Arlington County v. Mutual Broadcasting System, Inc.

Present: All the Justices
ARLINGTON COUNTY
v. Record No. 992662 OPINION BY JUSTICE ELIZABETH B. LACY
November 3, 2000
MUTUAL BROADCASTING SYSTEM, INC.
FROM THE CIRCUIT COURT OF ARLINGTON COUNTY
Joanne F. Alper, Judge
Arlington County appeals the decision of the trial court
that Mutual Broadcasting System, Inc. (Mutual) is entitled to
an exemption from the business license tax pursuant to Code
§ 58.1-3703(C)(3) because it operates a radio "broadcasting
station or service." 1 Because the record supports the trial
court's findings that Mutual widely disseminated and
transmitted its radio signal for reception by the general
public, we will affirm the judgment of the trial court.
I.
Mutual produces a variety of radio programs at its
studios in Arlington County, Virginia. The broadcast signal
for these programs is processed in a "master control room
area" at Mutual's studios through complex equipment which
routes, monitors, and adjusts the signal for further
transmission. The refined signal is sent from the master
control room to a satellite "earth station" uplink facility by
one of two methods. It may be broadcast from a "KU" satellite
1
During the years in question, the same language was in
former Code § 58.1-3703(B)(3).
antenna located on the roof of the Arlington facility or
through a "T1" telephone line. Programming transmitted
through the "T1" telephone line is converted to digital pulses
for transmission over the line and then converted back to a
radio signal when it reaches the earth station. Approximately
seventy-five percent of Mutual's programming is transmitted
over the "T1" line.
The earth station, located in Mount Vernon, New Jersey,
relays the radio signal to a communications satellite located
in space, which, in turn, relays the signal back to earth.
The signal is received by several thousand radio stations
affiliated with Mutual through contractual arrangements. The
affiliate radio stations then rebroadcast the radio signal to
the public. The radio signal is also received and rebroadcast
by non-affiliate stations such as college radio stations and
the United States Armed Forces Radio Network. Furthermore,
the radio signal can be received by members of the public
directly, if they have appropriate equipment. 2 The radio
signal is not encoded or encrypted and there is no fee for
receiving this signal. Mutual's broadcasts are paid for by
advertising revenues.
2
Members of the public with appropriate equipment may
also receive the radio signal directly from the "KU" satellite
transmission of the signal from Mutual's Arlington facilities
to the earth station.
2
Though Mutual owns the Arlington facilities, its parent
company, Westwood One, Inc. (Westwood), owns the "KU"
satellite and possesses the Federal Communications Commission
(FCC) license for these radio transmissions. The earth
station is owned by General Electric. Mutual does not own the
satellite, but has a "capital lease" for it which covers over
ninety percent of the estimated use of the life of the
satellite. Thus, for financial accounting purposes, Mutual
"owns" the satellite.
The County assessed business license taxes against Mutual
based on its gross receipts. Mutual filed two applications
challenging these assessments; the first application covered
the years 1990–1993, and the second addressed years 1994 and
1995. In both applications Mutual asserted that the
assessments were erroneous because it was exempt from the tax
pursuant to Code § 58.1-3703(C)(3) and that the County's
assessments were not fairly apportioned and, thus,
unconstitutional. The applications were consolidated. The
trial court granted the County's motion for partial summary
judgment and dismissed Mutual's constitutional claims.
Following an ore tenus hearing, the trial court determined
that Mutual was entitled to the exemption from taxation and
ordered the County to refund to Mutual $652,833.47 in taxes,
penalties, and interest. The County filed this appeal.
3
The County assigns five errors to the trial court's
judgment which effectively raise two issues. First, the
County asserts that the trial court did not strictly construe
the broadcast exemption statute to give the statute the
construction which would deny the exemption and resolve any
doubt in favor of taxation. Second, the County asserts that
the trial court erred in finding that Mutual disseminates its
programming to the public and transmits radio signals for
general reception, thereby qualifying Mutual for an exemption
under Code § 58.1-3703(C)(3). We consider these issues in
order.
II.
The trial court, relying on Chesterfield Cablevision,
Inc. v. County of Chesterfield, 241 Va. 252, 401 S.E.2d 678(1991), concluded that Code § 58.1-3703(C)(3) provided an
exemption from taxation and, as such, must be strictly
construed. That is to say, if the statute is subject to more
than one interpretation, the construction denying the
exemption must be adopted and any doubt must be resolved in
favor of taxation. WTAR Radio-TV Corp. v. Commonwealth, 217
Va. 877, 879, 234 S.E.2d 245, 247 (1977); Winchester TV Cable
Co. v. State Tax Comm'r, 216 Va. 286, 290, 217 S.E.2d 885, 889
(1975). Nevertheless, the County asserts that the trial court
did not apply strict construction to this statute.
4
Code § 58.1-3703(C)(3) provides:
C. No county, city, or town shall impose a license
fee or levy any license tax . . . for the privilege
or right of operating or conducting any radio or
television broadcasting station or service[.]
In Chesterfield Cablevision, a cable television company sought
an exemption from taxation under this statute. In resolving
the issue, we applied the definition of "broadcasting"
previously adopted in Winchester TV. Winchester TV involved
Code § 58-441.6(j), an exemption from sales and use taxes. We
concluded that "broadcasting" as used in that statute means
"to make widely known: to disseminate or
distribute widely or at random . . . to send out
from a transmitting station (a radio or
television program) for an unlimited number of
receivers, . . ."
. . . .
. . . transmitted into space for anyone, who
has the equipment and is within range of the signal,
to receive.
Winchester TV, 216 Va. at 290-91, 217 S.E.2d at 889. In
applying this definition, we have concluded that programming
which was delivered only to paid subscribers was not
"broadcasting" because such programming was not disseminated
or transmitted to the general public, Chesterfield
Cablevision, 241 Va. at 254, 401 S.E.2d at 679-80; Winchester
TV, 216 Va. at 291, 217 S.E.2d at 889, and that equipment used
in the production of programs was not "broadcasting equipment"
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unless it was used directly in "the act of disseminating a
signal into the air," WTAR Radio-TV, 217 Va. at 882, 234
S.E.2d at 248.
The trial court, again relying on Chesterfield
Cablevision, applied the construction of "broadcasting" set
out above and held that Mutual was performing a broadcasting
service because its activities were directly involved in
transmitting and disseminating its radio signal to the general
public.
The County does not suggest that a different definition
of "broadcasting" was required to satisfy a strict
construction of the statute. In fact, in its briefs before
this Court and the trial court, the County applies the trial
court's construction of the term. The County's real
disagreement is not with the trial court's interpretation of
the statute, but with the trial court's determination that the
evidence presented showed that Mutual's activities met the
definition of "broadcasting." Thus, we will turn to the
County's remaining issue, that is, whether Mutual engages in
activities which constitute the direct transmission and
dissemination of its radio signal to the general public.
III.
The trial court found that Mutual's signal "is
transmitted from the satellite into space and is picked up by
6
both Mutual's affiliates, other entities . . . who are not
affiliates, i.e., the Armed Forces Radio Network, and
individuals with the proper equipment" and "received by
millions of listeners who are members of the general public."
The County asserts that this finding is erroneous because
although Mutual produces programs which are "eventually widely
disseminated to the public," the transmission or dissemination
of the programs is performed by independently owned and
operated radio stations and, thus, Mutual does not itself
transmit the radio signal in all directions to the public.
Mutual, the County asserts, possesses no FCC license to
broadcast. The broadcasters, according to the County, are the
affiliate stations; Mutual is only a producer or distributor
of the programs.
The County argues that the portion of Mutual's
programming that is sent to the earth station via the "T1"
line from the Arlington facilities is not the transmission of
a radio signal and is not available to the public. With
regard to the remaining programming transmitted to the earth
station via the "KU-band" satellite, the County argues that
Westwood, Mutual's parent company, transmits this signal and
holds the license from the FCC to do so. Continuing, the
County argues that because Mutual owns neither the earth
station nor the satellite and does not possess an FCC license
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to transmit signals from the satellite, Mutual does not
transmit its radio signal at all.
The County's position challenges findings of fact made by
the trial court. 3 The standard of review we apply to such
challenges requires that we accept the trial court's findings
of fact as true, unless they are without support in the
record. Quantum Dev. Co. v. Luckett, 242 Va. 159, 161, 409
S.E.2d 121, 122 (1991).
First, we reject the County's argument that Mutual's
activities are not "broadcasting" because Mutual does not
possess an FCC broadcasting license. The definition of
"broadcasting" which we have adopted does not include a
requirement that a broadcaster have an FCC broadcasting
license, and the failure to have such a license, while a
factor to consider, is not dispositive in determining whether
Mutual is disseminating its radio signal to the public. See
WTAR Radio-TV, 217 Va. at 880, 234 S.E.2d at 247 (FCC
regulations do not control meaning of broadcasting).
3
The County variously states that the facts are
"essentially undisputed" and that the "legal conclusions to be
drawn from the undisputed facts are at issue . . . ." The
County also asserts that it assigned error to the trial
court's factual finding "that the broadcast signal received by
the public is Mutual's and not that of others, i.e., General
Electric and the independent radio stations." We consider
these assignments of error as challenges to the factual
findings of the trial court and review them accordingly.
8
The County's basic contention is that because Mutual does
not own the equipment utilized in the process of transmitting
its radio signal to the public, it does not broadcast its
radio signal and, therefore, does not qualify as operating or
conducting a broadcasting service pursuant to Code § 58.1-
3703(C)(3). We reject this contention.
In determining whether an entity is operating or
conducting a broadcasting service, we examine the entity's
activities up to the point at which the entity releases
control of the transmission or dissemination of its
programming or signal. Ownership of the equipment used in the
process of transmission is not determinative of the scope of
an entity's activities. As noted above, Mutual has a "capital
lease" for the satellite covering approximately ninety percent
of the estimated use of the life of the satellite. The use of
the satellite, therefore, is controlled by Mutual through this
contract. The fact that Mutual chooses to lease rather than
own the equipment used in the dissemination or transmission of
its radio signal does not alone defeat a finding that Mutual
engages in a "broadcasting service."
The record does not show the contractual relationship
between the owner of the earth station and Mutual; however, it
is fair to infer that Mutual retains control during
transmission of the signal to the satellite because of
9
Mutual's continuing control of the use of the satellite
through its lease. Similarly, the record does not show the
relationship, contractual or otherwise, between Mutual and
Westwood, the owner of the satellite transmitting Mutual's
radio signal to the earth station. Nevertheless, for the same
reason, it is fair to infer that Mutual retains control over
its signal while the signal is transmitted by Westwood to the
earth station because Mutual has control over the satellite
transmission of the signal.
The record supports the conclusion that Mutual retains
control of the transmission or dissemination of its radio
signal through the point at which the signal is transmitted by
the satellite. The record also shows that at that point
Mutual's radio signal can be captured by not only affiliate
radio stations, but also by non-affiliate radio stations such
as colleges and other institutions of learning as well as the
Armed Forces Radio Network. Additionally, any member of the
listening public who has a specific type of receiver can
receive Mutual's broadcast signal as it is transmitted from
the satellite. Neither these listeners nor the non-affiliate
radio stations pay any fee to Mutual for this programming.
This arrangement is not analogous to cases in which
transmission was made only to paying subscribers. See WTAR
Radio-TV, 217 Va. at 881, 234 S.E.2d at 247; Winchester TV,
10
216 Va. at 291, 217 S.E.2d at 889. The record supports the
trial court's finding that Mutual created, transmitted, and
disseminated radio signals to the public and, therefore, was
engaged in broadcasting.
Finally, the trial court also noted in its opinion letter
that according to a deputy commissioner of revenue, the
"import" of the broadcast exemption statute "goes to functions
that enhance, sustain, process, refine or directly produce the
transmission or dissemination." This definition as well as
the statute itself recognizes that an entity need not be a
radio or television "station" to qualify for the exemption.
As we stated in WTAR Radio-TV, equipment which is used
directly in disseminating or transmitting the signal into the
air is considered "broadcasting equipment" for purposes of the
sales and use tax statute. 217 Va. at 882, 234 S.E.2d at 248.
Similarly, activities which are directly related to the
dissemination and transmission of the radio signal are
broadcasting services for purposes of Code § 58.1-3703(C)(3).
The trial court determined that Mutual's activities were a
"radio broadcasting service" under this definition and we
conclude that the record supports that finding.
For the reasons stated, we will affirm the trial court's
judgment that Mutual carried its burden of proof that it is a
11
"radio broadcasting service" and qualifies for the exemption
from a business license tax under Code § 53.1-3703(C)(3). 4
Affirmed.
4
In light of our holding, we do not address Mutual's
assignments of cross-error regarding whether the apportionment
of the taxes was unconstitutional and whether the trial court
properly characterized Code § 58.1-3703(C)(3) as a tax
exemption statute.
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