DIRECTV, Inc. v. Dept. of Rev.

90 January 28, 2013 No. 13
IN THE OREGON TAX COURT
REGULAR DIVISION
DIRECTV, INC.,
Plaintiff,
v.
DEPARTMENT OF REVENUE,
Defendant.
(TC 4939)
Plaintiff (taxpayer) appealed Defendant (the department)’s assessment
under the central assessment scheme, arguing that taxpayer’s business was not
subject to central assessment. Taxpayer argued that according to recent case law
(the court’s opinion in Comcast), a company is not centrally assessable if data
transmitted to customers is either data created by a taxpayer or data for which a
taxpayer has obtained the right to make transmission to a customer. The depart-
ment argued that central assessment of taxpayer was proper because taxpayer
did not own the content it distributed and therefore the facts of this matter fell
outside the decision in Comcast. The department argued further that certain
contracts that taxpayer had with phone and cable companies constituted use by
taxpayer of property of companies that were subject to central assessment, con-
cluding that this made taxpayer subject to central assessment. Granting tax-
payer’s motion, the court ruled that the facts in this matter were not discernibly
different from those in Comcast, and that use of property of others, even if the
others happen to be centrally assessable, does not render the company using the
property in question to be subject to central assessment.
Oral argument on cross-motions for summary judgment
was held November 20, 2012, in the courtroom of the Oregon
Tax Court, Salem.
Scott G. Seidman, Tonkon Torp LLP, Portland, filed the
motion and argued the cause for Plaintiff (taxpayer).
Marilyn J. Harbur, Senior Assistant Attorney General,
Department of Justice, Salem, filed the cross-motion and
argued the cause for Defendant (the department).
Decision for Plaintiff rendered January 28, 2013.
HENRY C. BREITHAUPT, Judge.
I. INTRODUCTION
This matter is before the court on cross-motions for
summary judgment. The factual record is comprised of a
Stipulation of Facts and other submissions by the parties.
Cite as 21 OTR 90 (2013) 91
II. FACTS
The basic facts are that Plaintiff (taxpayer) is in
the business of providing video and audio programming to
customers. This is accomplished in three phases: (a) content
licensing; (b) package assembly; and (c) signal distribution.
A. Content Licensing
In order to provide video and audio services to sub-
scribers, taxpayer must first contract with content providers
to obtain a license to distribute their content.
In most but not all cases, taxpayer pays a fee based
in part on the number of its subscribers to obtain a license
to distribute video and audio programming from content
providers. These content providers include national televi-
sion networks (such as ABC, CBS, FOX, and NBC), local
television stations (such as KOIN, KGW, and KATU), and
cable television networks (such as CNN, ESPN, HBO, and
Showtime).
The agreements between taxpayer and the content
providers grant taxpayer the nonexclusive right to distrib-
ute video and audio programming to taxpayer’s subscribers.
A list of representative sample agreements and the contract
documents (with pricing information redacted) have been
filed in this case.
Taxpayer makes payments to content providers at
market rates for the rights to distribute video and audio pro-
gramming to taxpayer’s subscribers.
B. Package Assembly
Once the content has been licensed, taxpayer
assembles it into defined subscriber packages.
The assembly process occurs at broadcast and
uplink centers that are located outside the state of Oregon.
At the broadcast and uplink centers, the content is
compressed, remixed into groups of channels to match the
size of satellite transponders, encrypted and modulated so
that it can be broadcast to orbiting satellites on a specified
radio frequency.
92 DIRECTV, Inc. v. Dept. of Rev.
C. Signal Distribution
Once the packages have been fully assembled at the
broadcast and uplink centers, they are ready for distribution
to taxpayer’s subscribers.
From the broadcast and uplink centers, taxpayer
transmits an encrypted signal to a fleet of satellites that are
in orbit above the earth.
The orbiting satellites receive the signals and trans-
mit them back down to earth using designated portions of
the microwave radio spectrum.
Taxpayer’s subscribers can then access the signals
using a dish-shaped antenna that is typically mounted near
the subscriber’s home or business.
Once received by the subscriber’s antenna, the sig-
nal is relayed to a receiver (also known as a “set-top box”)
that is typically located inside the subscriber’s home or
business.
The set-top box descrambles the signal and allows
it to be viewed or heard by the subscriber.
III. ISSUE
The issue in this case is whether taxpayer is prop-
erly assessed and taxed as a centrally assessed company
pursuant to ORS 308.505 to 308.665.1
IV. ANALYSIS
Taxpayer argues that this case is governed by the
Opinion of this court in Comcast Corp. v. Dept. of Rev., 20
OTR 319 (2011). In particular, taxpayer relies on the state-
ment in the Comcast opinion to the effect that a company
is not centrally assessable if data transmitted to customers
is either data created by a taxpayer or data as to which a
taxpayer has obtained the right to make transmission to a
customer.
Defendant Department of Revenue (the depart-
ment) argues first that Comcast was wrongly decided. The
1
All references to the Oregon Revised Statutes (ORS) are to the 2011 edition.
Cite as 21 OTR 90 (2013) 93
court declines the invitation of the department to revisit its
opinion in Comcast.
The department then seeks to establish that the
facts for taxpayer are different from those in Comcast. As
to this argument the department primarily points to pro-
visions of the content licensing agreements present in this
case to establish that taxpayer does not own the video and
audio content being transmitted. Pointing to provisions of
the licensing agreements, the department argues that tax-
payer does not own the content and therefore falls outside
the decision in Comcast. The department, however, ignores
that portion of the Comcast decision which speaks of data
as to which the taxpayer has “obtained the right to make
transmission to a third party.” Comcast, 20 OTR at 333.
It is true, as the department points out, that the
content licensing agreements impose some obligations or
limitations on taxpayer. These are, however, in the nature
of obligations to make a certain level of use of the rights and
to do so in a particular way. The provisions in no way detract
from an ultimate finding that taxpayer here has obtained
the right to make transmission of content to a third party
using taxpayer’s technology.
The terms of the content licensing agreements in
this case do not cause the Comcast analysis to be inapplicable.
The department then points to certain contracts
that taxpayer has with phone and cable companies. The
department appears to argue that these contracts constitute
use by taxpayer of property of companies that are conced-
edly subject to central assessment. The department appears
to then conclude that this makes taxpayer subject to central
assessment.2
It is true that, if a company is subject to central
assessment, the use of property of others is considered in
the assessment process. Cf., ORS 308.505(9)(a). However,
such use of property of others, even if the others happen to
2
In some cases it appears that the department confuses use of cable or phone
properties by customers of taxpayer with use of such properties by taxpayer. In
neither case is such use a factor in determining, in the first instance, whether
taxpayer is subject to central assessment.
94 DIRECTV, Inc. v. Dept. of Rev.
be centrally assessable, does not render the company using
the property in question to be subject to central assessment.
This conclusion is established by the statutory definitions of
“company” in ORS 308.505(8) which is not written in terms
of what property is used by a centrally assessed company.
Nothing about the use by taxpayer or its customers of cable
or internet properties owned and operated by others helps
the department.
This court adheres to its Opinion in Comcast as to
the legal principles applicable and finds no basis on which to
reach a different result given the facts of this case.
V. CONCLUSION
The motion of taxpayer is granted and the cross-
motion of the department is denied. Now, therefore,
IT IS ORDERED that Plaintiff’s Motion for
Summary Judgment is granted; and
IT IS FURTHER ORDERED that Defendant’s
Cross-Motion for Summary Judgment is denied.