DIRECTV, Inc. v. Levin

and demonstrated misconduct, wrongdoing, his acknowledged of his investigation mental Further, respondent’s establishes the evidence character. good his that continued successful and cause his misconduct disability contributed will allow contract three-year to his OLAP monitoring pursuant and treatment public. a threat posing law without practice him to respon- precedent, conduct and our respondent’s Accordingly, based for one in the state of Ohio of law practice from the hereby suspended dent (1) respondent on the conditions stayed suspension with the entire year, (2) OLAP contract, by recommended accept the treatment his OLAP comply R. (3) to Gov.Bar pursuant period probation serve a his psychologist, and — — contract, three-year OLAP V(9) the term of his during relator monitored comply fails to (4) respondent If proceedings. disciplinary the costs of pay lifted, will serve respondent will be stay, stay with the conditions one-year suspension. entire to respondent. are taxed Costs

Judgment accordingly. Lundberg Brown, C.J., and O’Connor, O’Donnell, Stratton, Pfeifer, Cupp, JJ., concur. Lanzinger, Counsel, R. Berger, and Robert Senior Coughlan, Disciplinary E.

Jonathan Counsel, for relator. Disciplinary Assistant Penvose, Koblentz, L. Penvose, L.L.C., Bryan & Richard S.

Koblentz respondent. Appellee. Levin, Commr., al., Appellants,

DIRECTV, Tax Inc. et Levin, 68, 2010-Ohio-6279.] Inc. v. Ohio St.3d [Cite as 2010.) (No. December 2010 Decided October 2009-0627 Submitted J. O’Donnell, (“the DIRECTV, Inc., Satellite, compa- satellite and EchoStar L.L.C.

nies”) and us to Appeals from a decision the Tenth District ask appeal Court sale of imposition whether the of a sales on the retail consider broadcasting without also same tax on cable broadcasting imposing services of the United Constitution. As services violates Commerce Clause States done, we jurisdictions other that have this same issue have conclude considered market, particular Clause the interstate not inter- protects the Commerce in a retail market. operation state firms or structures or methods particular Assembly on satellite by of a sales tax Ohio General imposition not but not on cable services does violate broadcasting broadcasting services Constitution, the tax is based on of the United States because Commerce Clause businesses, location their of those not the differences between nature of out-of-state activities, expense it in-state interests at the does favor affirmed. of the court is Accordingly, judgment appeals interests. History Factual Broadcasting Satellite and Cable Services services to pay-television programming provide The satellite in fixed orbits above the using in Ohio and other states satellites consumers earth. companies purchase signals programming The satellite for this from local (ABC, stations, CBS, Fox, NBC), broadcast broadcast television networks HBO). (such CNN, ESPN, providers programming as They satellites, then these from located to the signals uplinks transmit outside Ohio which in dish signal directly turn send the to small satellite antennas mounted on or near the home of the subscriber to be received a decoder box and displayed on the subscriber’s television. Other than the antenna and receiver home, delivery subscriber’s this method of does not the use of additional require ground-receiving distribution facilities Ohio. and/or market, pay-television In the of which —neither headquartered compete with which companies, ground use receiv- Ohio— ing provide and distribution facilities to television programming to customers. distribution, “headend,” For cable process begins television at the a facility, area, in usually located or near the franchise that contains the collection of that the provider antennas cable television uses to gather programming from local, in-state, However, and out-of-state sources. consolida- cable-company advances, tion technological and there has been a reduction in number of the headends, companies and some cable out use headends located of state. From headend, coaxial or fiber-optic and on amplifiers utility cables located either poles or the ground carry 10,000 below signal servicing “hubs” areas 20,000 customers, which then direct signal feeder to “nodes” through lines serving particular neighborhoods. cables run along public These and rights way, cable enter

{¶ 4} into agreements franchise with local governments pay a franchise fee to secure this The right may vary by access. franchise fee locality, federal prohibits law exceeding fee from percent gross revenues. While the cable mode of companies’ distribution necessitates a footprint, local none of the major in operating Ohio, Ohio are in all headquartered serve an interstate market. Tax on Broadcasting Sales Satellite Service Prior to not tax Ohio did sales of cable or satellite television service. however,

That year, Assembly a General considered bill that would have taxed of both equally. services H.B. No. as introduced in the 125th Assembly, General proposed to enact R.C. 5739.01(B)(3)(q) to define “sale” as * * * [cjable including “transactions which and satellite television service is or result, is to provided.” be As a the cable and satellite television industries interests, lobbyists retained their protect ultimately the legislature amend- ed the bill to on enact sales tax broadcasting “satellite service” alone. See R.C. (150 Laws, II, 1996). 5739.01(B)(3)(p) I, Part and Part The General 5739.01(XX) in Assembly’s broadcasting definition of “satellite service” R.C. does programming of pay-television the distribution involving include transactions television the sale of cable equipment, distribution receiving or using ground tax. subject to the is therefore not programming History

Procedural declaratory- filed a legislation, to this response seeking Pleas Court County Franklin Common complaint judgment not on sales service but of satellite television that the tax on sales declaration in-state favoring and effect purpose had both television service of the Commerce Clause. interests violation economic of the in favor summary judgment a partial entered The trial court to be broadcasting services tax on satellite declaring the sales companies, and cable of [satellite tax treatment differential “[t]he unconstitutional because local they use certain with whether directly correlated providers] television * * * effect practical equipment. [T]he and distribution receiving ground burdening interests while in-state economic is to benefit treatment differential com- interests, against interstate thereby discriminating out-of-state economic * * sic.) *.” (Emphasis Clause of the Commerce merce violation fact existed of material genuine that a issue trial court also concluded against discriminated intentionally had Assembly whether the General regarding summary judgment tax, court denied and the levying commerce interstate However, companies’ argument rejected the court the satellite that issue. commerce, a position facially that the sales tax discriminated abandoned. have since Appeals District Court of and the Tenth appealed, The tax commissioner {¶ 9} is that the Commerce Clause trial court and held judgment reversed the categories companies tax treatment of two when the differential not violated businesses, not from of their between the nature solely from differences results Levin, 2009- App.3d 181 Ohio activities. DIRECTV v. of their the location of these that because both Ohio-636, explained 1242. The court 907 N.E.2d commerce, tax not discriminate the sales did in interstate engaged are providers television, one interstate merely against pay market for the interstate against ¶ further court appellate Id. at 27-28. The in that market. competing company motion in the tax commissioner’s denying trial court erred that the determined discrimina- purposeful there was on the issue of whether summary judgment for the tax summary judgment to enter the trial court tion and directed ¶at 35. on all claims. Id. commissioner discretionary appeal. companies’ accepted We 2009-Ohio-3131, Levin, 908 N.E.2d

Inc. v. Ohio St.3d Appeal on Arguments that companies imposed by The satellite the sales tax R.C. urge in practice interstate 5739.01(B)(3)(p) against discriminates commerce because gives the tax treatment to “cable TV have invested preferential [that] in maintaining ‘ground receiving a fortune a network or distribu- building equipment’ including buildings thousands of and tens thousands of miles tion — Ohio,” providers of cable—in while satellite service is taxed “because its have or way installing any ‘ground devised to deliver the same service without or in Ohio.” to the receiving equipment’ According compa- distribution satellite nies, may engaged a state not in distinguish between if extent of commerce the distinction turns on the economic investment state, any in the notwithstanding differences manner which firms conduct Thus, any maintain that in tax they business. discrimination treatment that on or depends ground receiving equipment the existence distributing unconstitutional. The satellite also assert court of left appeals

undisturbed the court’s that a genuine trial conclusion issue of material fact regarding remains whether the General Assembly intentionally discriminated enacting them in against 5739.01(B)(3)(p), they argue R.C. that statements by lobbyists legislators made for the cable regarding the statute’s purpose and effect are relevant and in proving admissible discrimination against interstate commerce. tax responds commissioner the tax “simply differentiates commerce, two activity

between forms of interstate not between a local economic an differentials, asserts, Tax activity.” out-of-state economic he are “prohibited simply adversely by because the business affected the tax treatment subject less generates activity economic state than the business that received favorable tax treatment.” commissioner maintains that if even tax technically commerce, against may discriminates “proper- be ” ly ‘compensatory’ sustained as or ‘complementary’ the franchise fees imposed Also, cable companies. on he that the contends have aban- doned issue of intentional discrimination. we are Accordingly, upon called consider the sales tax whether levied 5739.01(B)(3)(p) R.C. broadcasting services but not on cable

broadcasting services discriminates interstate commerce in violation Commerce Clause. Analysis

Law and Standard Review of outset, At the we note that review of a de summary judgment our is {¶ 15} ¶ Risko, 185, 2005-Ohio-4559, 712, novo. Comer v. 106 Ohio St.3d 833 N.E.2d 8.

73 (1) material fact any of genuine if no issue appropriate “Summary judgment (3) law, it (2) matter of judgment to as a remains, moving is entitled party conclusion, can to but one minds come from the evidence that reasonable appears nonmoving party, in favor strongly of the construing the evidence most summary whom the motion against to party conclusion is adverse Council, 105 Ohio v. Mentor St.3d City made.” rel. Duncan judgment is State ex ¶ 832, 372, 2005-Ohio-2163, 9. 826 N.E.2d interstate com- discriminates determining whether law formalism for sensi-

merce, has “eschewed Supreme the United States Court Creamery, v. tive, Lynn and effects.” Inc. analysis of W. case-by-case purposes Further, 186, 2205, (1994), 201, 129 157. as the 512 114 S.Ct. L.Ed.2d Healy U.S. (1979), 322, 336, 1727, 441 99 S.Ct. v. U.S. explained Hughes court Oklahoma party challeng- discrimination rests on the burden to show “[t]he case, ing companies. this validity statute” —in Clause Dormant Commerce shall have the provides Congress The United States Constitution * * * Clause power regulate among Commerce the several States.” “[t]o However, I. the terms Clause “do although Section Article of Commerce any ‘the Court has way,” Supreme restrain several States’ expressly days.” negative implication provision early Kentucky “sensed a since the (2008), 1801, 170 Davis L.Ed.2d Dept. Revenue v. 553 U.S. 128 S.Ct. Thus, as an implicit the court has the Commerce Clause “long interpreted Assn., authority.” Haulers restraint on state United Inc. Oneida-Herkimer 330, 338, 1786, 167 (2007), Mgt. Solid Auth. 550 U.S. L.Ed.2d 655. Waste known “negative “implicit This restraint” is as the concept implication” “negative” or “dormant” Commerce Clause. roots to The doctrine the dormant Commerce Clause traces its “[t]he regulation of the Forefathers federalize and interstate foreign

desire to Sons, 525, 533, H.P. Hood & v. Du Mond U.S. commerce.” Inc. explained Camps Newfound/Owatonna, S.Ct. 93 L.Ed. 865. As the court 564, 571, Inc. v. Harrison confederation, as an years history independent the first our

“During among the States. power regulate National Government lacked the commerce was measures its own local interests adopt fostering Because each State free to nonresidents, what Justice Johnson regard possible prejudice without harmony to the regulations, a ‘conflict of commercial destructive characterized as (9 Wheat.) (1824), States,’ Id., Ogden ensued.” Gibbons quoting (Johnson, J., concurring). 6 L.Ed. 23 has become known as Accordingly, arising the modern cases under what protec- ‘economic are “driven concern about dormant Commerce Clause is, regulatory designed tionism—that measures to benefit in-state economic ” Revenue, by burdening Kentucky Dept. interests out-of-state competitors.’ of 337-338, 685, Energy 553 U.S. 128 S.Ct. 170 L.Ed.2d New Co. quoting of (1988), 269, 273-274, Indiana v. Limbach 108 S.Ct. The dormant policy

302. Commerce Clause thus enshrines the economic prohibit erecting framers to states from barriers to trade free across state enacting borders and from laws that favor local at the enterprises expense out- Exchange of-state businesses. Boston Stock v. New York State Tax Comm. (1977), 318, 328-329, 429 U.S. 97 S.Ct. 50 L.Ed.2d 514. State, Supreme recognized Court has therefore consistent “[n]o Clause, may Commerce tax which ‘impose discriminates * * * by providing advantage commerce direct commercial local ” sic.) (Ellipsis quoting business.’ Id. at Northwestern States Portland (1959), 450, 458,

Cement Co. v. Minnesota 358 U.S. 79 S.Ct. 3 L.Ed.2d 421. out, however, pointed The court has that the Commerce Clause of the market, “protects United States Constitution the interstate not particular inter firms” or or “particular state operation methods a retail structured Corp. 117, 127, market.” Maryland Exxon Gov. 437 U.S. 98 S.Ct. Therefore, 57 L.Ed.2d 91. differential tax “two categories treatment of companies solely from resulting] differences between the nature of their busi nesses, activities,” not from the their [and] location of does not violate the Dir., Taxation, dormant Hess Corp. Commerce Clause. Amerada Div. New Jersey Dept. Treasury Relying on the decisions of United Supreme States Court in Exxon Hess, every

and Amerada state court and federal considering Commerce Clause challenges brought by industry arguing satellite tax against state measures as favoring the cable has held that these taxes do not violate the dormant Clause, they Commerce because do not discriminate against interstate commerce. (E.D.Ky.2006), Inc. v. Treesh F.Supp.2d Kentucky court considered a imposed statute a sales on both satellite prohibited and cable services but governments local from imposing franchise fees companies on cable while allowing companies cable a tax for the credit amount of any such fee imposed. claimed that allowing public free rights-of-way access to install within infrastructure Kentucky state of a tax gave advantage not shared with companies, whose service is provided through satellites located outside the state of Kentucky. that the tax did finding complaint, court dismissed The district had no interests and economic and out-of-state in-state

distinguish between could that the cable court noted or effect. The discriminatory purpose effects of different and that “[t]he as in-state interests characterized not be are Companies and Cable Companies on Satellite provisions new tax Kentucky’s to their different companies, but location of the geographic not to the owed the same effect tax statute had mechanisms,” that explaining delivery operations located their or cable of whether the satellite regardless Id. at 437-438. or outside the state. inside a affirmed and noted: “While Appeals Circuit Court Sixth industry to aid the cable have been [Kentucky might of the

purpose statute] larger has a in-state the former industry than the satellite because rather including latter, many purposes other clearly than there were presence * * rapidly growing that is industry a satellite assessing some sic.) (C.A.6, 2007), 487 F.3d 480. v. Treesh DIRECTV (Emphasis (1) that cable and satellite recognize went on to The court 26} {¶ services, very two different “consisting of with two distinct consumers provide (2) Clause is broadcasts,” “the dormant Commerce id. delivering means of commerce, engaged firms and not particular interstate protect intended to firms,” id. at commerce, by used those operation or the modes of resulting] (3) categories tax treatment of ‘two “differential businesses, not from the [and] the nature of their from differences between solely Id., the dormant Commerce Clause.” activities’ does not violate location of their Hess, 104 L.Ed.2d 58. 490 U.S. at Amerada quoting in cases dormant Commerce Clause “applying that emphasized Circuit Sixth i.e., the tax does where equivalent protective present that do not tariff’ — lines, local promote companies— local or products, favor geographic not draw Supreme at 481. The scope.” clause’s 487 F.3d “dramatically would increase the DIRECTV, Inc. v. a writ of certiorari. See States denied Court United 1876, 170 1311, 128 L.Ed.2d 746. Treesh statute addition, a North Carolina companies challenged the satellite not on cable satellite service” but tax on “direct-to-home that imposed rejected the Commerce Appeals The North Carolina Court television service. any geographical make tax “does not challenge, explaining Clause program television distinctions, providing merely describes one method but DIRECTV, Inc. State subscribers.” services to North Carolina ming Moreover, not discriminate 659, 663, the tax “does N.C.App. S.E.2d cable a local [because] in favor of companies] against [the at 664. companies.” Id. in nature than are satellite no more ‘local’ companies are (E.D.N.C.2007), F.Supp.2d v. Tolson Inc. See also (C.A.4, 2008), affirmed 513 F.3d 119 (dismissing companies’ complaint grounds, other explaining the amended North Carolina statute an imposing equal tax on satellite and while revoking authority of local government impose franchise fees does not violate the Commerce Clause).

The Ohio Sales Tax R.C. 5739.02 a tax “on imposes each retail sale made this state.” R.C. 5739.01(B)(3)(p)defines “sale” to include “transactions for a in any consideration by manner” which “satellite broadcasting service is or is to be provided.” R.C. 5739.01(XX)further defines “satellite broadcasting service” mean “the distribu- tion or broadcasting of or programming services directly to the subscriber’s receiving equipment ground without the use receiving or distribu- equipment, tion except the subscriber’s receiving equipment or equipment used in the uplink process added.) to the satellite.” (Emphasis As parties agree, phrase “without the use of ground receiving or distribution equipment” clarifies that sales of broadcasting subject services are not to the tax. In reviewing the application here, of this statute to

{¶ 29} the facts we conclude the sales tax imposed on satellite broadcasting services but not cable broadcasting services does not violate the Commerce Clause of the United States Constitution. The statute’s application depends on the technological mode of operation, location, not geographic and while it distinguishes between different types firms, of interstate it does not favor in-state interests at the expense of out- DIRECTV, of-state enterprises. See 480-481; DIRECTV, 487 at F.3d 469 437-438; DIRECTV, at F.Supp.2d 800; F.Supp.2d 498 at 178 663, at N.C.App. 632 S.E.2d 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” 5739.01(XX) in R.C. to track the definition of “direct-to-home satellite service” set forth in 152, 47, the notes to U.S.Code, Section Title which authorize states to tax satellite-television 104-104, service. See Pub.L. VI, No. 602(b)(1), Title Section (1996). 110 144 Stat. The General Assembly defined “satellite broadcasting service” to correspond this federal authorization identify and to the taxable transaction the method of distributing services, pay-television protect not to companies that have invested in a ground system distribution or to encourage investment in such system. Application of the sales tax does not depend on the geographic location Rather, the programming provider. the sale of satellite broadcasting services subject

is 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

77 in A companies bring investment facilities that the satellite Ohio. Ohio, Ohio, in company employs only that is builds its headquartered uplink residents, only as provides programming responsi- Ohio customers is ble for collecting any company the tax as out-of-state the same services providing using the same mode of distribution. Conversely, cable is not a local interest benefited the Like

expense competitors. companies, major of out-of-state providers are an interstate to an companies selling product interstate market. Both the satellite and industries serve customers Ohio, Ohio, Ohio, major own but property employ pay- residents of no headquartered television in Ohio or provider could otherwise be considered Thus, than any more local sales tax other. does reflect “differential treatment of in-state and out-of-state economic interests benefits former and burdens the latter.” Oregon Sys., Oregon Waste Inc. v. Environ Dept. of (1994), 93, Quality 99, 1345, Rather, mental 511 U.S. 114 S.Ct. 128 L.Ed.2d 13. these regulates among interests based on even-handedly technological mode of operation. rely cases on which the distinguishable. are (2005), 460, 796,

Granholm Heald 544 U.S. 161 S.Ct. Michigan in-state, states of York regulations and New imposed allowing but not out-of-state, customers, wineries to make direct while in Bacchus Imports, (1984), Ltd. Dias U.S. S.Ct. 82 L.Ed.2d state of excepted Hawaii certain using alcoholic beverages locally produced ingredients from the liquor state tax. In Armco Hardesty Inc. v. Virginia imposed state of West goods

wholesale tax on state, manufactured out of state not on goods made in Westinghouse Corp. Elec. v. Tully 80 L.Ed.2d the state of gave New York only tax credit to those corporations whose exported goods subsidiaries from New York. inAnd Boston Exchange, 328-329, Stock the state imposed greater liability tax on out-of-state on transactions than in-state transactions. cases, In those protect the states acted to expense local interests at the contrast,

of competitors. out-of-state In sharp the tax protect Ohio does not local treat companies industries or in-state differently companies, from out-of-state nor does it a tax provide companies incentive for move operations to or direct business to Ohio. Therefore, we concur courts that have those the merits considered

of the companies’ satellite dormant Commerce Clause claims and that conclude Ohio sales broadcasting satellite services not discriminate against does Clause of United States in violation of the Commerce commerce interstate Constitution. Admissibility Lobbyist Statements of for the by lobbyists made assert that statements 36}

{¶ of sale tax practical to both the effect prove are admissible merits in it. need not reach the Assembly enacting of We the intent the General this claim. of would be for of this that the statements Assuming purposes argument 37}

{¶ tax, discriminatory to of the sales these statements prove effect admissible against that the not discriminate not our conclusion sales does would affect in effect. practical commerce lobbyist companies rely that the on the And to the extent Assembly passed that tax with a

statements to show the General intent, the satellite discriminatory we are unable to reach issue because claim to their intentional-discrimination for our review. preserve failed Here, summary the trial court’s to appeals deny the court of reversed decision in the claim that the purposeful- favor of tax commissioner on state judgment commerce, trial to enter ordering “the court ly against discriminated Levin, Tax for Richard A. summary judgment defendant-appellant Commissioner subject this to ending litigation only appeal. of Ohio” and ¶ 92, 2009-Ohio-636, 907 N.E.2d and 35. App.3d However, court, jurisdiction in their in this support memorandum of did court argue appeals by ordering the satellite not that the erred They this summary sought tax commissioner on issue. review judgment evidentiary lobbyist whether evidence of only regarding issue statements only Not did the satellite fail to attack relevant admissible. here, summary against them initial filed directing judgment order their brief actually also court had they appellate asserted that the ruled on this point. them summary in favor By failing challenge granting judgment decision claim in their the tax commissioner on the intentional-discrimination either brief, compa- or their initial support jurisdiction

memorandum See, Ridley claim for Estate preserve e.g., nies failed review. Disabilities, Dev. St.3d Cty. Hamilton Bd. Mental Retardation & 102 Ohio ¶ 230, 2004-Ohio-2629, (declining 809 N.E.2d consider issues not set forth jurisdiction); Part- appellant’s support Utility in the memorandum Serv. ners, Comm., 2009-Ohio-6764, 921 N.E.2d Inc. Pub. Util. Ohio St.3d ¶ an preserve” argument “failed to “raised (explaining appellant first on we decline to address this issue. reply”). Accordingly, for the time

Conclusion Differential categories companies resulting tax treatment two businesses, solely from differences between the of their from nature activities, location of their does not violate the Commerce Clause of the United Assembly imposed States Constitution. The Ohio General a sales tax that makes commerce, no distinction between local and distinguishes interstate but rather only of distributing based mode television For programming. these reasons, judgment the court appeals is affirmed.

Judgment affirmed. Cupp, JJ., Lundberg concur. Stratton, O’Connor, Lanzinger, C.J., J., dissent. Brown, Pfeifer, C.J., dissenting.

Brown, Cable companies and satellite thing: sell same pay- television service. But in they are not taxed the same. Satellite tax; must collect percent not. do 1/2 Why the difference? introduced, When the tax bill was imposed {¶ it an 43} equal tax regardless seller. Cable-television lobbyists stepped in and drew the legislature’s attention to certain economic industry realities: the cable directly employs (6,000) (a more exponentially Ohioans than the satellite industries number) (over “nominal” and pays exponentially more taxes million annual- $100 (“nominal” amounts). than ly) According industry, to the cable “the proposed sales tax on cable penalizes service industry deep [its] roots in this state and rewards a competing industry out-of-state profits who from Ohioans.” That “out-of-state industry” is the satellite industry, “[provides which very Ohioans with job opportunities,” few pay appreciable an “[d]oesn’t of any kind anywhere Ohio,” and “[p]rovides support little to local communities.” see, What the cable could majority cannot: it is Ohio’s economic interest support industry’s the cable jobs investment, relieving the cable of the sales tax am benefits that interest. I all in favor of promoting state, employment and investment this I but as read the law, this particular is not open road us. May Impose Discriminatory

States Not Taxes to Favor Local Jobs and Investment The black-letter rule is clear. The Commerce Clause forbids states to “ commerce, discriminate and discrimination ‘simply means differential treatment of in-state and out-of-state economic interests that benefits

80 ” Assn., v. Inc. the latter.’ Haulers Oneida- and burdens United the former 338, 1786, 330, 167 (2007), 127 Mgt. Auth. 550 U.S. S.Ct. Herkimer Solid Waste Quality 655, Sys., v. Environmental Oregon Dept. Inc. quoting Waste L.Ed.2d of 1345, 99, L.Ed.2d (1994), 93, 114 128 511 U.S. S.Ct. businesses, only in “mom and pop” an interest not have economic States reality to focus ignores it economic in all forms of local investment. So ownership headquarters. While local ownership of or on location

narrowly benefit economy, depends the local the amount of might benefit headquarters headquartered locally And a not be owned or jobs and revenue. business need instance, city of economy. fairly suspects For one to the local benefit choose, any homegrown the Honda over Marysville, plant if to would take forced business, any over dozen. perhaps Local invest sense, and confirm it. This is common numerous cases businesses,

ment, through not may promoted be simply locally headquartered not Carbone, (1994), See, & A Inc. v. Clarkstown 511 discriminatory e.g., taxation. C (“Discrimination 392, 1677, 383, against 114 L.Ed.2d 399 U.S. 128 * * *” per invalid of local business or investment is se commerce favor (1980), 447 U.S. added]); Managers, v. BT Invest. Inc. [emphasis Lewis 2009, protectionism” 64 L.Ed.2d 702 “local favoritism or (prohibited 100 S.Ct. of their according businesses to the extent contacts among includes discrimination Corp. of economy operations); local or based on extent local Fulton with the (“States 344, 848, (1996), 325, 796 516 U.S. 116 S.Ct. Faulkner in the may discriminatory hopes taxes on interstate commerce impose State”). to do business within the encouraging firms course, investment, preservation includes the creation or Local jobs. accordingly “parochial legislation” has found Supreme local Court legislation aim” create constitutionally be invalid when “the ultimate “to (1978), v. New jobs keeping industry Philadelphia Jersey within the State.” 617, 2531, 475; 627, 57 also Baldwin v. 437 98 S.Ct. see G.A.F. (the 527, L.Ed. Seelig, power 294 U.S. 55 S.Ct. 79 1032 Inc. competition “an not be to establish economic barrier may used residents”); or the products of another state labor its South-Central Dev., 81 Timber Inc. v. Wunnicke (“the require a State to work be done L.Ed.2d 71 Commerce Clause forbids promoting employment”). purpose within the State for See, point. e.g., Pelican recognized Lower federal courts have same {¶ 49} 1997), Contrs., (C.A.5, Inc. v. 128 F.3d Chapter, Associated Builders & Edwards unemployment by includes protectionism” “[Reducing (“patent economic labor”); Dairy Bd. of out-of-state Louisiana Stabilization discouraging use (the (C.A.5, 1980), Clause Dairy Corp. prevents Fresh 631 F.2d Commerce a state from burdening “preventing interstate commerce for the local purpose (N.D.Ohio Mapco, 1979), economic Inc. v. disruption”); F.Supp. Grunder (Commerce aby Clause is violated differential tax on and low-sulfur high- (both coal that is intended to and favor “protect high-sulfur coal management)” workers and and prevent likely jobs “the loss of of Ohio coal miners”). Under these principles, is unconstitutional. It treats of differently.

sellers the same service That’s discrimination. It favors the who locally sellers invest and burdens the sellers who do not. That’s favoritism of in-state over out-of-state economic interests. Together, place these features the sales tax well within the prohibition of the dormant Commerce Clause.

The Circuit Sixth Decision DIRECTV

Treesh Does Not Resolve This Case majority follows the Sixth Circuit’s statement in Inc. v. (C.A.6, 2007), Treesh 487 F.3d that “the dormant Commerce Clause is commerce, intended to protect interstate particular firms engaged commerce, interstate or the modes of operation used firms.” those Treesh decisions, derived this rule from a of pair Supreme Corp. Court Exxon v. Gov. of Maryland U.S. 57 L.Ed.2d and Amerada Dir., Taxation, Corp. Hess Div. Jersey New Dept. Treasury of 66, 109 1617, 104 reasons, S.Ct. For several I am not persuaded that provides Treesh the answer to this case. First, Treesh is not on point. It materially 52} reviewed a tax

{¶ different structure. Kentucky an imposed had even-handed sales tax that treated cable way. discrimination; satellite the same discrimination, There was no without there is no Commerce Clause claim. Treesh boiled down to whether a state must charge for use of rights-of-way, at see F.3d a much question different from presented the one here. Nevertheless, it is true that 53} Treesh went on to that suggest

{¶ under Hess, Exxon and Amerada the Commerce not prohibit Clause does differential taxation the cable and satellite industries. I do not that these agree cases save this tax.

Exxon Discriminatory and Amerada Hess Do Not Immunize Taxes Neither nor Exxon Amerada discriminatory Hess allows taxation so long as both may sides be called “interstate firms” or use different “modes operation.” plaintiffs those cases lost because the court could no discern differential treatment of in-state and out-of-state interests. Hess, alleged that state oil In Amerada plaintiff 55}

{¶ who producers over oil produce do not oil retailers who independent favored as the 78, 109 104 L.Ed.2d 58. But at S.Ct. market own oil. 490 U.S. their state out, may operate taxing both in retailers pointed nonproducing court Id. As all it, retailers the same. nonproducing and the tax and outside treated Hess Amerada interest, favored state discrete, identify a failed to plaintiffs “solely from differences between resulting the tax as characterized difference that key “solely,” Id. The word is word businesses.” [competing] nature of here. cannot be used Exxon, alleged that effect Similarly, plaintiff oil from out-of-state independent in-state dealers protect was particular 91. But as court at

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

The Tax Creates an Incentive to Ohio Sales for provides that the sales tax no incentive majority suggests The also 59} {¶ This is true. infrastructure in Ohio. not the satellite locate sales tax does give pay-TV incentive to things being equal, All other the 60} {¶ In- of satellites. signals using in-ground cable instead companies to distribute network, they cable would deed, in-ground if installed an course, the given they avoid sales tax. Of how much a already have invested in different mode of an delivery, impossibly price that is high pay. if Following point through, this did unthink- network, an

able and installed in-ground they would avoid the tax, fees, they bring jobs, and would franchise property taxes to This Ohio. only fact that favoring confirms benefits in-state economic interests. Expand Scope

Reversal Would Not of the Dormant Commerce Clause majority it, The does not address but the a tax commissioner raises form “floodgates” of the says defense. He that invalidating the sales tax would “create for nightmare legislators courts administer as no two interstate players have the same relative presence economic in each state in which do they business,” and this presence literally “could change by the moment as one business elects to move its country.” infrastructure around the deluge risk of is overstated. This case could recur without the (1) following (2) materially service, elements: or good competing identical two industries offering good using or service distinct methods or modes of (3) delivery, one method use making heavy labor, of the state’s land virtually (4) other infrastructure, bypassing state’s economic different tax (5) treatment materially service, identical or good favorable treatment (6) nonlocal, the local method over the indications in the evolution (7) it was motivated by protectionism, constitutionally no explanation valid the tax. I find it doubtful that such a fact pattern will often recur. problem

of comparing mismatched sets of “interstate players” is require- answered ment that the favored and parties disfavored similarly be situated. See Gen. Motors Corp. Tracy 136 L.Ed.2d 761. That requirement here, is met as cable and satellite unquestionably compete— —which head off problems, would most including the tellingly parade short of horribles by marched out the tax recur, commissioner. ifAnd this fact pattern did it is unobjectionable that the Commerce Clause prohibit would it. Compensatory-Tax

The Defense Not Would Save This Tax The majority does not address the tax {¶ 65} commissioner’s affirmative defense, but for the sake of I completeness, will. A protectionist tax can be saved

if “it advances a legitimate local that cannot purpose adequately by be served reasonable nondiscriminatory alternatives.” New Energy Co. Indiana v. (1988), Limbach 269, 278, 1803, 486 U.S. 108 S.Ct. 100 L.Ed.2d “ justification “standards such high,” however, are invoking ‘the strictest 84 ” 1803, 302, Hughes v. quoting 278-279, 100 L.Ed.2d at 108 S.Ct. Id.

scrutiny/ 1727, 322, 337, 60 L.Ed.2d 250. (1979), 99 441 U.S. S.Ct. Oklahoma justifi nondiscriminatory only one substantial offers commissioner that cable the franchise fees tax counterbalances that the sales cation: See, e.g., tax” defense. “compensatory This is the to pay governments. local raised, 848, this 796. Often 331, 133 L.Ed.2d at 116 S.Ct. Corp., 516 U.S. Fulton it: Bell Tel. rejected have S. Cent. All of the cases rarely following wins. defense 258; 1180, 160, 169-170, 119 143 L.Ed.2d (1999), S.Ct. 526 U.S. v. Alabama Co. 796; 848, 331-344, Associated at 133 L.Ed.2d Corp., 516 116 S.Ct. Fulton U.S. 641, 648-649, 1815, (1994), 114 S.Ct. 511 v. Lohman U.S. Industries Missouri 1345, 104, 114 128 639; Sys., 511 U.S. at S.Ct. Oregon Waste 128 L.Ed.2d Industries, Revenue 13; Dept. v. State Washington Inc. Tyler Pipe 199; v. 232, 244, 2810, Hardesty Armco Inc. (1987), S.Ct. 97 L.Ed.2d 483 107 540; 642-643, 2620, v. (1984), 638, Maryland 81 L.Ed.2d 104 S.Ct. 467 U.S. 2114, 576; (1981), 68 L.Ed.2d Boston 101 S.Ct. Louisiana 451 U.S. 332, 599, 318, 97 S.Ct. 50 Tax Comm. 429 U.S. Exchange State Stock words, 1937, it since has “shown extreme court’s own L.Ed.2d 514. beyond the sales-and-use- categories” to recognize compensatory new reluctance 848, 338, at L.Ed.2d 796. Corp., Fulton 516 U.S. combination. franchise fees this case assuming individually negotiated Even that “taxes,” not avail the tax commis defense does compensatory-tax constitute “substantially First, franchise fees are not sales and the sioner. mutually as is, similar in substance to serve “sufficiently equivalent,” at Oregon Sys., Waste 511 U.S. ‘proxies]’ for each other.” exclusive Armco, S.Ct. quoting transaction, tax, sale of For the taxable event is L.Ed.2d 540. Air, See, Inc. 22 Ohio Howell e.g., television programming. Porterfield are not on the 742. Franchise fees taxes 51 O.O.2d N.E.2d St.2d for the costs government the local compensate privilege purchasing, way. public rights allowing regulating incurred access legal the two industries confirm the The real-world differences between must equated. cannot be Cable that sales taxes franchise fees conclusion string signals poles deliver its must public property burden —it burdens, kinds so not these bury ground. impose it in the Satellite does not make pay proxy their would sense. requiring franchise activity triggers But only engages whereas activity by taxed the sales tax —both fees, engage both cable Thus, industry the sales tax does sparing the cable programming. sell television advantage held it a cost equalize the tax burden so much as eliminates ability using public rights-of-way. service to deliver without satellite —the Finally, comparable, even if franchise were the sales tax fairly fees Waste, exceeds amount of Oregon the franchise fee. See currently The sales percent. R.C. 1/2 5739.02(A)(1). percent gross Franchise fees are at 5 capped receipts. Section 542(b), Title U.S.Code. But some agreed example, localities have less. For city charged percent. Delaware has a fee as low as And whether through tax, a later reduction of franchise or an fees increase the sales these disparities could increase. sum, the sales treats competing effectively industries differently,

(and perhaps intentionally) favoring the extensive local ties over the one with comparatively few. Such a law violates the Commerce For Clause. reasons, I these respectfully dissent the judgment and would reverse of the court of appeals. J., concurs the foregoing opinion.

Pfeifer, Orrick, Sutcliff, Herrington L.L.P., Rosenkranz, & E. Joshua Jeremy and N. Kudon; Johnson, L.L.P., & Steptoe Pantelis Michalopoulos, and Mark F. Horn- Calfee, ing; Griswold, L.L.P., Rosato, Halter & and Peter A. appellants. for General, Cordray, Attorney Pratt, Richard D. Lawrence Alan P. Schwepe, Julie E. Brigner, Clifford, Damion M. Hubbard, and Barton A. Attor- Assistant neys General, for appellee. Parkhurst; Vorys, Sater, Pease,

David Seymour L.L.P., & and Robert J. Krummen, urging affirmance curiae amicus National Governors Association.

Sutherland, Brennan, L.L.P., Tresh; Asbill & and Eric Hellerstein; S. Walter Sater, and Vorys, Pease, L.L.P., & Seymour Douglas Matthews, R. and Michael Hendershot, J. urging Cable, affirmance for amici curiae ComCast, Time Warner and Cox Communications.

John A. Swain and C. Crago, urging David affirmance for amicus curiae Ohio Cable Telecommunications Association. L.L.P.,

Fleischman & Harding, Arthur H. Harding, Craig A. and Micah Gilley, Caldwell; M. Berne, L.L.P., Jr., Ulmer & and Donald J. Mooney urging affirmance for amicus curiae Institute for Policy Innovation.

Roy North Cooper, General, Carolina Attorney Christopher Jr., Browning G. General, Govert, Solicitor Gary R. Special Deputy Attorney General, and Michael Youth, D. Attorney General; Shurtleff, Assistant Mark L. Utah Attorney Gener- al, Mitchell, General, and Annina M. Solicitor urging affirmance for amici curiae Carolina, Utah, Delaware, Illinois, states of Florida, North Kansas, Kentucky, Island, Tennessee, Missouri, Virginia, Rhode Mississippi, Maryland, Michigan, Virginia. and West Laskin, affirmance amicus curiae urging and H.

Shirley K. Sheldon Sicilian Multistate Tax Commission. Leonard, L.L.P., Trathen, Marcus

Brooks, Pierce, McLendon, & W. Humphrey Brown, Ritter, Ambrose; Hill & Marshall, Kegler, F. and Julia C. Charles Jr., National L.P.A., D. affirmance for amicus curiae urging and Paul Ritter Legislatures. of State Conference Clark, Cole, R. Erik reversal for amicus Day, Douglas urging J.

Jones Law Professors. curiae Constitutional Hinman, Carmichael, L.L.P., and John A. reversal for amicus urging

Hinman & Association. Specialty Wine Retailers curiae Ellison, for amicus curiae National Rural Telecommu- urging C. reversal

Mark nications Cooperative. II,

Chester, Saxbe, L.L.P., Brey, A. Gerhardt Gosnell Donald C. Willcox & and Communications Broadcasting for amicus curiae Satellite urging reversal Inc., Association, Installation, Alternatives, Satellite, Buckeye Dish Cable ACE Satellite, Satellite, Satellite, Premiere Satel- County Primeview Kidwell Richland Inc., TV, Electronics, Electronics, Family Felix Equipment, Wells Thobe lite & Satellites, Satellite, Elec- Dudley George’s Appliance, Digi-Tech TV & Vince’s tronics, Inc., Progressive Satellite.

Case Details

Case Name: DIRECTV, Inc. v. Levin

Court Name: Ohio Supreme Court

Date Published: Dec 27, 2010

Citation: 128 Ohio St. 3d 68

Docket Number: 2009-0627

Court Abbreviation: Ohio