RENDERED : JUNE 25, 2009
TO BE PUBLISHED
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2007-SC-000714-DG
DIRECTV, INC .
AND
ECHOSTAR SATELLITE, LLC
ON REVIEW FROM COURT OF APPEALS
V CASE NO . 2006-CA-001983-MR
FRANKLIN CIRCUIT COURT NO . 05-CI-01623
MARK TREESH, IN HIS OFFICIAL APPELLEES
CAPACITY AS COMMISSIONER OF
THE DEPARTMENT OF REVENUE
AND
FRANKFORT INDEPENDENT
SCHOOL DISTRICT
OPINION OF THE COURT BY JUSTICE ABRAMSON
REVERSING
Kentucky Revised Statute (KRS) 160.613 authorizes local district boards
of education to levy "a utility gross receipts license tax for schools" on the gross
receipts derived from furnishing utility services within the district . In 2005,
the General Assembly enacted House Bill 272, which in part expanded the
gross receipts tax base to include "gross receipts derived from the furnishing of
direct satellite broadcast and wireless cable service." KRS 160 .614(3) . Soon
after this new provision went into effect, Appellants DirecTV, Inc . and Echostar
Satellite, L.L.C ., the multi-channel television industry's two largest suppliers of
direct broadcast satellite (DBS) services (the DBS providers), brought suit in
Franklin Circuit Court seeking a declaration that as applied to them the gross
receipts tax was preempted by the federal Telecommunications Act of 1996, a
provision of which bars local taxation of DBS programming services . They also
sought an injunction barring the Department of Revenue (the Department)
from enforcing the tax against them . By order entered August 22, 2006, the
Circuit Court granted summary judgment in favor of the DBS providers and
awarded the relief they sought. A divided panel of the Court of Appeals
reversed. The majority ruled that because the gross receipts tax was levied to
fund schools it was in effect a state tax and thus was not preempted by federal
law . We accepted the DBS providers' motion for discretionary review to
consider the preemptive scope of the applicable provision of the
Telecommunications Act of 1996 and now reverse.
RELEVANT FACTS
The General Assembly has expanded the tax base for the utility gross
receipts license tax on two occasions. In 1990, the General Assembly amended
the tax to include a levy "on the gross receipts derived from the furnishing of
cable service in addition to the gross receipts derived from the furnishing of the
utility services defined in KRS 160 .6131 ." KRS 160 .614(1) . 1 Then, as noted, in
2005 the General Assembly authorized a levy on the "gross receipts derived
"Cable service" is defined in KRS 136 .602(1) as "the provision of video, audio, or
other programming service to purchasers ."
from the furnishing of direct satellite broadcast and wireless cable service in
addition to the gross receipts derived from the furnishing of utility services
defined in KRS 160 .61.31 and cable service." KRS 160 .614(3) . 2 The individual
school districts decide at what rate to tax the cable and satellite providers,
provided that rate does not exceed 3% of gross receipts, and may opt not to tax
them at all. KRS 160 .613, 60.614(4) . The local school districts must, however,
treat the two types of provider the same way. KRS 160 .614(4)-(5) . Cable and
satellite providers are thus obliged to determine their tax liability on a district-
by-district basis, and are required to remit the total to the Department every
month. KRS 160 .615.
While the Kentucky General Assembly was responding to the evolution of
multi-channel video programming with these changes to the school tax
provisions, Congress was addressing the same programming evolution in other
ways . With the Telecommunications Act of 1996 (the 1996 Tele-
communications Act), Congress extensively amended the original 1934
Telecommunications Act, stating that its intent was "[t]o promote competition
and reduce regulation in order to secure lower prices and higher quality
services for American telecommunications consumers and encourage the rapid
deployment of new telecommunications technologies ." Pub . L . 104-104
(preamble) . Clearly aware of satellite broadcasters' emerging role as
competitors of cable providers in the multi-channel video programming market,
2 "Satellite broadcast" is defined as a point-to-point distribution service, wherein
"programming or voice [is] transmitted or broadcast by satellite, microwave, or any
other equipment directly to the purchaser." KRS 136.602(19) .
Congress enacted Section 602(a) of the 1996 Act which provides: "Preemption .
A provider of direct-to-home satellite service shall be exempt from the collection
or remittance, or both, of any tax or fee imposed by any local taxing jurisdiction
on direct-to-home satellite service." Pub . L . No . 104-104, Title VI, § 602(a)
(reprinted at 47 U .S .C. § 152, historical and statutory notes) . The DBS
providers maintain that the gross receipts license tax is a local tax imposed in
violation of Section 602(a), a tax to which they should not be subjected .
In ruling to the contrary, the Court of Appeals' majority relied on Section
602(c) of the 1996 Telecommunications Act, a savings clause which provides
that "[t]his section shall not be construed to prevent taxation of a provider of
direct-to-home satellite service by a State or to prevent a local taxing
jurisdiction from receiving revenue derived from a tax or fee imposed and
collected by a State." According to the Court of Appeals' majority, the gross
receipts license tax is in effect a state tax and thus is saved from preemption by
this latter provision. Although school taxes in Kentucky are indeed deemed
state taxes for a variety of state purposes, we agree with the DBS providers that
for the purposes of the 1996 Telecommunications Act, the gross receipts tax, as
presently administered, must be deemed the sort of local imposition which
Section 602(a) was intended to preempt.
ANALYSIS
As the parties and the courts below all correctly note, under the
Supremacy Clause of the United States Constitution (Article VI Clause 2), a
state law that interferes with or is contrary to federal law is "without effect."
Cipollone v. Liggett Group, Inc . , 505 U .S. 504, 516 (1992) (citation and internal
quotation marks omitted) . This federal preemption of state law is generally
understood as occurring in any one of three overlapping ways. Congress may
expressly declare its intention to displace state law or it may imply that
intention by so thoroughly occupying a legislative field as to leave no room for
the States to develop their own rules . Id. The intent to preempt is also
understood when the state law actually conflicts with federal law. Id. Where,
as in this case, Congress has expressly declared its intention to preempt an
area of state law, a reviewing court's task is reduced to determining the scope
of that intended preemption . As the United States Supreme Court has
explained,
the purpose of Congress is the ultimate touchstone in
every pre-emption case. . . . As a result, any
understanding of the scope of a pre-emption statute
must rest primarily on a fair understanding of
congressional purpose. . . . Congress' intent, of course,
primarily is discerned from the language of the pre-
emption statute and the statutory framework
surrounding it . . . . Also relevant, however, is the
structure and purpose of the statute as a whole, . . . as
revealed not only in the text, but through the reviewing
court's reasoned understanding of the way in which
Congress intended the statute and its surrounding
regulatory scheme to affect business, consumers, and
the law.
Medtronic, Inc . v. Lohr, 518 U .S. 470, 485-86 (1996) (internal quotation marks
omitted) . Thus, "congressional purpose" is paramount and a reviewing court
must consider not only the language of the statute but also the statute's
legislative history, an important indicator of Congress's intent . Shaw v. Delta
Air Lines, Inc. , 463 U.S . 85 (1983) .
Beginning with the language of Section 602(a), Congress preempted "any
tax or fee imposed by any local taxing jurisdiction ." A "local taxing jurisdiction"
is defined to include "any municipality, city, county, township, parish,
transportation district, or assessment jurisdiction, or any other local
jurisdiction in the territorial jurisdiction of the United States with the authority
to impose a tax or fee, but does not include a State." Section 602(b)(3) . It is
undisputed that the gross receipts license taxes at issue are imposed by
approximately 140 of Kentucky's 170 local school districts ; that each district
may set the applicable tax rate, with the rates varying from district to district ;
and that a given district may exempt cable and satellite programming providers
from the tax altogether if it so decides.
Despite the apparent local characteristics of the taxes, the Department
and the Court of Appeals maintain that Kentucky's historical stance regarding
the "state" nature of school taxes, City of Louisville v. Board of Education of
City of Louisville , 154 Ky. 316, 157 S.W. 379, 380 (1913), saves them from
preemption . While we do not disagree with the characterization of Kentucky
precedent on school taxes, we are compelled to reject the contention that it
saves the gross receipt taxes from preemption because the application of
federal law is not "dependent on state law." N .L.R.B. v. Natural Gas Utility
Dist. , 402 U.S. 600 (1971) . See, e.g. Montgomery v. Huntington Bank, 346
F .3d 693, 699 (6th Cir. 2003) ("State law . . . cannot be our reference point.
Rather, to give proper meaning to a federal statute we must be guided by the
plain meaning of the statute, canons of statutory construction, relevant
legislative history, and other indicia that shed light on the statute's meaning .")
Thus Kentucky's particular view of school taxes is not a., much less the,
determining factor in our preemption analysis. Moreover, the particular
savings clause for state taxes in the 1996 Telecommunications Act, entitled
"Preservation of State Authority," saves only those taxes or fees "imposed and
collected by a State." Section 602(c) . While the Department, an agent of the
Commonwealth, collects the taxes for the various districts, it is undisputed
that the taxes are actually imposed on a district-by-district, and not a
statewide, basis. In short, when the challenged gross receipts taxes are
evaluated in light of the language employed by Congress, they appear to be
expressly preempted.
Our conclusion is buttressed by reference to the legislative history of
Section 602 of the 1996 Telecommunications Act. Specifically, we may discern
Congress's purpose in allowing State taxation of DBS services while preempting
local taxation by considering the Conference Committee Report and the
explanatory comments of one of the bill's sponsors. The Senate version of the
1996 Telecommunications Act did not contain Section 602's preemption
provisions . The House version did . In adopting the House version, the
Conference Committee explained that
[t]he conference agreement adopts the House
provisions with modifications. This section exempts
DTH [direct-to-home] satellite service providers from
collecting and remitting local taxes and fees on DTH
satellite services. DTH satellite service is programming
delivered directly to subscribers equipped with satellite
receivers at their premises ; it does not require the use
of public rights-of-way or the physical facilities or
services of a community. The conferees adopt the
House language, but narrow the language to ensure
that the exemption is only provided for the actual sale
of the programming delivered by the direct-to-home
satellite service . . . . The intent of these amendments is
to clarify that the exemption applies only to the
programming provided by the direct-to-home satellite
service . To give two illustrative examples, the
exemption does not apply to the sale of equipment; . . .
In addition, the exemption does not apply to real estate
taxes that are otherwise applicable when the provider
owns or leases real estate in a jurisdiction . Also,
States are free to tax the sale of the service and they
may rebate some or all of those monies to localities if
they so desire .
H .R. Conf. Rep . 104-458, 201-02 (1996) .
Recommending the Conference version on the floor of the House,
Congressman Hyde, one of the bill's sponsors, further explained that
Section 602 reflects a legislative determination that the
provision of direct-to-home satellite service is national,
not local in nature . Unlike cable and telephone
companies which utilize public rights-of-way to provide
service to their subscribers, providers of direct-to-
home services 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 . Local
taxing jurisdictions are therefor preempted from taxing
the provision or sale of direct-to-home satellite
services . Direct-to-home satellite service providers
and others in the distribution chain are exempted from
collecting and remitting local taxes and fees on the
sale of such services. The power of the States to tax
this service is not affected by section 602 . Again,
States may, if they wish, share the revenue thus
collected with their local municipalities .
142 Cong. Rec. H 1145-06, H 1158 (1996) .
Given these comments and the 1996 Telecommunication Act's general
aim of encouraging efficient, competitive telecommunications markets, it is
apparent that Congress's intent with Section 602 was not to spare the DBS
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 in the myriad local jurisdictions where their services would be sold.3
Compliance with an enormous hodgepodge of local taxes would impose
administrative costs, which, in Congress's view, were undue, since satellite
providers, unlike cable and telephone companies, do not depend on local
rights-of-way or a community's "physical facilities or services." Whether we (or
our General Assembly for that matter) would concur with this distinction is
irrelevant because Congress's stated purpose is both apparent and controlling .
Viewed in light of Section 602's legislative history, Kentucky's gross
receipts license tax entails precisely the locality-by-locality administrative
burdens Congress intended to preempt. DBS providers are required to
calculate their taxes separately for each school district in the state, with
potentially 170 districts imposing varying tax rates . It matters not, as the
Department and Amicus, Time Warner Cable, Inc., argue, that the Department
provides access to computer software meant to minimize that burden, for
Congress has determined that the burden may not be imposed at all.
3 Notably, there is no prohibition on the local school districts benefiting from taxes
levied by the Commonwealth and then distributed to the districts . Section 602(c),
quoted supra, expressly allows for local taxing districts "receiving revenue derived
from a tax or fee imposed and collected by a State."
CONCLUSION
In sum, Section 602(a) of the Telecommunications Act of 1996
preempts local taxation of direct-to-home broadcast satellite programming.
The gross receipt taxes which various local school district boards of education
impose on satellite programming providers pursuant to KRS 160.140 are local
taxes which carry precisely the sort of administrative burdens the federal law
was intended to avoid . Falling squarely within the scope of Section 602(a), the
taxes are preempted by federal law. Accordingly, we reverse the Opinion of the
Court of Appeals and thereby reinstate the Judgment of the Franklin Circuit
Court. .
All sitting. All concur.
COUNSEL FOR APPELLANTS :
Kenneth Sidney Handmaker
Bradley E. Cunningham
Middleton Reutlinger
2500 Brown & Williamson Tower
Louisville, KY 40202
E. Joshua Rosenkranz
Jeremy N. Kudon
Orrick, Herrington 8v Sutcliffe, LLP
666 Fifth Ave.
New York, NY 10 103
Pantelis Michalopoulos
Steptoe 81; Johnson LLP
1330 Connecticut Ave ., NW
Washington, DC 20036
Eric Shapland
Randy J . Kozel
Heller Ehrman LLP
Times Square Tower
7 Times Square
New York, NY 10036-6524
COUNSEL FOR APPELLEES :
Bethany G. Atkins
Office of Legal Services for Revenue
P.O . Box 423
Frankfort, KY 40602-0423
COUNSEL FOR AMICUS CURIAE
TIME WARNER CABLE, INC. :
Jackson W. White
Stoll Kennon Ogden PLLC
300 West Vine St., Suite 2 100
Lexington, KY 40507-1801
Eric S . Tresh
Sutherland Asbill 8s Brennan, LLP
999 Peachtree Street, N . E.
Atlanta, GA 30309-3996