DIRECTV, LLC v. Department of Revenue ( 2015 )

NOTICE: All slip opinions and orders are subject to formal
revision and are superseded by the advance sheets and bound
volumes of the Official Reports. If you find a typographical
error or other formal error, please notify the Reporter of
Decisions, Supreme Judicial Court, John Adams Courthouse, 1
Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-
1030; SJCReporter@sjc.state.ma.us
SJC-11658
DIRECTV, LLC, & another1 vs. DEPARTMENT OF REVENUE.
Suffolk. November 4, 2014. - February 18, 2015.
Present: Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk, &
Hines, JJ.
Taxation, Excise, Broadcasting company. Interstate Commerce.
Constitutional Law, Interstate commerce.
Civil action commenced in the Superior Court Department on
January 26, 2010.
The case was heard by Thomas P. Billings, J., on motions
for summary judgment.
The Supreme Judicial Court granted an application for
direct appellate review.
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 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:
1
Dish Network L.L.C.
2
Eric S. Tresh, Amelia Toy Rudolph, & Zachary T. Atkins, of
Georgia, & Nicholas M. O'Donnell & David Nagle for New England
Cable & Telecommunications Association.
John Bergmayer, of the District of Columbia, & Karen A.
Pickett for Public Knowledge.
Kristen S. Scammon for Satellite Broadcasting &
Communications Association.
John A. Hinman, of California, & Allison M. O'Neil & Jamie
C. Notman 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
for National Governors Association.
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
2
The companies that provide video programming delivered by
direct broadcast satellite (satellite companies) also argued
below that the excise tax violates their right to equal
protection. They do not pursue this claim on appeal.
3
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
3
We acknowledge the amicus briefs submitted by Public
Knowledge, the Satellite Broadcasting and Communications
Association, and the National Association of Wine Retailers on
behalf of the satellite companies; and the briefs by the
National Governors Association, the Multistate Tax Commission,
and the New England Cable and Telecommunications Association on
behalf of the Department of Revenue.
4
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.
5
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
4
See note 16, infra.
5
Telephone companies like Verizon Communications, Inc., use
similar technology.
6
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.
7
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
8
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
6
The agreements between the local governments and the
companies that provide video programming via cable (cable
companies) also typically require that the companies set aside
channels for public, educational, and governmental programming.
These obligations apparently augment the requirement of Federal
law that the cable companies designate a percentage of their
channel capacity to public-oriented programming. See note 16,
infra.
7
The full title of the act is "An Act making appropriations
for the fiscal year 2010 for the maintenance of the departments,
boards, commissions, institutions and certain activities of the
Commonwealth, for interest, sinking fund and serial bond
requirements and for certain permanent improvements."
9
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. Hendricks, 463 Mass. 635, 637 (2012); 81 Spooner Rd.,
LLC v. Zoning Bd. of Appeals of Brookline, 461 Mass. 692, 699
(2012). Summary judgment is appropriate "if the pleadings,
depositions, answers to interrogatories, and responses to
requests for admission . . . , together with the affidavits, if
any, show that there is no genuine issue as to any material fact
8
The cable companies also pass on the cost of the franchise
fees to their customers.
10
and that the moving party is entitled to a judgment as a matter
of law." Mass. R. Civ. P. 56 (c), as amended, 436 Mass. 1404(2002). The evidence in the record must be viewed "in the light
most favorable to the nonmoving party." Surabian Realty Co. v.
NGM Ins. Co., 462 Mass. 715, 718 (2012), quoting Fuller v. First
Fin. Ins. Co., 448 Mass. 1, 5 (2006). We "need not rely on the
rationale cited and 'may consider any ground supporting the
judgment.'" District Attorney for N. Dist. v. School Comm. of
Wayland, 455 Mass. 561, 566 (2009), quoting Augat, Inc. v.
Liberty Mut. Ins. Co., 410 Mass. 117, 120 (1991).
b. The dormant commerce clause. The commerce clause
provides that "Congress shall have Power . . . to regulate
commerce with foreign nations, and among the several [S]tates,
and with the Indian Tribes." Art. I, § 8, cl. 3 of the United
States Constitution. The United States Supreme Court has "long
interpreted the commerce clause as an implicit restraint on
[S]tate authority, even in the absence of a conflicting
[F]ederal statute." United Haulers Ass'n v. Oneida-Herkimer
Solid Waste Mgmt. Auth., 550 U.S. 330, 338 (2007) (collecting
cases). This implicit restraint is known as the "dormant"
commerce clause. See id.A State tax is permissible under the dormant commerce
clause if it "[1] is applied to an activity with a substantial
nexus with the taxing State, [2] is fairly apportioned, [3] does
11
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 (1977). See American
Trucking Ass'ns v. Michigan Pub. Serv. Comm'n, 545 U.S. 429, 438
(2005). The satellite companies' challenge to the excise tax is
limited to the third of these requirements, namely the
prohibition on discrimination against interstate commerce.
c. Discrimination against interstate commerce. The ban on
discrimination against interstate commerce is rooted in the
"principle that our economic unit is the Nation, which alone has
the gamut of powers necessary to control of the economy."
Oregon Waste Sys., Inc. v. Department of Envtl. Quality of Or.,
511 U.S. 93, 98 (1994) (Oregon Waste), quoting H.P. Hood & Sons
v. Du Mond, 336 U.S. 525, 537–538 (1949). The dormant commerce
clause seeks to prevent economic "Balkanization," Bacchus
Imports, Ltd. v. Dias, 468 U.S. 263, 276 (1984), and to protect
"an area of free trade among the several States." Boston Stock
Exch. v. State Tax Comm'n, 429 U.S. 318, 328 (1977), quoting
McLeod v. J.E. Dilworth Co., 322 U.S. 327, 330 (1944).
In the context of the dormant commerce clause,
"'discrimination' simply means differential treatment of in-
[S]tate and out-of-[S]tate economic interests that benefits the
12
former and burdens the latter." Oregon Waste, 511 U.S. at 99.9
The concept of "discrimination" also implicitly assumes "a
comparison of substantially similar entities." General Motors
Corp. v. Tracy, 519 U.S. 278, 298 (1997).10
A statute may be discriminatory on its face, in its effect,
or in its underlying purpose. See Amerada Hess Corp. v.
Director, Div. of Taxation, 490 U.S. 66, 75 (1989) (Amerada
9
Notwithstanding the stated simplicity of this test, the
United States Supreme Court has recognized that its "case-by-
case" approach to the dormant commerce clause "has left 'much
room for controversy and confusion and little in the way of
precise guides to the States.'" Westinghouse Elec. Corp. v.
Tully, 466 U.S. 388, 403 (1984), quoting Boston Stock Exch. v.
State Tax Comm'n, 429 U.S. 318, 329 (1977). See also E.
Chemerinsky, Constitutional Law, Principles and Policies, § 5.3
at 444-445 (4th ed. 2011).
10
In General Motors Corp. v. Tracy, 519 U.S. 278, 299
(1997), the United States Supreme Court determined that the
entities involved were dissimilarly situated because they
"serve[d] different markets." Relying on the analysis of Tracy,
the satellite companies argue that any entities that serve the
same market are necessarily similarly situated. But the
conceptual prerequisite that entities must be "substantially
similar" in order for discrimination to occur also may be
undermined by other types of differences. Thus, "competing in
the same market is not sufficient to conclude that entities are
similarly situated." National Ass'n of Optometrists & Opticians
LensCrafters, Inc. v. Brown, 567 F.3d 521, 527 (9th Cir. 2009).
See Amerada Hess Corp. v. Director, Div. of Taxation, 490 U.S.
66, 78 (1989) (Amerada Hess) (differential treatment permissible
when it "results solely from differences between the nature of
[entities'] businesses, not from the location of their
activities"); Philadelphia v. New Jersey, 437 U.S. 617, 626-627
(1978) (differential treatment permissible if "there is some
reason, apart from . . . origin, to treat [entities]
differently" [emphasis supplied]).
13
Hess); Chemical Waste Mgmt., Inc. v. Hunt, 504 U.S. 334, 344 n.6
(1992). The burden to show discrimination against interstate
commerce rests on the party challenging the validity of a
statute. See Hughes v. Oklahoma, 441 U.S. 322, 336 (1979);
Family Winemakers of Cal. v. Jenkins, 592 F.3d 1, 9 (1st Cir.
2010). If this burden is carried, the discriminatory law is
"virtually per se invalid." Department of Revenue of Ky. v.
Davis, 553 U.S. 328, 338 (2008), citing Oregon Waste, 511 U.S.
at 99.11
3. Analysis. a. Discriminatory effect. The satellite
companies argue that the excise tax discriminates against
interstate commerce in its effect by disadvantaging the
satellite companies and benefiting the cable companies. The
department responds, first, that the cable companies and the
satellite companies do not represent in-State and out-of-State
interests, respectively. The department argues also that the
11
"[N]ondiscriminatory regulations that have only
incidental effects on interstate commerce are valid unless 'the
burden imposed on such commerce is clearly excessive in relation
to the putative local benefits.'" Oregon Waste Sys., Inc. v.
Department of Envtl. Quality of Or., 511 U.S. 93, 99 (1994),
quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).
The satellite companies do not contend that the excise tax fails
this test. Conversely, a discriminatory statute may be upheld
if "the State has no other means to advance a legitimate local
purpose." United Haulers Ass'n v. Oneida-Herkimer Solid Waste
Mgmt. Auth., 550 U.S. 330, 338-339 (2007), citing Maine v.
Taylor, 477 U.S. 131, 138 (1986). The Department of Revenue has
not argued that the excise tax satisfies this requirement.
14
excise tax is not discriminatory because the cable and satellite
companies are not similarly situated.
For the reasons we describe, we adopt the latter argument.
In so doing, we follow the other courts that have considered and
rejected the satellite companies' challenges to the laws of
other States. See Directv, Inc. v. Treesh, 487 F.3d 471 (6th
Cir. 2007) (Treesh I), cert. denied, 552 U.S. 1311 (2008);
DIRECTV, Inc. v. State, 178 N.C. App. 659 (2006); DIRECTV, Inc.
v. Levin, 128 Ohio St. 3d 68 (2010), cert. denied, 133 S. Ct. 51(2012). We assume for purposes of our analysis, while
appreciating the weighty arguments to the contrary, that the
cable companies and the satellite companies represent in-State
and out-of-State interests, respectively.12
12
As to this issue, compare Freedom Holdings, Inc. v.
Spitzer, 357 F.3d 205, 218 (2d Cir. 2004) ("For dormant
[c]ommerce [c]lause purposes, the relevant 'economic
interests' . . . are parties using the stream of commerce, not
those of the state itself"), with Westinghouse Elec. Corp. v.
Tully, 466 U.S. at 403-404 (discussing cases in which "the Court
struck down state tax statutes that encouraged the development
of local industry by means of taxing measures that imposed
greater burdens on economic activities taking place outside the
State than were placed on similar activities within the State");
Lewis v. BT Inv. Managers, Inc., 447 U.S. 27, 42 n.9 (1980)
("discrimination based on the extent of local operations is
itself enough to establish the kind of local protectionism we
have identified"); and Philadelphia v. New Jersey, 437 U.S. at
627 ("The Court has consistently found parochial
legislation . . . to be constitutionally invalid, whether the
ultimate aim of the legislation was to assure a steady supply of
milk . . . , or to create jobs by keeping industry within the
State . . . , or to preserve the State's financial resources
15
i. The broader context. The excise tax applies to
satellite companies only. Our analysis must not be "divorced,"
however, from the broader context of the act; we are required to
consider the regulatory scheme "as a whole." See West Lynn
Creamery, Inc. v. Healy, 512 U.S. 186, 201 (1994) (West Lynn
Creamery). Accord DIRECTV, Inc. v. Tolson, 513 F.3d 119, 122
(4th Cir. 2008) (Tolson); Zenith/Kremer Waste Sys., Inc. v. West
Lake Superior Sanitary Dist., 572 N.W.2d 300, 304 (Minn. 1997),
cert. denied, 523 U.S. 1145 (1998). See also Minneapolis Star &
Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 589
n.12 (1983) (United States Supreme Court "evaluat[es] the
relative burdens of different methods of taxation" in commerce
clause cases). As described supra, both the cable companies and
the satellite companies are subject to corporate income taxes,
sales taxes, real property taxes, and personal property taxes.
The cable companies are, in addition, subject to obligations in
money and in services to local governments.
The satellite companies suggest that the cable companies'
obligations toward local governments should play no part in our
analysis of the ways in which the two types of company are
treated. In the satellite companies' view, these obligations
from depletion by fencing out indigent immigrants" [citations
omitted]).
16
are merely "rent" payments imposed on cable companies on the
basis of the use that they, but not the satellite companies,
make of public spaces. We do not agree.
The localities' power to charge franchise fees as to cable
companies but not satellite companies flows, not from the
localities' ownership of public property, but from statutory
provisions. A Federal statute provides that, subject to certain
limitations, "any cable operator may be required . . . to pay a
franchise fee." 47 U.S.C. § 542(a) (2012). The imposition of
such fees is facilitated by a Massachusetts statute that
prohibits the construction or operation of any cable system "in
any city or town . . . without first obtaining . . . a written
license from each city or town." G. L. c. 166A, § 3. Franchise
fees and related obligations are, in this sense, not rent
payments, but rather statutorily authorized tax payments. See
Tolson, 513 F.3d at 123, 125-126 & n.3 (holding that cable
franchise fees are "taxes" for purposes of Tax Injunction Act,
28 U.S.C. § 1341 (2012), and explaining that "a sum fixed for
the privilege of doing business" is unlike "[a] per-pole charge
levied . . . for the use of [a] city's telegraph poles").
Correspondingly, cable companies do not obtain leases or
other property rights in return for their franchise fees. What
they do receive in return are special privileges. See Tolson,
513 F.3d at 126 n.3 ("Taxpayers . . . often receive something of
17
value in exchange for their taxes"). In the Superior Court
proceedings, the satellite companies recognized that the
privileges granted in exchange for franchise fees are "the
privilege of doing business in a locality and . . . the rights
to access public-rights-of-way in a locality." See 47 U.S.C.
§ 522(9) (2012) (franchise permits "construction" or "operation"
of cable system); Treesh I, 487 F.3d at 480 (Kentucky cable
franchises provided "the right to conduct business and use local
rights-of-way").13
Because of the method by which they deliver their
programming, the satellite companies do not need to access
public rights-of-way. The privilege of doing business with
local consumers, on the other hand, is one that benefits the
satellite companies no less than the cable companies.
Consequently, if not for the Telecommunications Act's
prohibition on the imposition of local taxes on satellite
services, the satellite companies "certainly could have been"
13
At his deposition, a representative of Charter
Communications Inc. defined a franchise fee as "a fee to
authorize [the company] to do business in [a] community," paid
as compensation both for "using the public right-of-way" and for
"being authorized to provide the service to customers." A
representative of Comcast Corporation (Comcast) testified that a
franchise agreement "allow[s] [Comcast] to operate within [an]
area by selling its products and services." The representative
agreed that the right to use public rights-of-way is "one
component of a franchise."
18
subjected "to the tangled regime of local taxation and franchise
fees" that applies to cable companies. See Treesh I, 487 F.3d
at 481. Namely, by way of a statute akin to G. L. c. 166A, § 3,
the Legislature could have forbidden the provision of video
services by satellite without a license from a local authority.
Cf. Commissioner of Corps. & Taxation v. Metropolitan Life Ins.
Co., 327 Mass. 582, 584 (1951) (excise tax on insurance imposed
"for the privilege of doing business in this Commonwealth").
In our analysis of whether the cable and satellite
companies are subjected to "differential treatment . . . that
benefits the former and burdens the latter," Oregon Waste, 511
U.S. at 99, we therefore consider the fact that each of these
types of company is subject to unique obligations in connection
with the privilege of selling video programming services to
Massachusetts consumers.
ii. Differences between the obligations of the cable and
satellite companies. The cable companies' local obligations and
the excise tax imposed on the satellite companies are different
in two ways. First, the cable companies' obligations are
collected piecemeal by an assortment of local authorities,
whereas the satellite companies pay the entirety of the excise
tax to the department. Second, the cable companies' local
obligations are made up of several components determined via
negotiations with each locality, including franchise fees,
19
additional payments to support public-oriented programming, and
services in kind. The excise tax, on the other hand, is set at
a uniform, flat rate.
These differences in the manners in which the cable and
satellite companies are treated do not amount to actionable
discrimination if they do not impose a greater burden on the
satellite companies. See Oregon Waste, 511 U.S. at 99. These
differences also are not discriminatory if they are rooted in
meaningful differences between the two types of company. See
Tracy, 519 U.S. at 298.14 We conclude that, on the summary
judgment record, the satellite companies have "no reasonable
expectation" of proving a discriminatory effect; there is thus
no genuine issue of material fact, see HipSaver, Inc. v. Kiel,
464 Mass. 517, 522 (2013) (HipSaver), quoting Kourouvacilis v.
14
The bare existence of differences between the satellite
and cable companies would not alone defeat allegations of
discrimination, because a statute does not "need to be drafted
explicitly along [S]tate lines in order to demonstrate its
discriminatory design." Amerada Hess, 490 U.S. at 76.
Differences between entities render regulation nondiscriminatory
only if they represent substantive reasons to treat the entities
differently, rather than proxies for geographical distinctions.
See West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 201 (1994)
(West Lynn Creamery), quoting Best & Co. v. Maxwell, 311 U.S.
454, 455-456 (1940) ("The commerce clause forbids
discrimination, whether forthright or ingenious. In each case
it is our duty to determine whether the statute under attack,
whatever its name may be, will in its practical operation work
discrimination against interstate commerce").
20
General Motors Corp., 410 Mass. 706, 716 (1991), and the
department is entitled to judgment as a matter of law.
A. Method of collection. We examine first the divergent
manners by which payments for the privilege of doing business in
Massachusetts are collected from cable and satellite companies,
respectively. As previously described, the excise tax is
collected in its entirety by the department, whereas the cable
companies owe varying obligations to each of the localities in
which they operate. This instance of differential treatment,
rather than burdening the satellite companies, is advantageous
to them. The excise tax provides a streamlined method of
collection, far less cumbersome than the cable companies'
assortment of local obligations.
Congress conferred this benefit on the satellite companies
by design in the Telecommunications Act. Section 602(a) of that
statute states that "[a] provider of . . . satellite service
shall be exempt from . . . any tax or fee imposed by any local
taxing jurisdiction on direct-to-home satellite service." 110
Stat. at 144. The phrase "tax or fee" is defined to include a
number of different types of taxes, including any "privilege
tax" and any "fee that is imposed for the privilege of doing
business." Telecommunications Act § 602(b)(5), 110 Stat. at
145. On the other hand, the same section states that it "shall
not be construed to prevent taxation of a provider of . . .
21
satellite service by a State." Telecommunications Act § 602(c),
110 Stat. at 145.
The decision to excuse the satellite companies from
burdensome dealings with local authorities was rooted in the
characteristics of their operations. "Congress's intent . . .
was not to spare the [satellite] providers from taxation as
such, but to spare national businesses with little impact on
local resources from the administrative costs and burdens of
local taxation." DirecTV, Inc. v. Treesh, 290 S.W.3d 638, 643
(Ky. 2009), cert. denied, 558 U.S. 1111 (2010) (Treesh II).
This objective was explained on the floor of the House of
Representatives by Congressman Henry Hyde:
"[Satellite companies] utilize satellites to provide
programming to their subscribers in every jurisdiction. To
permit thousands of local taxing jurisdictions to tax such
a national service would create an unnecessary and undue
burden on the providers of such services. . . . The power
of the States to tax this service is not affected by
[Telecommunications Act §] 602."
142 Cong. Rec. H1145, H1158 (Feb. 1, 1996). See W. Hellerstein,
State Taxation ¶ 4.25[1][l] (3d ed. 2014) ("Congress was
concerned with burdening [satellite] providers with the
requirement of complying with taxes in thousands of local taxing
jurisdictions. This was the rationale for preempting local, but
not [S]tate, taxing authority" [emphasis in original]). In sum,
the divergent methods by which payment for the privilege of
doing local business is collected from the cable and satellite
22
companies are both advantageous to the satellite companies and
rooted in the different operational methods employed by the two
types of company.
B. Method of calculation. We turn to the different
methods by which the obligations of the cable and satellite
companies are calculated. Whereas the satellite companies'
services are subject to a flat tax rate of five percent of gross
revenues, the cable companies' obligations are composed of
(a) franchise fees, running to approximately three to five per
cent of gross revenues; (b) additional fees, used to support
public-oriented programming, averaging 1.09% of gross revenues;
(c) services, facilities, and equipment for the use of public,
educational, and governmental channels; (d) free video
programming services delivered to municipal buildings, schools,
and libraries; and (e) requirements imposed by local governments
concerning service quality and customer service. On the basis
of these facts, the satellite companies do not have a
"reasonable expectation" of proving that their obligations are
more burdensome than those of the cable companies.15 See
15
Implicit in the satellite companies' argument is the
assumption that because they, unlike the cable companies, do not
use local rights-of-way, the Legislature is required to impose a
heavier tax burden on the cable companies. As explained by the
United States Court of Appeals for the Sixth Circuit, however,
"States and local government are under no mandate to charge for
the use of local rights-of-way; this is readily apparent from
23
HipSaver, 464 Mass. at 522. This is particularly so given that
no affidavits or other evidence has been submitted that might
shed light on the value of the in-kind services that cable
companies provide to local governments.
Moreover, even if the satellite companies were able to show
some discrepancy between the amounts charged to them and to the
cable companies, respectively, this discrepancy would be
permissibly attributable to important differences between the
cable and satellite industries, some of which we have already
discussed.
For one, franchise fees are, as noted, capped by Federal
law at five per cent of gross revenue. See 47 U.S.C. § 542(b)
(2012). Massachusetts law does not require that cable's
franchise fees be any lower. It follows that if the cable
companies' obligations to local governments amount to a lighter
burden than the satellite companies' excise tax, this
discrepancy results from certain localities' consent to reduce
franchise fees from the statutory maximum. In this sense, any
benefit to the cable companies results from the fact that they
are required, unlike the satellite companies, to negotiate
the fact that not every road is a toll road. . . . The
provision of access to the [S]tate infrastructure free of charge
is an acceptable option that the [S]tate may exercise."
Directv, Inc. v. Treesh, 487 F.3d 471, 479 (6th Cir. 2007),
citing West Lynn Creamery, 512 U.S. at 199 n.15.
24
separate arrangements with an array of local governments. In
turn, this difference between the treatment of the cable and
satellite companies is rooted, as we have explained, in the
different nature of these businesses, namely in the fact that
the cable companies, unlike the satellite companies, cannot
avoid interface with local governments. See Treesh II, 290
S.W.3d at 643.
As the department argues, another difference between the
cable and satellite companies' respective operations would
support the imposition of a somewhat lower tax rate on cable.
This difference lies in the respective regulatory regimes to
which the two types of company are subject.
When the technology for satellite provision of video
programming became available in the 1980s, the Federal
government "concluded that the public interest is best served by
a flexible regulatory approach." 2 D.L. Brenner, M.E. Price, &
M.I. Meyerson, Cable Television and Other Nonbroadcast Video,
Law and Policy, § 15:5 (2014). Accordingly, the satellite
industry was subjected to "regulatory requirements [that are]
minimal . . . . This approach allows [satellite] operations to
experiment with service offerings and methods of financing. Few
rules exist." Id. See 2 C.D. Ferris & F.W. Lloyd,
Telecommunications Regulation: Cable, Broadcasting, Satellite,
and the Internet ¶ 20.04[5][b], at 20-9 (rev. ed. 2014).
25
Cable, on the other hand, a veteran industry with well-
established methods of operation, has long been subject to an
extensive scheme of Federal regulation. See 1 C.D. Ferris &
F.W. Lloyd, Telecommunications Regulation: Cable, Broadcasting,
Satellite, and the Internet ¶ 5.04[1], at 5-5 (rev. ed. 2014)
(discussing development of cable in 1940s and 1950s); id. at
¶ 5.04[3][b], at 5-7 (rev. ed. 2014) (discussing origins of
cable regulation in 1960s). Among other things, cable companies
must comply with standards concerning the technical operation
and signal quality of their programming. See 47 U.S.C. § 544(e)
(2012); 47 C.F.R. §§ 76.601-76.640 (2013). They are subject to
minimum standards for office hours, telephone availability,
installations, outages, service calls, and billing. See 47
U.S.C. § 552(b) (2012); 47 C.F.R. § 76.309 (2013). They are
required to enable their customers to receive emergency
information. See 47 U.S.C. § 544(g) (2012). They must provide
subscribers with a device that permits the subscribers to limit
access to certain channels, see 47 U.S.C. § 544(d)(2) (2012),
and they may be forbidden by localities to provide access to
channels that carry obscene content. See 47 U.S.C. § 544(d)(1)
(2012).
In addition, the rates for the provision of basic cable
services are determined by Federal regulations, unless the
Federal Communications Commission finds that these services are
26
subject to "effective competition." See 47 U.S.C. § 543(a)(2)
(2012); 47 C.F.R. §§ 76.901-76.990 (2013). Cable companies may
not discriminate between different "tiers" of subscribers in the
provision of programming offered on a per-channel or per-program
basis. See 47 U.S.C. § 543(b)(8)(A) (2012). With some
exceptions, cable companies are required to operate a
geographically uniform rate structure. See 47 U.S.C. § 543(d)
(2012).16
The divergent regulatory regimes that govern the cable and
satellite companies' respective operations are relevant to the
selection of the tax obligations to which these companies are
subjected. Cf. Tracy, 519 U.S. at 295-297, 300-301 (considering
regulatory obligations of local utility companies); National
Ass'n of Optometrists & Opticians LensCrafters, Inc. v. Brown,
567 F.3d 521, 526-527 (9th Cir. 2009) (considering regulatory
obligations of optometrists and ophthalmologists). The rate of
the excise tax permissibly may allow for the fact that satellite
companies do not bear the additional regulatory burdens imposed
16
In addition, cable companies are required to devote a
greater percentage of their channel capacity to public,
educational, and government programming than satellite companies
are. See 47 U.S.C. §§ 335, 531, 534, 535 (2012). Compare 1
C.D. Ferris & F.W. Lloyd, Telecommunications Regulation: Cable,
Broadcasting, Satellite, and the Internet ¶ 7.15[2], at 7-40
(rev. ed. 2014), with 2 C.D. Ferris & F.W. Lloyd,
Telecommunications Regulation ¶ 20.4[6][c], at 20-11 (rev. ed.
2014).
27
on cable companies. The Legislature also permissibly may wish
to support the provision of cable services, in order to ensure
that this regulated product remains available to Massachusetts
consumers. See Treesh I, 487 F.3d at 481 (Kentucky may have
sought to support viability of cable "for reasons entirely
unrelated to geography -- for example, that cable providers
often provide [I]nternet access as well, that cable providers
are more likely to provide public access channels, etc.").
In summary, given the nuances of the divergence between the
ways in which the cable and satellite companies are treated,
examined in light of the differences between the ways in which
these two types of company do business, the satellite companies
have no reasonable expectation of proving that the excise tax
discriminates against interstate commerce in its effect. See
HipSaver, 464 Mass. at 522. No genuine issue of material fact
was presented, therefore, and the department was entitled to
judgment as a matter of law.
b. Discriminatory purpose. The satellite companies
contend also that the excise tax is unconstitutional because it
is discriminatory in its purpose. This argument relies almost
entirely on lobbying materials prepared on behalf of the cable
28
industry.17 For instance, a letter sent by cable lobbyists to
members of the Legislature read, in part:
"Satellite TV companies have long enjoyed a one-way
relationship with Massachusetts, selling their service here
but giving almost nothing back. Unlike cable companies,
satellite providers pay no personal property or real estate
taxes . . . . Nor do satellite companies make investments
in the economy or community, as cable providers do.
Comcast alone, for example, employs more than 5,000 people
in Massachusetts who collect more than $336 million in
salary and benefits."
The satellite companies assert that lobbying efforts of this
nature indicate that the excise tax was intended to reward the
cable companies for their contributions to the Commonwealth's
economy. We conclude that the summary judgment record does not
support a reasonable expectation that a discriminatory purpose
could be proved. See HipSaver, 464 Mass. at 522.
"It is well settled that a statute is presumed to be
constitutional, and every rational presumption in favor of its
validity is to be made." Cote-Whitacre v. Department of Pub.
Health, 446 Mass. 350, 367 (2006). See Commonwealth v. King,
374 Mass. 5, 16 (1977). For the reasons previously explained,
the excise tax is understood most naturally as an element of a
17
The satellite companies point also to the testimony of a
high-ranking satellite company executive who asserted at
deposition that he had been told by members of the Legislature
that they would vote for the excise tax, at least in part,
because of the cable industry's "significant local presence."
Like the Superior Court judge, we ascribe little significance to
this vague testimony.
29
balanced scheme of taxation that imposes corresponding burdens,
different in nuanced and rational ways, on the cable and
satellite companies. The burden of establishing that the
statute was motivated not by this legitimate goal, but rather by
a discriminatory purpose, is necessarily difficult to carry.
See Treesh I, 487 F.3d at 480 (affirming dismissal of
discrimination claim where, "[w]hile a purpose of the [statute]
might have been to aid the cable industry rather than the
satellite industry . . . there were clearly many other
purposes," including "collecting taxes from the previously
untaxed, burgeoning satellite industry").
The evidence offered by the satellite companies does not
suffice to carry this burden. In the context of statutory
interpretation, we have cautioned against "confus[ing] the
intention of the private proponents of legislation with the
intentions of the legislative body that enacted the statutory
change, to the extent we may ascertain them. They are not
necessarily the same." Commonwealth v. Ray, 435 Mass. 249, 257
n.15 (2001). The United States Supreme Court similarly has
explained that:
"Legislative history is problematic even when the
attempt is to draw inferences from the intent of duly
appointed committees of the [Legislature]. It becomes far
more so when we consult sources still more steps
removed . . . and speculate upon the significance of the
fact that a certain interest group sponsored or opposed
particular legislation."
30
Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 120 (2001),
citing Kelly v. Robinson, 479 U.S. 36, 51 n.13 (1986). We
cannot assume, in other words, that the Legislature embraced the
reasons expressed by private interests, such as lobbyists for
the cable companies, merely because those interests advocated
vocally for a statute.18
Moreover, the lobbying materials identified by the
satellite companies also make repeated reference to the goal of
"tax parity." Written testimony by a cable industry executive
before a committee of the Legislature stated, for instance, that
the excise tax would "ensure[] that the overall level of
taxation is equal among video providers, so that all
multichannel video providers operate on a level playing
field . . . . Tax parity ensures fair competition and true
consumer choice." Other communications stressed that, before
the 2010 appropriations act was passed, the satellite companies
paid no tax corresponding to the franchise fees paid by cable
companies. A letter to legislators from the New England Cable
and Telecommunications Association stated that the excise tax
would create a "competitively neutral tax policy for the
18
A representative of DIRECTV, LLC acknowledged at his
deposition that his company does not know whether the cable
companies' lobbying materials had an impact "on any individual
legislator" or "on the Legislature as a whole."
31
delivery of video signals," and described the tax as "expanding
the [five per cent] franchise fee to include satellite
companies." These facts further weaken the suggestion that the
Legislature was motivated by sympathy for in-State interests as
such.
The conclusion that the excise tax was not intended to
confer a special disadvantage on the satellite companies is
reinforced by the context in which the tax was enacted. As
mentioned, in addition to creating the excise tax, 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. This provision increased Comcast's annual
tax obligations by approximately $5.1 million. It also
resulted, in 2010, in a tax assessment of approximately $29.8
million against Verizon. Verizon employs approximately 9,500
people in Massachusetts, 4,000 more than the cable companies.
These facts support the conclusion that the excise tax was not
intended to discriminate against interstate commerce, but rather
was part of an effort to increase, across the board, the amount
of tax revenue collected from the video programming industry.
Judgment affirmed.