DIRECTV, Inc. v. Levin

[Cite as DIRECTV, Inc. v. Levin, 128 Ohio St.3d 68, 2010-Ohio-6279.]

DIRECTV, INC. ET AL., APPELLANTS, v. LEVIN, TAX COMMR., APPELLEE.
[Cite as DIRECTV, Inc. v. Levin, 128 Ohio St.3d 68, 2010-Ohio-6279.]
Taxation — Sales tax — R.C. 5739.01(B)(3)(p) — Satellite-broadcasting services
— Taxation of sales of satellite-broadcasting services but not of cable-
broadcasting services does not violate Commerce Clause of United States
Constitution — Differential tax treatment of two categories of companies
is constitutional when difference results solely from nature of business and
not from location of companies’ activities.
(No. 2009-0627 — Submitted October 13, 2010 — Decided December 27, 2010.)
APPEAL from the Court of Appeals for Franklin County, No. 08AP-32,
181 Ohio App.3d 92, 2009-Ohio-636.
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SYLLABUS OF THE COURT
1. The Commerce Clause of the United States Constitution protects the interstate
market, not particular interstate firms or particular structures or methods
of operation in a retail market. (Exxon Corp. v. Gov. of Maryland (1978),
437 U.S. 117, 98 S.Ct. 2207, 57 L.Ed.2d 91, followed.)
2. The imposition of a sales tax by the Ohio General Assembly on satellite
broadcasting services but not on cable broadcasting services does not
violate the Commerce Clause of the United States Constitution, because
the tax is based on differences between the nature of those businesses, not
the location of their activities, and it does not favor in-state interests at the
expense of out-of-state interests. (Kentucky Dept. of Revenue v. Davis
(2008), 553 U.S. 328, 128 S.Ct. 1801, 170 L.Ed.2d 685; Amerada Hess
Corp. v. Dir., Div. of Taxation, New Jersey Dept. of Treasury (1989), 490
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U.S. 66, 109 S.Ct. 1617, 104 L.Ed.2d 58; and DIRECTV, Inc. v. Treesh
(C.A.6, 2007), 487 F.3d 471, followed.)
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O’DONNELL, J.
{¶ 1} DIRECTV, Inc., and EchoStar Satellite, L.L.C. (“the satellite
companies”) appeal from a decision of the Tenth District Court of Appeals and
ask us to consider whether the imposition of a sales tax on the retail sale of
satellite broadcasting services without also imposing the same tax on cable
broadcasting services violates the Commerce Clause of the United States
Constitution. As other jurisdictions that have considered this same issue have
done, we conclude that the Commerce Clause protects the interstate market, not
particular interstate firms or particular structures or methods of operation in a
retail market. The imposition of a sales tax by the Ohio General Assembly on
satellite broadcasting services but not on cable broadcasting services does not
violate the Commerce Clause of the United States Constitution, because the tax is
based on differences between the nature of those businesses, not the location of
their activities, and it does not favor in-state interests at the expense of out-of-
state interests. Accordingly, the judgment of the court of appeals is affirmed.
Factual History
Satellite and Cable Broadcasting Services
{¶ 2} The satellite companies provide pay-television programming
services to consumers in Ohio and other states using satellites in fixed orbits
above the earth. The satellite companies purchase signals for this programming
from local broadcast stations, broadcast television networks (ABC, CBS, Fox, and
NBC), and providers of cable programming (such as CNN, ESPN, and HBO).
They then transmit these signals from uplinks located outside Ohio to the
satellites, which in turn send the signal directly to small satellite dish antennas
mounted on or near the home of the subscriber to be received by a decoder box

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and displayed on the subscriber’s television. Other than the antenna and receiver
at the subscriber’s home, this method of delivery does not require the use of
additional ground-receiving and/or distribution facilities in Ohio.
{¶ 3} In the pay-television market, the satellite companies – neither of
which is headquartered in Ohio – compete with cable companies, which use
ground receiving and distribution facilities to provide television programming to
customers. For cable television distribution, the process begins at the “headend,”
a facility, usually located in or near the franchise area, that contains the collection
of antennas that the cable television provider uses to gather programming from
local, in-state, and out-of-state sources. However, with cable company
consolidation and technological advances, there has been a reduction in the
number of headends, and some cable companies use headends located out of state.
From the headend, coaxial or fiber-optic cables and amplifiers located either on
utility poles or below the ground carry the signal to “hubs” servicing areas of
10,000 to 20,000 customers, which then direct the signal through feeder lines to
“nodes” serving particular neighborhoods.
{¶ 4} These cables run along public rights of way, and cable companies
enter franchise agreements with local governments and pay a franchise fee to
secure this right of access. The franchise fee may vary by locality, but federal law
prohibits the fee from exceeding five percent of gross revenues. While the cable
companies’ mode of distribution necessitates a local footprint, none of the major
cable companies operating in Ohio are headquartered in Ohio, and all serve an
interstate market.
The Sales Tax on Satellite Broadcasting Service
{¶ 5} Prior to 2003, Ohio did not tax sales of cable or satellite television
service. That year, however, the General Assembly considered a bill that would
have taxed sales of both services equally. H.B. No. 95, as introduced in the 125th
General Assembly, proposed to enact R.C. 5739.01(B)(3)(q) to define “sale” as

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including “transactions by which * * * [c]able and satellite television service is or
is to be provided.” As a result, the cable and satellite television industries
retained lobbyists to protect their interests, and ultimately the legislature amended
the bill to enact a sales tax on “satellite broadcasting service” alone. See R.C.
5739.01(B)(3)(p) (150 Ohio Laws, Part I, 396, and Part II, 1996). The General
Assembly’s definition of “satellite broadcasting service” in R.C. 5739.01(XX)
does not include transactions involving the distribution of pay-television
programming using ground receiving or distribution equipment, and the sale of
cable television programming is therefore not subject to the tax.
Procedural History
{¶ 6} In response to this legislation, the satellite companies filed a
declaratory-judgment complaint in the Franklin County Common Pleas Court
seeking a declaration that the tax on sales of satellite television service but not on
sales of cable television service had both the purpose and effect of favoring in-
state economic interests in violation of the Commerce Clause.
{¶ 7} The trial court entered a partial summary judgment in favor of the
satellite companies, declaring the sales tax on satellite broadcasting services to be
unconstitutional because “[t]he differential tax treatment of [satellite and cable
television providers] is directly correlated with whether they use certain local
ground receiving and distribution equipment. * * * [T]he practical effect of the
differential tax treatment is to benefit in-state economic interests while burdening
out-of-state economic interests, thereby discriminating against interstate
commerce in violation of the Commerce Clause * * *.” (Emphasis sic.)
{¶ 8} The trial court also concluded that a genuine issue of material fact
existed regarding whether the General Assembly had intentionally discriminated
against interstate commerce in levying the tax, and the court denied summary
judgment on that issue. However, the court rejected the satellite companies’

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argument that the sales tax facially discriminated against interstate commerce, a
position the satellite companies have since abandoned.
{¶ 9} The tax commissioner appealed, and the Tenth District Court of
Appeals reversed the judgment of the trial court and held that the Commerce
Clause is not violated when the differential tax treatment of two categories of
companies results solely from differences between the nature of their businesses,
not from the location of their activities. DIRECTV v. Levin, 181 Ohio App.3d 92,
2009-Ohio-636, 907 N.E.2d 1242. The court explained that because both of these
providers are engaged in interstate commerce, the sales tax did not discriminate
against the interstate market for pay television, but merely against one interstate
company competing in that market. Id. at ¶ 27–28. The appellate court further
determined that the trial court erred in denying the tax commissioner’s motion for
summary judgment on the issue of whether there was purposeful discrimination
and directed the trial court to enter summary judgment for the tax commissioner
on all claims. Id. at ¶ 35.
{¶ 10} We accepted the satellite companies’ discretionary appeal.
DIRECTV, Inc. v. Levin, 122 Ohio St.3d 1454, 2009-Ohio-3131, 908 N.E.2d 945.
Arguments on Appeal
{¶ 11} The satellite companies urge that the sales tax imposed by R.C.
5739.01(B)(3)(p) discriminates against interstate commerce in practice because
the tax gives preferential treatment to “cable TV companies [that] have invested a
fortune in building and maintaining a network of ‘ground receiving or distribution
equipment’ – including thousands of buildings and tens of thousands of miles of
cable – in Ohio,” while satellite service is taxed “because its providers have
devised a way to deliver the same service without installing any ‘ground or
receiving or distribution equipment’ in Ohio.” According to the satellite
companies, a state may not distinguish between companies engaged in interstate
commerce if the distinction turns on the extent of economic investment in the

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state, notwithstanding any differences in the manner in which the firms conduct
business. Thus, they maintain that any discrimination in tax treatment that
depends on the existence of ground receiving or distributing equipment in Ohio is
unconstitutional.
{¶ 12} The satellite companies also assert that the court of appeals left
undisturbed the trial court’s conclusion that a genuine issue of material fact
remains regarding whether the General Assembly intentionally discriminated
against them in enacting R.C. 5739.01(B)(3)(p), and they argue that statements
made by lobbyists for the cable industry to legislators regarding the statute’s
purpose and effect are relevant and admissible in proving discrimination against
interstate commerce.
{¶ 13} The tax commissioner responds that the tax “simply differentiates
between two forms of interstate commerce, not between a local economic activity
and an out-of-state economic activity.” Tax differentials, he asserts, are not
“prohibited simply because the business adversely affected by the tax treatment
generates less economic activity in the subject state than the business that
received favorable tax treatment.” The tax commissioner maintains that even if
the tax technically discriminates against commerce, the sales tax may be
“properly sustained as ‘compensatory’ or ‘complementary’ ” to the franchise fees
imposed on cable companies. Also, he contends that the satellite companies have
abandoned the issue of intentional discrimination.
{¶ 14} Accordingly, we are called upon to consider whether the sales tax
levied by R.C. 5739.01(B)(3)(p) on satellite broadcasting services but not on
cable broadcasting services discriminates against interstate commerce in violation
of the Commerce Clause.
Law and Analysis
Standard of Review

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{¶ 15} At the outset, we note that our review of a summary judgment is de
novo. Comer v. Risko, 106 Ohio St.3d 185, 2005-Ohio-4559, 833 N.E.2d 712,
¶ 8. “Summary judgment is appropriate if (1) no genuine issue of any material
fact remains, (2) the moving party is entitled to judgment as a matter of law, and
(3) it appears from the evidence that reasonable minds can come to but one
conclusion, and construing the evidence most strongly in favor of the nonmoving
party, that conclusion is adverse to the party against whom the motion for
summary judgment is made.” State ex rel. Duncan v. Mentor City Council, 105
Ohio St.3d 372, 2005-Ohio-2163, 826 N.E.2d 832, ¶ 9.
{¶ 16} In determining whether a law discriminates against interstate
commerce, the United States Supreme Court has “eschewed formalism for a
sensitive, case-by-case analysis of purposes and effects.” W. Lynn Creamery, Inc.
v. Healy (1994), 512 U.S. 186, 201, 114 S.Ct. 2205, 129 L.Ed.2d 157. Further, as
the court explained in Hughes v. Oklahoma (1979), 441 U.S. 322, 336, 99 S.Ct.
1727, 60 L.Ed.2d 250, “[t]he burden to show discrimination rests on the party
challenging the validity of the statute” – in this case, the satellite companies.
The Dormant Commerce Clause
{¶ 17} The United States Constitution provides that Congress shall have
the power “[t]o regulate Commerce * * * among the several States.” Clause 3,
Section 8, Article I. However, although the terms of the Commerce Clause “do
not expressly restrain ‘the several States’ in any way,” the Supreme Court has
“sensed a negative implication in the provision since the early days.” Kentucky
Dept. of Revenue v. Davis (2008), 553 U.S. 328, 337, 128 S Ct. 1801, 170
L.Ed.2d 685. Thus, the court has “long interpreted the Commerce Clause as an
implicit restraint on state authority.” United Haulers Assn., Inc. v. Oneida-
Herkimer Solid Waste Mgt. Auth. (2007), 550 U.S. 330, 338, 127 S.Ct. 1786, 167
L.Ed.2d 655. This concept of “negative implication” and “implicit restraint” is
known as the “negative” or “dormant” Commerce Clause.

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{¶ 18} The doctrine of the dormant Commerce Clause traces its roots to
“[t]he desire of the Forefathers to federalize regulation of foreign and interstate
commerce.” H.P. Hood & Sons, Inc. v. Du Mond (1949), 336 U.S. 525, 533, 69
S.Ct. 657, 93 L.Ed. 865. As the court explained in Camps Newfound/Owatonna,
Inc. v. Harrison (1997), 520 U.S. 564, 571, 117 S.Ct. 1590, 137 L.Ed.2d 852,
“During the first years of our history as an independent confederation, the
National Government lacked the power to regulate commerce among the States.
Because each State was free to adopt measures fostering its own local interests
without regard to possible prejudice to nonresidents, what Justice Johnson
characterized as a ‘conflict of commercial regulations, destructive to the harmony
of the States,’ ensued.” Id., quoting Gibbons v. Ogden (1824), 22 U.S. (9 Wheat.)
1, 224, 6 L.Ed. 23 (Johnson, J., concurring).
{¶ 19} Accordingly, the modern cases arising under what has become
known as the dormant Commerce Clause are “driven by concern about ‘economic
protectionism—that is, regulatory measures designed to benefit in-state economic
interests by burdening out-of-state competitors.’ ” Kentucky Dept. of Revenue,
553 U.S. at 337–338, 128 S.Ct. 1801, 170 L.Ed.2d 685, quoting New Energy Co.
of Indiana v. Limbach (1988), 486 U.S. 269, 273–274, 108 S.Ct. 1803, 100
L.Ed.2d 302. The dormant Commerce Clause thus enshrines the economic policy
of the framers to prohibit states from erecting barriers to free trade across state
borders and from enacting laws that favor local enterprises at the expense of out-
of-state businesses. Boston Stock Exchange v. New York State Tax Comm. (1977),
429 U.S. 318, 328-329, 97 S.Ct. 599, 50 L.Ed.2d 514.
{¶ 20} The Supreme Court has therefore recognized that “[n]o State,
consistent with the Commerce Clause, may ‘impose a tax which discriminates
against interstate commerce * * * by providing a direct commercial advantage to
local business.’ ” (Ellipsis sic.) Id. at 329, quoting Northwestern States Portland
Cement Co. v. Minnesota (1959), 358 U.S. 450, 458, 79 S.Ct. 357, 3 L.Ed.2d 421.

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{¶ 21} The court has pointed out, however, that the Commerce Clause of
the United States Constitution “protects the interstate market, not particular
interstate firms” or “particular structure[s] or methods of operation in a retail
market.” Exxon Corp. v. Gov. of Maryland (1978), 437 U.S. 117, 127, 98 S.Ct.
2207, 57 L.Ed.2d 91. Therefore, differential tax treatment of “two categories of
companies result[ing] solely from differences between the nature of their
businesses, [and] not from the location of their activities,” does not violate the
dormant Commerce Clause. Amerada Hess Corp. v. Dir., Div. of Taxation, New
Jersey Dept. of the Treasury (1989), 490 U.S. 66, 78, 109 S.Ct. 1617, 104
L.Ed.2d 58.
{¶ 22} Relying on the decisions of the United States Supreme Court in
Exxon and Amerada Hess, every state and federal court considering Commerce
Clause challenges brought by the satellite industry arguing against state tax
measures as favoring the cable industry has held that these taxes do not violate the
dormant Commerce Clause because they do not discriminate against interstate
commerce.
{¶ 23} In DIRECTV, Inc. v. Treesh (E.D.Ky.2006), 469 F.Supp.2d 425,
the court considered a Kentucky tax statute that imposed a sales tax on both
satellite and cable services but prohibited local governments from imposing
franchise fees on cable companies while allowing cable companies a tax credit for
the amount of any such fee imposed. The satellite companies claimed that
allowing cable companies free access to public rights-of-way to install
infrastructure within the state of Kentucky gave the cable companies a tax
advantage not shared with satellite companies, whose service is provided through
satellites located outside the state of Kentucky.
{¶ 24} The district court dismissed the complaint, finding that the tax did
not distinguish between in-state and out-of-state economic interests and had
neither discriminatory purpose nor effect. The court noted that the cable

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companies could not be characterized as in-state interests and that “[t]he different
effects of Kentucky’s new tax provisions on Satellite Companies and Cable
Companies are owed not to the geographic location of the companies, but to their
different delivery mechanisms,” explaining that the tax statute had the same effect
regardless of whether the satellite or cable companies located their operations
inside or outside the state. Id. at 437-438.
{¶ 25} The Sixth Circuit Court of Appeals affirmed and noted: “While a
purpose of the [Kentucky tax statute] might have been to aid the cable industry
rather than the satellite industry because the former has a larger in-state presence
than the latter, there were clearly many other purposes including assessing some
tax against a satellite industry that is rapidly growing * * *.” (Emphasis sic.)
DIRECTV v. Treesh (C.A.6, 2007), 487 F.3d 471, 480.
{¶ 26} The court went on to recognize that (1) cable and satellite
companies provide consumers with two distinct goods, “consisting of two very
different means of delivering broadcasts,” id. at 480, (2) “the dormant Commerce
Clause is intended to protect interstate commerce, and not particular firms
engaged in interstate commerce, or the modes of operation used by those firms,”
id. at 481, and (3) “differential tax treatment of ‘two categories of companies
result[ing] solely from differences between the nature of their businesses, [and]
not from the location of their activities’ does not violate the dormant Commerce
Clause.” Id., quoting Amerada Hess, 490 U.S. at 78, 109 S.Ct. 1617, 104 L.Ed.2d
58. The Sixth Circuit emphasized that “applying the dormant Commerce Clause
in cases that do not present the equivalent of a protective tariff” — i.e., where the
tax does not draw geographic lines, favor local products, or promote local
companies — would “dramatically increase the clause’s scope.” 487 F.3d at 481.
The Supreme Court of the United States denied a writ of certiorari. See
DIRECTV, Inc. v. Treesh (2008), 552 U.S. 1311, 128 S.Ct. 1876, 170 L.Ed.2d
746.

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{¶ 27} In addition, the satellite companies challenged a North Carolina
statute that imposed a sales tax on “direct-to-home satellite service” but not on
cable television service. The North Carolina Court of Appeals rejected the
Commerce Clause challenge, explaining that the tax “does not make any
geographical distinctions, but merely describes one method of providing
television programming services to North Carolina subscribers.” DIRECTV, Inc.
v. State (2006), 178 N.C.App. 659, 663, 632 S.E.2d 543. Moreover, the tax
“does not discriminate against [the satellite companies] in favor of a local industry
[because] cable companies are no more ‘local’ in nature than are satellite
companies.” Id. at 664. See also DIRECTV, Inc. v. Tolson (E.D.N.C.2007), 498
F.Supp.2d 784, 800, affirmed (C.A.4, 2008), 513 F.3d 119 (dismissing the
satellite companies’ complaint on other grounds, but explaining that the amended
North Carolina statute imposing an equal tax on satellite and cable companies
while revoking authority of local government to impose franchise fees does not
violate the Commerce Clause).
The Ohio Sales Tax
{¶ 28} R.C. 5739.02 imposes a tax “on each retail sale made in this state.”
R.C. 5739.01(B)(3)(p) defines “sale” to include “transactions for a consideration
in any manner” by which “satellite broadcasting service is or is to be provided.”
R.C. 5739.01(XX) further defines “satellite broadcasting service” to mean “the
distribution or broadcasting of programming or services by satellite directly to the
subscriber’s receiving equipment without the use of ground receiving or
distribution equipment, except the subscriber’s receiving equipment or equipment
used in the uplink process to the satellite.” (Emphasis added.) As the parties
agree, the phrase “without the use of ground receiving or distribution equipment”
clarifies that sales of cable broadcasting services are not subject to the tax.
{¶ 29} In reviewing the application of this statute to the facts here, we
conclude that the sales tax imposed on satellite broadcasting services but not cable

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broadcasting services does not violate the Commerce Clause of the United States
Constitution. The statute’s application depends on the technological mode of
operation, not geographic location, and while it distinguishes between different
types of interstate firms, it does not favor in-state interests at the expense of out-
of-state enterprises. See DIRECTV, 487 F.3d at 480-481; DIRECTV, 469
F.Supp.2d at 437-438; DIRECTV, 498 F.Supp.2d at 800; DIRECTV, 178
N.C.App. at 663, 632 S.E.2d 543.
{¶ 30} Here, the tax applies to a transaction involving pay-television
services depending only on the technological mode of distribution of those
services. The General Assembly used the phrase “ground receiving or
distribution equipment” in R.C. 5739.01(XX) to track the definition of “direct-to-
home satellite service” set forth in the notes to Section 152, Title 47, U.S.Code,
which authorize states to tax satellite-television service. See Pub.L. No. 104-104,
Title VI, Section 602(b)(1), 110 Stat. 144 (1996). The General Assembly defined
“satellite broadcasting service” to correspond with this federal authorization and
to identify the taxable transaction by the method of distributing pay-television
services, not to protect companies that have invested in a ground distribution
system or to encourage investment in such a system.
{¶ 31} Application of the sales tax does not depend on the geographic
location of the programming provider. Rather, the sale of satellite broadcasting
services is subject to tax regardless of whether the provider is an in-state or out-
of-state business and without considering the amount of local economic activity
or investment in facilities that the satellite companies bring to Ohio. A satellite
company that is headquartered in Ohio, builds its uplink in Ohio, employs only
Ohio residents, and provides programming only to Ohio customers is as
responsible for collecting the tax as any out-of-state company providing the same
services using the same mode of distribution.

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{¶ 32} Conversely, the cable industry is not a local interest benefited at
the expense of out-of-state competitors. Like the satellite companies, the major
cable providers are interstate companies selling an interstate product to an
interstate market. Both the satellite and cable industries serve customers in Ohio,
own property in Ohio, and employ residents of Ohio, but no major pay-television
provider is headquartered in Ohio or could otherwise be considered more local
than any other. Thus, the sales tax does not reflect “differential treatment of in-
state and out-of-state economic interests that benefits the former and burdens the
latter.” Oregon Waste Sys., Inc. v. Oregon Dept. of Environmental Quality
(1994), 511 U.S. 93, 99, 114 S.Ct. 1345, 128 L.Ed.2d 13. Rather, the tax
regulates among these interests even-handedly based on the technological mode
of operation.
{¶ 33} The cases on which the satellite companies rely are
distinguishable. In Granholm v. Heald (2005), 544 U.S. 460, 125 S.Ct. 1885, 161
L.Ed.2d 796, the states of Michigan and New York imposed regulations allowing
in-state, but not out-of-state, wineries to make direct sales to customers, while in
Bacchus Imports, Ltd. v. Dias (1984), 468 U.S. 263, 104 S.Ct. 3049, 82 L.Ed.2d
200, the state of Hawaii excepted certain alcoholic beverages using locally
produced ingredients from the state liquor tax. In Armco Inc. v. Hardesty (1984),
467 U.S. 638, 104 S.Ct. 2620, 81 L.Ed.2d 540, the state of West Virginia imposed
a wholesale tax on goods manufactured out of state but not on goods made in
state, and in Westinghouse Elec. Corp. v. Tully (1984), 466 U.S. 388, 390, 104
S.Ct. 1856, 80 L.Ed.2d 388, the state of New York gave a tax credit only to those
corporations whose subsidiaries exported goods from New York. And in Boston
Stock Exchange, 429 U.S. at 328-329, 97 S.Ct. 599, 50 L.Ed.2d 514, the state
imposed a greater tax liability on out-of-state transactions than on in-state
transactions.

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{¶ 34} In those cases, the respective states acted to protect local interests
at the expense of out-of-state competitors. In sharp contrast, the Ohio tax does
not protect local industries or treat in-state companies differently from out-of-state
companies, nor does it provide a tax incentive for companies to move operations
or direct business to Ohio.
{¶ 35} Therefore, we concur with those courts that have considered the
merits of the satellite companies’ dormant Commerce Clause claims and conclude
that the Ohio sales tax on satellite broadcasting services does not discriminate
against interstate commerce in violation of the Commerce Clause of the United
States Constitution.
The Admissibility of Lobbyist Statements
{¶ 36} The satellite companies assert that statements made by lobbyists
for the cable industry are admissible to prove both the practical effect of the sale
tax and the intent of the General Assembly in enacting it. We need not reach the
merits of this claim.
{¶ 37} Assuming for purposes of this argument that the statements would
be admissible to prove the discriminatory effect of the sales tax, these statements
would not affect our conclusion that the sales tax does not discriminate against
commerce in practical effect.
{¶ 38} And to the extent that the satellite companies rely on the lobbyist
statements to show that the General Assembly passed the sales tax with a
discriminatory intent, we are unable to reach that issue because the satellite
companies failed to preserve their intentional-discrimination claim for our review.
Here, the court of appeals reversed the trial court’s decision to deny summary
judgment in favor of the tax commissioner on the claim that the state purposefully
discriminated against interstate commerce, ordering “the trial court to enter
summary judgment for defendant-appellant Richard A. Levin, Tax Commissioner

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of Ohio” and ending this litigation subject only to appeal. DIRECTV, 181 Ohio
App.3d 92, 2009-Ohio-636, 907 N.E.2d 1242, ¶ 6, 29, and 35.
{¶ 39} However, in their memorandum in support of jurisdiction in this
court, the satellite companies did not argue that the court of appeals erred by
ordering summary judgment for the tax commissioner on this issue. They sought
review only of the evidentiary issue regarding whether evidence of lobbyist
statements is relevant and admissible. Not only did the satellite companies fail to
attack the order directing summary judgment against them in their initial brief
filed here, but they also asserted that the appellate court had not actually ruled
against them on this point.
{¶ 40} By failing to challenge the decision granting summary judgment in
favor of the tax commissioner on the intentional-discrimination claim in either
their memorandum in support of jurisdiction or their initial brief, the satellite
companies failed to preserve that claim for review. See, e.g., Estate of Ridley v.
Hamilton Cty. Bd. of Mental Retardation & Dev. Disabilities, 102 Ohio St.3d 230,
2004-Ohio-2629, 809 N.E.2d 2, ¶ 18 (declining to consider issues not set forth in
the appellant’s memorandum in support of jurisdiction); Utility Serv. Partners,
Inc. v. Pub. Util. Comm., 124 Ohio St.3d 284, 2009-Ohio-6764, 921 N.E.2d 1038,
¶ 54 (explaining that the appellant “failed to preserve” an argument “raised for the
first time on reply”). Accordingly, we decline to address this issue.
Conclusion
{¶ 41} Differential tax treatment of two categories of companies resulting
solely from differences between the nature of their businesses, not from the
location of their activities, does not violate the Commerce Clause of the United
States Constitution. The Ohio General Assembly imposed a sales tax that makes
no distinction between local and interstate commerce, but rather distinguishes
based only on the mode of distributing television programming. For these
reasons, the judgment of the court of appeals is affirmed.

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Judgment affirmed.
LUNDBERG STRATTON, O’CONNOR, LANZINGER, and CUPP, JJ., concur.
BROWN, C.J., and PFEIFER, J., dissent.
__________________
BROWN, C.J., dissenting.
{¶ 42} Cable companies and satellite companies sell the same thing: pay-
television service. But in Ohio they are not taxed the same. Satellite companies
must collect the 5 1/2 percent sales tax; cable companies do not.
{¶ 43} Why the difference? When the tax bill was introduced, it imposed
an equal tax regardless of seller. Cable-television lobbyists stepped in and drew
the legislature’s attention to certain economic realities: the cable industry directly
employs exponentially more Ohioans (6,000) than the satellite industries (a
“nominal” number) and pays exponentially more taxes (over $100 million
annually) than satellite (“nominal” amounts). According to the cable industry,
“the proposed sales tax on cable service penalizes the cable industry for [its] deep
roots in this state and rewards a competing out-of-state industry who profits from
Ohioans.” That “out-of-state industry” is the satellite industry, which “[p]rovides
Ohioans with very few job opportunities,” “[d]oesn’t pay an appreciable tax of
any kind anywhere in Ohio,” and “[p]rovides little support to local communities.”
{¶ 44} What the cable companies could see, the majority cannot: it is in
Ohio’s economic interest to support the cable industry’s jobs and investment, and
relieving the cable industry of the sales tax benefits that interest. I am all in favor
of promoting employment and investment in this state, but as I read the law, this
particular road is not open to us.
States May Not Impose Discriminatory Taxes to Favor
Local Jobs and Investment
{¶ 45} The black-letter rule is clear. The Commerce Clause forbids states
to discriminate against interstate commerce, and discrimination “ ‘simply means

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differential treatment of in-state and out-of-state economic interests that benefits
the former and burdens the latter.’ ” United Haulers Assn., Inc. v. Oneida-
Herkimer Solid Waste Mgt. Auth. (2007), 550 U.S. 330, 338, 127 S.Ct. 1786, 167
L.Ed.2d 655, quoting Oregon Waste Sys., Inc. v. Dept. of Environmental Quality
(1994), 511 U.S. 93, 99, 114 S.Ct. 1345, 128 L.Ed.2d 13.
{¶ 46} States have an economic interest not only in “mom and pop”
businesses, but in all forms of local investment. So it ignores economic reality to
focus narrowly on the location of ownership or headquarters. While local
ownership and headquarters might benefit the local economy, the amount of
benefit depends on jobs and revenue. And a business need not be locally owned
or headquartered to benefit the local economy. For instance, one fairly suspects
that the city of Marysville, if forced to choose, would take the Honda plant over
any homegrown business, and perhaps over any dozen.
{¶ 47} This is common sense, and numerous cases confirm it. Local
investment, not simply locally headquartered businesses, may not be promoted
through discriminatory taxation. See, e.g., C & A Carbone, Inc. v. Clarkstown
(1994), 511 U.S. 383, 392, 114 S.Ct. 1677, 128 L.Ed.2d 399 (“Discrimination
against interstate commerce in favor of local business or investment is per se
invalid * * *” [emphasis added]); Lewis v. BT Invest. Managers, Inc. (1980), 447
U.S. 27, 42, 100 S.Ct. 2009, 64 L.Ed.2d 702 (prohibited “local favoritism or
protectionism” includes discrimination among businesses according to the extent
of their contacts with the local economy or based on the extent of local
operations); Fulton Corp. v. Faulkner (1996), 516 U.S. 325, 344, 116 S.Ct. 848,
133 L.Ed.2d 796 (“States may not impose discriminatory taxes on interstate
commerce in the hopes of encouraging firms to do business within the State”).
{¶ 48} Local investment, of course, includes the creation or preservation
of local jobs. The Supreme Court has accordingly found “parochial legislation”
to be constitutionally invalid when “the ultimate aim” of the legislation is “to

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create jobs by keeping industry within the State.” Philadelphia v. New Jersey
(1978), 437 U.S. 617, 627, 98 S.Ct. 2531, 57 L.Ed.2d 475; see also Baldwin v.
G.A.F. Seelig, Inc. (1935), 294 U.S. 511, 527, 55 S.Ct. 497, 79 L.Ed. 1032 (the
power to tax may not be used to establish “an economic barrier against
competition with the products of another state or the labor of its residents”);
South-Central Timber Dev., Inc. v. Wunnicke (1984), 467 U.S. 82, 100, 104 S.Ct.
2237, 81 L.Ed.2d 71 (“the Commerce Clause forbids a State to require work to be
done within the State for the purpose of promoting employment”).
{¶ 49} Lower federal courts have recognized the same point. See, e.g.,
Pelican Chapter, Associated Builders & Contrs., Inc. v. Edwards (C.A.5, 1997),
128 F.3d 910, 918 (“patent economic protectionism” includes “[r]educing
unemployment by discouraging the use of out-of-state labor”); Louisiana Dairy
Stabilization Bd. v. Dairy Fresh Corp. (C.A.5, 1980), 631 F.2d 67, 70 (the
Commerce Clause prevents a state from burdening interstate commerce for the
purpose of “preventing local economic disruption”); Mapco, Inc. v. Grunder
(N.D.Ohio 1979), 470 F.Supp. 401, 412 (Commerce Clause is violated by a
differential tax on high- and low-sulfur coal that is intended to “protect and favor
the Ohio high-sulfur coal industry (both workers and management)” and prevent
“the likely loss of jobs of Ohio coal miners”).
{¶ 50} Under these principles, the sales tax is unconstitutional. It treats
sellers of the same service differently. That’s discrimination. It favors the sellers
who invest locally and burdens the sellers who do not. That’s favoritism of in-
state over out-of-state economic interests. Together, these features place the sales
tax well within the prohibition of the dormant Commerce Clause.
The Sixth Circuit Decision in DIRECTV v. Treesh
Does Not Resolve This Case
{¶ 51} The majority follows the Sixth Circuit’s statement in DIRECTV,
Inc. v. Treesh (C.A.6, 2007), 487 F.3d 471, 481, that “the dormant Commerce

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Clause is intended to protect interstate commerce, and not particular firms
engaged in interstate commerce, or the modes of operation used by those firms.”
Treesh derived this rule from a pair of Supreme Court decisions, Exxon Corp. v.
Gov. of Maryland (1978), 437 U.S. 117, 127, 98 S.Ct. 2207, 57 L.Ed.2d 91, and
Amerada Hess Corp. v. Dir., Div. of Taxation, New Jersey Dept. of Treasury
(1989), 490 U.S. 66, 109 S.Ct. 1617, 104 L.Ed.2d 58. For several reasons, I am
not persuaded that Treesh provides the answer to this case.
{¶ 52} First, Treesh is not on point. It reviewed a materially different tax
structure. Kentucky had imposed an even-handed sales tax that treated cable and
satellite the same way. There was no discrimination; without discrimination,
there is no Commerce Clause claim. Treesh boiled down to whether a state must
charge cable companies for use of rights-of-way, see 487 F.3d at 479, a much
different question from the one presented here.
{¶ 53} Nevertheless, it is true that Treesh went on to suggest that under
Exxon and Amerada Hess, the Commerce Clause does not prohibit differential
taxation of the cable and satellite industries. I disagree that these cases save this
tax.
Exxon and Amerada Hess Do Not Immunize Discriminatory Taxes
{¶ 54} Neither Exxon nor Amerada Hess allows discriminatory taxation so
long as both sides may be called “interstate firms” or use different “modes of
operation.” The plaintiffs in those cases lost because the court could discern no
differential treatment of in-state and out-of-state interests.
{¶ 55} In Amerada Hess, the plaintiff oil companies alleged that the state
tax favored independent retailers who do not produce oil over oil producers who
market their own oil. 490 U.S. at 78, 109 S.Ct. 1617, 104 L.Ed.2d 58. But as the
court pointed out, nonproducing retailers may operate both in the taxing state and
outside it, and the tax treated all nonproducing retailers the same. Id. As the
plaintiffs failed to identify a discrete, favored state interest, Amerada Hess

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characterized the tax difference as resulting “solely from differences between the
nature of [competing] businesses.” Id. The key word is “solely,” a word that
cannot be used here.
{¶ 56} Similarly, in Exxon, the plaintiff oil companies alleged that the
effect of a particular tax was to protect in-state independent dealers from out-of-
state competition. 437 U.S. at 125, 98 S.Ct. 2207, 57 L.Ed.2d 91. But as the court
pointed out, “there are several major interstate marketers of petroleum that own
and operate their own retail gasoline stations,” and “in-state independent dealers
will have no competitive advantage over out-of-state dealers.” Id. at 125–126.
Thus, when Exxon stated that the Commerce Clause does not protect “the
particular structure or methods of operation in a retail market,” it had already
concluded that the challenged tax was not discriminatory.
{¶ 57} Neither case involved an identifiable in-state, out-of-state line. So
these cases stand for the modest proposition that the Commerce Clause permits
states to distinguish among differing kinds of businesses, so long as the
distinctions do not favor local economic interests. (Such distinctions could be
challenged under the generally more lenient Equal Protection Clause.) But
operational differences do not immunize protectionist discrimination—indeed,
Amerada Hess and Exxon prove the point: despite clear operational differences in
each case, the court still looked for location-based discrimination. It simply could
not find it.
{¶ 58} “[N]o single conceptual approach identifies all of the factors that
may bear on a particular case.” Raymond Motor Transp., Inc. v. Rice (1978), 434
U.S. 429, 441, 98 S.Ct. 787, 54 L.Ed.2d 664. And more broadly, courts should
“think things not words.” United States v. McGuire (C.A.7, 2010), 627 F.3d 622,
624, 2010 WL 4908001, at *3. However selectively those cases may be quoted,
Exxon and Amerada Hess have little bearing here.
The Sales Tax Creates an Incentive to Invest in Ohio

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 January Term, 2010

{¶ 59} The majority also suggests that the sales tax provides no incentive
for the satellite companies to locate infrastructure in Ohio. This is not true.
{¶ 60} All other things being equal, the sales tax does give incentive to
pay-TV companies to distribute signals using in-ground cable instead of satellites.
Indeed, if the satellite companies installed an in-ground cable network, they
would avoid the sales tax. Of course, given how much they have already invested
in a different mode of delivery, that is an impossibly high price to pay.
{¶ 61} Following this point through, if the satellite companies did the
unthinkable and installed an in-ground cable network, they would avoid the Ohio
sales tax, and they would bring jobs, franchise fees, and property taxes to Ohio.
This fact only confirms that favoring cable companies benefits in-state economic
interests.
Reversal Would Not Expand the Scope of the Dormant Commerce Clause
{¶ 62} The majority does not address it, but the tax commissioner raises a
form of the “floodgates” defense. He says that invalidating the sales tax would
“create a nightmare for legislators and the courts to administer as no two interstate
players have the same relative economic presence in each state in which they do
business,” and this presence “could literally change by the moment as one
business elects to move its infrastructure around the country.”
{¶ 63} The risk of deluge is overstated. This case could not recur without
the following elements: (1) a materially identical good or service, (2) two
competing industries offering the good or service using distinct methods or modes
of delivery, (3) one method making heavy use of the state’s land and labor, with
the other virtually bypassing the state’s economic infrastructure, (4) different tax
treatment of the materially identical good or service, (5) favorable treatment of
the local method over the nonlocal, (6) indications in the evolution of the tax that
it was motivated by protectionism, and (7) no constitutionally valid explanation
for the tax.

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 SUPREME COURT OF OHIO

{¶ 64} I find it doubtful that such a fact pattern will often recur. The
problem of comparing mismatched sets of “interstate players” is answered by the
requirement that the favored and disfavored parties be similarly situated. See
Gen. Motors Corp. v. Tracy (1997), 519 U.S. 278, 117 S.Ct. 811, 136 L.Ed.2d
761. That requirement—which is met here, as cable and satellite unquestionably
compete—would head off most problems, including the tellingly short parade of
horribles marched out by the tax commissioner. And if this fact pattern did recur,
it is unobjectionable that the Commerce Clause would prohibit it.
The Compensatory-Tax Defense Would Not Save This Tax
{¶ 65} The majority does not address the tax commissioner’s affirmative
defense, but for the sake of completeness, I will. A protectionist tax can be saved
if “it advances a legitimate local purpose that cannot be adequately served by
reasonable nondiscriminatory alternatives.” New Energy Co. of Indiana v.
Limbach (1988), 486 U.S. 269, 278, 108 S.Ct. 1803, 100 L.Ed.2d 302. The
“standards for such justification are high,” however, invoking “ ‘the strictest
scrutiny.’ ” Id. at 278–279, quoting Hughes v. Oklahoma (1979), 441 U.S. 322,
337, 99 S.Ct. 1727, 60 L.Ed.2d 250.
{¶ 66} The commissioner offers only one substantial nondiscriminatory
justification: that the sales tax counterbalances the franchise fees that cable
companies pay to local governments. This is the “compensatory tax” defense.
See, e.g., Fulton Corp., 516 U.S. at 331, 116 S.Ct. 848, 133 L.Ed.2d 796. Often
raised, this defense rarely wins. All of the following cases have rejected it: S.
Cent. Bell Tel. Co. v. Alabama (1999), 526 U.S. 160, 169–170, 119 S.Ct. 1180,
143 L.Ed.2d 258; Fulton Corp., 516 U.S. at 331–344, 116 S.Ct. 848, 133 L.Ed.2d
796; Associated Industries of Missouri v. Lohman (1994), 511 U.S. 641, 648–649,
114 S.Ct. 1815, 128 L.Ed.2d 639; Oregon Waste Sys., 511 U.S. at 104, 114 S.Ct.
1345, 128 L.Ed.2d 13; Tyler Pipe Industries, Inc. v. Washington State Dept. of

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 January Term, 2010

Revenue (1987), 483 U.S. 232, 244, 107 S.Ct. 2810, 97 L.Ed.2d 199; Armco Inc.
v. Hardesty (1984), 467 U.S. 638, 642–643, 104 S.Ct. 2620, 81 L.Ed.2d 540;
Maryland v. Louisiana (1981), 451 U.S. 725, 758, 101 S.Ct. 2114, 68 L.Ed.2d
576; Boston Stock Exchange v. State Tax Comm. (1977), 429 U.S. 318, 332, 97
S.Ct. 599, 50 L.Ed.2d 514. In the court’s own words, since 1937, it has “shown
extreme reluctance to recognize new compensatory categories” beyond the sales-
and-use-tax combination. Fulton Corp., 516 U.S. at 338.
{¶ 67} Even assuming that individually negotiated franchise fees in this
case constitute “taxes,” the compensatory-tax defense does not avail the tax
commissioner. First, the sales tax and the franchise fees are not “substantially
equivalent,” that is, “sufficiently similar in substance to serve as mutually
exclusive ‘prox[ies]’ for each other.” Oregon Waste Sys., 511 U.S. at 103, 114
S.Ct. 1345, 128 L.Ed.2d 13, quoting Armco, 467 U.S. at 643, 104 S.Ct. 2620, 81
L.Ed.2d 540. For the sales tax, the taxable event is a transaction, the sale of
television programming. See, e.g., Howell Air, Inc. v. Porterfield (1970), 22 Ohio
St.2d 32, 34, 51 O.O.2d 62, 257 N.E.2d 742. Franchise fees are not taxes on the
privilege of purchasing, but compensate the local government for the costs
incurred in allowing and regulating access to public rights of way.
{¶ 68} The real-world differences between the two industries confirm the
legal conclusion that sales taxes and franchise fees cannot be equated. Cable must
burden public property to deliver its signals—it must string cable on poles and
bury it in the ground. Satellite does not impose these kinds of burdens, so
requiring satellite companies to pay their proxy would not make sense.
{¶ 69} But whereas only cable engages in the activity that triggers
franchise fees, both cable and satellite engage in the activity taxed by the sales
tax—both sell television programming. Thus, sparing the cable industry the sales
tax does not equalize the tax burden so much as it eliminates a cost advantage
held by satellite—the ability to deliver service without using public rights-of-way.

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 SUPREME COURT OF OHIO

{¶ 70} Finally, even if franchise fees were fairly comparable, the sales tax
exceeds the amount of the franchise fee. See Oregon Waste, 511 U.S. at 103, 114
S.Ct. 1345, 128 L.Ed.2d 13. The sales tax is currently 5 1/2 percent. R.C.
5739.02(A)(1). Franchise fees are capped at five percent of gross receipts.
Section 542(b), Title 47, U.S.Code. But some localities have agreed to less. For
example, the city of Delaware has charged a fee as low as three percent. And
whether through a later reduction of franchise fees or an increase of the sales tax,
these disparities could increase.
{¶ 71} In sum, the sales tax treats competing industries differently,
effectively (and perhaps intentionally) favoring the industry with extensive local
ties over the one with comparatively few. Such a law violates the Commerce
Clause. For these reasons, I respectfully dissent and would reverse the judgment
of the court of appeals.
PFEIFER, J., concurs in the foregoing opinion.
__________________
Orrick, Herrington & Sutcliff, L.L.P., E. Joshua Rosenkranz, and Jeremy
N. Kudon; Steptoe & Johnson, L.L.P., Pantelis Michalopoulos, and Mark F.
Horning; and Calfee, Halter & Griswold, L.L.P., and Peter A. Rosato, for
appellants.
Richard Cordray, Attorney General, and Lawrence D. Pratt, Alan P.
Schwepe, Julie E. Brigner, Damion M. Clifford, and Barton A. Hubbard,
Assistant Attorneys General, for appellee.
David Parkhurst; and Vorys, Sater, Seymour & Pease, L.L.P., and Robert
J. Krummen, urging affirmance for amicus curiae National Governors
Association.
Sutherland, Asbill & Brennan, L.L.P., and Eric S. Tresh; Walter
Hellerstein; and Vorys, Sater, Seymour & Pease, L.L.P., Douglas R. Matthews,

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 January Term, 2010

and Michael J. Hendershot, urging affirmance for amici curiae Time Warner
Cable, ComCast, and Cox Communications.
John A. Swain and David C. Crago, urging affirmance for amicus curiae
Ohio Cable Telecommunications Association.
Fleischman & Harding, L.L.P., Arthur H. Harding, Craig A. Gilley, and
Micah M. Caldwell; and Ulmer & Berne, L.L.P., and Donald J. Mooney Jr.,
urging affirmance for amicus curiae Institute for Policy Innovation.
Roy Cooper, North Carolina Attorney General, Christopher G. Browning
Jr., Solicitor General, Gary R. Govert, Special Deputy Attorney General, and
Michael D. Youth, Assistant Attorney General; Mark L. Shurtleff, Utah Attorney
General, and Annina M. Mitchell, Solicitor General, urging affirmance for amici
curiae states of North Carolina, Utah, Delaware, Florida, Illinois, Kansas,
Kentucky, Maryland, Michigan, Mississippi, Missouri, Rhode Island, Tennessee,
Virginia, and West Virginia.
Shirley K. Sicilian and Sheldon H. Laskin, urging affirmance for amicus
curiae Multistate Tax Commission.
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., Marcus W.
Trathen, Charles F. Marshall, and Julia C. Ambrose; and Kegler, Brown, Hill &
Ritter, L.P.A., and Paul D. Ritter Jr., urging affirmance for amicus curiae National
Conference of State Legislatures.
Jones Day, Douglas R. Cole, and Erik J. Clark, urging reversal for amicus
curiae Constitutional Law Professors.
Hinman & Carmichael, L.L.P., and John A. Hinman, urging reversal for
amicus curiae Specialty Wine Retailers Association.
Mark C. Ellison, urging reversal for amicus curiae National Rural
Telecommunications Cooperative.
Chester, Willcox & Saxbe, L.L.P., Gerhardt A. Gosnell II, and Donald C.
Brey, urging reversal for amicus curiae Satellite Broadcasting and

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 SUPREME COURT OF OHIO

Communications Association, ACE Satellite, Buckeye Dish Installation, Inc.,
Cable Alternatives, Primeview Satellite, Kidwell Satellite, Richland County
Satellite, Premiere Satellite & Electronics, Inc., Wells Family Equipment, Thobe
TV, Felix Electronics, Vince’s TV & Appliance, Digi-Tech Satellite, Dudley
Satellites, George’s Electronics, Inc., and Progressive Satellite.
______________________

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