General, J. Clifton Cox, Special Counsel, and Rachel Nordby and Jonathan L. Williams, Deputy Solicitors General, Tallahassee, Florida, for Appellant Florida Department of Revenue

Eric S. Tresh, Amelia Toy Rudolph, and Zachary T. Atkins of Eversheds Sutherland (US) LLP, Atlanta, Georgia; David A. Konuch, Tallahassee, Florida; and Walter Hellerstein, Athens, Georgia, for Appellant Florida Cable Telecommunications Association, Inc.

Katherine E. Giddings and Kristen M. Fiore of Akerman LLP, Tallahassee, Florida; Peter O. Larsen and Timothy J. McDermott of Akerman LLP, Jacksonville, Florida; E. Joshua Rosenkranz, Jeremy N. Kudon, and Nicholas G. Green of Orrick, Herrington & Sutcliffe LLP, New York, New York; and Eric A. Shumsky of Orrick, Herrington & Sutcliffe LLP, Washington, District of Columbia, for Appellees

Gigi Rollini of Messer Caparello, P.A., Tallahassee, Florida, for Amicus Curiae Public Knowledge

John S. Mills, Courtney R. Brewer, and Andrew D. Manko of The Mills Firm, P.A., Tallahassee, Florida, for Amicus Curiae Satellite Broadcasting and Communications Association

John A. Hinman of Hinman Carmichael LLP, San Francisco, California; and Christine Davis Graves of Carlton Fields Jorden Burt, P.A., Tallahassee, Florida, for Amicus Curiae National Association of Wine Retailers

QUINCE, J.

This case is before the Court on appeal from the decision of the First District Court of Appeal in DIRECTV, Inc. v. State, Department of Revenue , 40 Fla. L. Weekly D1375, ––– So.3d ––––, 2015 WL 3622354 (Fla. 1st DCA June 11, 2015), where the district court expressly declared a state statute invalid. We have jurisdiction to review the decision. See art. V, § 3(b)(1), Fla. Const. Because we find that the statute involved does not violate the dormant Commerce Clause, we reverse the decision of the First District.

FACTS AND PROCEDURAL HISTORY

In 2005, DIRECTV, Inc. and Echostar, L.L.C. (the satellite companies) filed suit in the trial court, "seeking a declaratory judgment holding the sales tax provision in the [Communications Services Tax] unconstitutional, a permanent injunction against the enforcement of the provision, and a refund of the taxes paid pursuant to the provision." DIRECTV, Inc. , 40 Fla. L. Weekly at D1375, ––– So.3d at ––––. Enacted in 2001, the Communications Services Tax (CST) imposed a 6.8 percent tax rate on cable service and a 10.8 percent tax rate on satellite service. § 202.12(1), Fla. Stat. (2005). Presently, cable service is taxed at 4.92 percent and satellite is taxed at 9.07 percent. § 202.12(1), Fla. Stat. (2015). It is this difference, according to the satellite companies, that violates the dormant Commerce Clause. The trial court disagreed, and "[i]n ruling on cross-motions for summary judgment," found 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." Id.

The satellite companies appealed the decision to the First District, arguing that the statute unconstitutionally discriminates against interstate commerce in both its effect and purpose. Id. The First District agreed with the satellite companies and reversed the decision of the trial court. Id. at D1378–79, ––– So.3d at –––– – ––––. The district court noted that satellite companies and cable companies were similarly situated because they both "operate in the same market and are direct competitors within that market." Id. at D1376, ––– So.3d at ––––. Moreover, the district court found cable companies to be in-state interests due to their local infrastructure and local employment. Id. at D1377, ––– So.3d at ––––. The district court held that "because the CST favors communications that use local infrastructure, it has a discriminatory effect on interstate commerce." Id. However, the court did not find that the statute was discriminatory in its purpose. Id. at D1378–79, ––– So.3d at –––– – ––––.

Now before this Court, Appellants Florida Department of Revenue and the Florida Cable Telecommunications Association, Inc. (FCTA) argue that section 202.12(1) of the CST does not discriminate in its effect or its purpose and the satellite companies are not entitled to a refund for the taxes paid. This Court reviews decisions evaluating a statute's constitutionality de novo. Fla. Dept. of Revenue v. City of Gainesville , 918 So.2d 250, 256 (Fla. 2005). All statutes come "clothed in a presumption of constitutionality," and this Court will invalidate a statute only if a challenger has shown its invalidity "beyond reasonable doubt." Crist v. Fla. Ass'n of Criminal Def. Lawyers, Inc. , 978 So.2d 134, 139 (Fla. 2008).

ANALYSIS

The statute at issue in this case, section 202.12(1) of the Communications Services Tax Simplification Law, states in relevant part:

The Legislature finds that every person who engages in the business of selling communications services at retail in this state is exercising a taxable privilege. It is the intent of the Legislature that the tax imposed by chapter 203 be administered as provided in this chapter.

(1) For the exercise of such privilege, a tax is levied on each taxable transaction, and the tax is due and payable as follows:

(a) Except as otherwise provided in this subsection, at a rate of 6.8 percent applied to the sales price of the communications service which:

1. Originates and terminates in this state, or

2. Originates or terminates in this state and is charged to a service address in this state,

when sold at retail, computed on each taxable sale for the purpose of remitting the tax due. ...

....

(c) At the rate of 10.8 percent on the retail sales price of any direct-to-home satellite service received in this state.

§ 202.12(1), Fla. Stat. (2005). The satellite companies contend that section 202.12(1) is facially unconstitutional. They argue that the text of the statute shows it was enacted with a discriminatory purpose and has a discriminatory effect, which violates the dormant Commerce Clause. "A facial challenge to a legislative Act is ... the most difficult challenge to mount successfully, since the challenger must establish that no set of circumstances exist under which the Act would be valid." United States v. Salerno , 481 U.S. 739, 745, 107 S.Ct. 2095, 95 L.Ed.2d 697 (1987).

Commerce Clause

The Commerce Clause authorizes Congress to "regulate Commerce with foreign Nations, and among the several States." Article I, § 8, cl. 3, U.S. Const. The Supreme Court recognizes, in addition to the text's affirmative grant of authority, a further, negative command, known as the dormant Commerce Clause. This clause prohibits certain state taxation even when Congress has failed to legislate on the subject. Okla. Tax Comm'n v. Jefferson Lines, Inc. , 514 U.S. 175, 179, 115 S.Ct. 1331, 131 L.Ed.2d 261 (1995). A state tax is permissible under the dormant Commerce Clause only if it "[1] is applied to an activity with a substantial nexus with the taxing State, [2] is fairly apportioned, [3] does not discriminate against interstate commerce, and [4] is fairly related to the services provided by the State."

Complete Auto Transit, Inc. v. Brady , 430 U.S. 274, 279, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). The satellite companies' challenge to the CST is limited to the third prong, namely the prohibition on discrimination against interstate commerce.

"[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." Simmons v. State , 944 So.2d 317, 330 (Fla. 2006). A statute can discriminate against out-of-state interests in one of three ways: (1) it may be facially discriminatory; (2) it may discriminate in its practical effect; or (3) it may have a discriminatory intent. Amerada Hess Corp. v. Dir., Div. of Taxation , 490 U.S. 66, 75, 109 S.Ct. 1617, 104 L.Ed.2d 58 (1989). In this case, the satellite companies argue that the sales tax portion of the CST discriminates in its effect and purpose.

I. 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. 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). Appellants argue Appellees' discriminatory effect argument fails at the threshold level. According to Appellants, this Court does not need to examine whether the tax imposes disproportionate burdens because satellite and cable companies are not similarly situated.

Substantially Similar Entities

Appellant Department of Revenue argues that cable companies and satellite companies are not similarly situated entities. "[A]ny notion of discrimination assumes a comparison of substantially similar entities." Gen. Motors Corp. v. Tracy , 519 U.S. 278, 298, 117 S.Ct. 811, 136 L.Ed.2d 761 (1997) (footnote omitted). If the differences between the two companies render the entities not substantially similar, the Commerce Clause is not implicated. See id. Appellant contends that cable and satellite providers offer different communications services using different technologies and are subject to different regulatory burdens. In response, Appellees argue that cable and satellite providers compete directly and offer virtually identical products, and consumers view their products as similar and substitutable.

What is required for entities to be considered "substantially similar" has not been extensively considered by the courts. See Gen. Motors Corp. , 519 U.S. at 299, 117 S.Ct. 811 ("[The] central assumption [of substantially similar entities] has more often than not itself remained dormant in this Court's opinions on state discrimination subject to review under the...