(Adds percentage of sales tax starting in second paragraph.)
Oct. 3 (Bloomberg) -- The U.S. Supreme Court signaled interest in a challenge by units of DirecTV and Dish Network Corp. to state laws that exempt cable television from sales taxes imposed on satellite-TV service.
The justices today asked the Obama administration for advice on an Ohio Supreme Court ruling that upheld that state’s 5.5 percent sales tax on satellite service. DirecTV and Dish, the nation’s largest satellite-TV providers, say as many as eight states are violating the U.S. Constitution by using their tax laws to protect local jobs in the cable industry.
“Cable companies have leveraged their superior in-state presence to promote legislative proposals -- like the one at issue in this case -- that threaten satellite’s viability as a competitor,” DirecTV and Dish argued in their appeal to the nation’s highest court.
The case would test the leeway states have to protect their local interests at the expense of out-of-state businesses. The Supreme Court has said in previous cases that states can’t discriminate against out-of-state commerce without congressional authorization.
The Ohio Supreme Court said the satellite tax isn’t the type of protectionism the nation’s highest court has outlawed. The cable industry “is not a local interest benefited at the expense of out-of-state competitors,” the Ohio court said in a 5-2 ruling.
Ohio Attorney General Mike Dewine said in court papers that the satellite and cable industries operate differently and are legitimately subject to different tax and regulatory rules.
DirecTV and Dish say cable companies employ 6,000 Ohio residents to construct, operate and maintain networks in the state. The satellite companies, by contrast, have only a handful of workers in Ohio.
The Supreme Court directed its request to U.S. Solicitor General Donald Verrilli, the Obama administration’s top Supreme Court advocate.
The case is DirecTV v. Testa, 10-1322.
--Editors: Justin Blum, Laurie Asseo.
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