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AZ Legislative Brief: Cable Operators Trying to Escape Local Taxation

Senate Bill 1229 is coming down the pike. The Senate is holding hearings on it on Feb 2nd. The purpose of the bill is to prohibit local authorities from taxing cable operators, to whom monopolies have been granted, severely restricting local revenues from cable and gutting public interest programming. This represents a serious attack on the range of viewpoint diversity in local media and a betrayal of the bargain these companies made with local governments when they were given their privileged market positions. You should contact your state senator and representatives to let them know you oppose this industry give-away and reduction in the diversity of local media viewpoints.

Here is the legislative research summary of the bill:

Background

Section 622 of the federal Cable Act allows local franchising authorities to charge the cable operator a fee for the right to operate a cable system in that franchise area; however, the franchise fee paid by the cable system cannot be more than five percent of its annual gross revenue. A franchising authority may use the money collected from this fee for any purpose. A cable operator must list any applicable franchise fee as a separate item on the subscriber’s bill. Cities, towns and counties are not required to collect these license fees, but, according to the Arizona Cable Telecommunications Association, the vast majority of cities, towns and counties collect the full five percent.

The franchise or license fee is calculated using the total gross revenues of the cable operator on cable services only (Internet and telephone services are not included). The fee is passed through directly to customers and appears as a line item on their bill. It is paid quarterly by the cable operator to the city, town or county. In addition to franchise or license fees and taxes, cable operators are sometimes required to collect additional fees from customers, known as subscriber fees or public, education or governmental (PEG) fees to support PEG access channels, which are channels provided by the cable operator to the city, town or county for their use and programming.

The federal Telecommunications Act of 1996 exempts a provider of direct-to-home satellite service, also known as direct broadcast satellite service (DBS), from the collection or remittance of any tax or fee imposed by a local taxing jurisdiction.

S.B. 1229 may reduce the revenues collected by cities, towns and counties for cable license fees.

Provisions

1. Modifies the cable license fee a city or town may charge a cable operator to the lesser of one percent of the cable operator’s gross revenues plus the applicable city or town transaction privilege tax (TPT) rate or five percent of the cable operator’s gross revenues. For a county, the fee is the lesser of one percent plus the highest city or town TPT rate or five percent of the cable operator’s gross revenues.

2. Authorizes a city, town or county and cable operator to agree, in a license, to in-kind payments in exchange for right of way use.

3. Limits the value of the in-kind payments to an amount that is less than or equal to the license fee and any levied or assessed TPT.

4. Prohibits a city, town or county from requiring a cable operator to pay any additional monetary or in-kind license fee, tax, fee or charge related to the use of public right of way for providing cable service over and above the license fee.

5. Allows a city, town or county to levy a TPT on a cable operator. The TPT is required to be offset against the maximum license fee.

6. Prohibits a political subdivision from requiring, as a condition of receiving a cable license, a cable operator to provide additional fees or in-kind services to the political subdivision.

7. Limits in-kind services to complimentary line extensions for cable service, complimentary cable service to governments and schools and channel capacity for up to two free public access channels.

8. Limits the valuation of in-kind services to the actual cost of labor and materials used to provide any complimentary line extensions, the standard commercial charge for any complimentary service and the value of the capacity for each noncommercial public, public safety, educational or governmental channel.

9. Allows cities, towns and counties to require a cable operator to pay the reasonable costs for any damage caused to the public highways provided that the costs are comparable to those required to be paid by telecommunications operators who also use the public highways for the construction, operation and maintenance of their facilities

10. Allows cities, towns and counties to require a cable operator to pay any fees, fines, charges or damages for breach of a cable license.

11. Stipulates that cities, towns and counties do not give up their authority to manage public streets, roads and alleys within their boundaries or to exercise their police powers.

12. Prohibits cities, towns and counties from issuing cable licenses, in areas of the jurisdiction that are actually being served by a cable operator with an existing cable license, with terms or conditions that are more favorable or less burdensome than those in any existing cable license issued by that jurisdiction.

13. Contains a legislative findings clause related to the issuance of licenses by a city, town or county to a cable operator to use public right of way.

14. Exempts existing cable licenses in force on June 30, 2005, from the provisions of this legislation until the license is extended or renewed for a term that begins after December 31, 2006.

15. Limits the definition of “gross revenues” to include cash, credits, property or other consideration received from subscribers of the cable service.

16. Conforms definitions to 47 United States Code § 522.

17. Defines terms.

18. Becomes effective on the general effective date.

Prepared by Senate Research

January 25, 2005

posted by Michael Bryan @ 1/29/2005 09:36:00 PM