DIRECTV, LLC v. Department of Revenue , 470 Mass. 647 ( 2015 )


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    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.
    

Document Info

Docket Number: SJC 11658

Citation Numbers: 470 Mass. 647, 25 N.E.3d 258

Judges: Gants, Spina, Cordy, Botsford, Duffly, Lenk, Hines

Filed Date: 2/18/2015

Precedential Status: Precedential

Modified Date: 10/19/2024

Authorities (24)

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Department of Revenue of Kentucky v. Davis , 128 S. Ct. 1801 ( 2008 )

McLeod v. J. E. Dilworth Co. , 64 S. Ct. 1023 ( 1944 )

Lewis v. BT Investment Managers, Inc. , 100 S. Ct. 2009 ( 1980 )

Maine v. Taylor , 106 S. Ct. 2440 ( 1986 )

West Lynn Creamery, Inc. v. Healy , 114 S. Ct. 2205 ( 1994 )

General Motors Corp. v. Tracy , 117 S. Ct. 811 ( 1997 )

Circuit City Stores, Inc. v. Adams , 121 S. Ct. 1302 ( 2001 )

Commissioner of Corporations & Taxation v. Metropolitan ... , 327 Mass. 582 ( 1951 )

Westinghouse Electric Corp. v. Tully , 104 S. Ct. 1856 ( 1984 )

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H. P. Hood & Sons, Inc. v. Du Mond , 69 S. Ct. 657 ( 1949 )

Boston Stock Exchange v. State Tax Commission , 97 S. Ct. 599 ( 1977 )

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