An organization that represents 18 cable companies in Kentucky has been given permission to intervene as a defendant in a lawsuit over the telecom tax.
The goal of the Multichannel Video Programming and Communications Services Tax was to create a more uniform tax structure for telecom providers, satellite providers and cable service providers. It replaced local public service property taxes and local franchise fees on cable and telephone companies. Under the previous rules, local governments collected franchise fees and public service company property taxes themselves.
Cities agreed to the legislation because the state legislature promised them they would receive the same tax revenue as before. The legislation asked cities to certify the amount they collected the previous fiscal year by Dec. 1, 2005. The legislation, however, was signed into law March 15, 2005, and as a result the cities got $7.5 million less than what they had collected the previous year.
Since Jan. 1, 2006, Winchester has lost about $25,000 a year in tax revenue because of the shortfall — about $125,000 over five years, at a time when local governments have been dealing with crippling budgetary issues.
At the end of September, Winchester, Greensburg, Mayfield and Florence filed a lawsuit through the Kentucky League of Cities asking the Franklin Circuit Court to declare the state telecommunications tax unconstitutional. The cities claim millions of dollars in tax revenue have been lost since the Jan. 1, 2006, enactment of the legislation.
On Nov. 14, the Kentucky Cable Telecommunications Association filed the motion to side with the state agencies against the lawsuit. Franklin Circuit Judge Phillip Shepherd granted that motion Monday, said David Treacy, partner at Dinsmore & Shohl, the law firm representing the cities.
In its motion to intervene, the KCTA argues that its members favor the new telecom tax because it creates a level playing field because the state can now tax satellite companies, too. The motion argues that the lawsuit directly “threatens the interests of KCTA and its members by seeking to impose new taxes and feeds on the cable companies and putting the cable companies at a competitive disadvantage relative to companies like BellSouth Telecommunications, Inc. and DIRECTV.”
The motion to intervene states that the interest of the members of KCTA in the litigation is “direct and immediate” and that the cable companies may suffer direct monetary loss based on the outcome of the lawsuit.
“If this court were to rule in favor of the plaintiffs, plaintiffs would be permitted to impose new franchise fees on KCTA’s members and potentially subject them to additional taxes,” the motion argues. “ . ... The market for video programming services is highly competitive and if the cable companies are required to pay more taxes and fees than their competitors they will surely lose customers.”
Two sections of the state constitution grant cities the right to levy franchise fees for municipal use, and the cities argued that because the legislation took away this right, the tax is unconstitutional.
In the KCTA motion, the companies state that the plaintiffs — the four cities that filed the lawsuit — were not concerned with the constitutionality of the telecom tax and their purported rights to levy franchise fees “when they believed the tax would be revenue neutral.”
“But now that the reform has not delivered the expected revenue, plaintiffs seek to resolve their ‘buyer’s remorse’ through the use of the Kentucky courts and at the expense of KCTA’s members,” it states.
Contact Katie Perkowski at email@example.com or follow them at Twitter, @TheSunKatie.