05-28-1991 Council Packet - Laserfiche WebLink

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Cable Act Doesn't Guarantee Renewal, Ruling Says COURT continued/mm page ij> ^7 on a rmrwaJ bid under the 1984 Cable Act In (he tax case, (he Supreme Court, in a 7-10-2 decision, said. 'Differential taxa tion of speakers, even members of the press, does not implicate the First Amendment unless the (ax is directed at or presents (he danger of suppressing particular ideas.* Justices Thurgood Mar shall and Harry Blackmun dissented on the grounds that freedom of the press prohibits government from using tax power to discriminate against individual ntembers of the media or against the me dia asawhole. The state of Arkansas charges a 4 per cent sales tax on cable services, to which two4hirds of the counties add a local tax of 1 perceoL Taxes on the state s 440,000 cable subscribers deliver approximately ^.5 million of the stale ’s $900 million in total taxes. Although the tax is paid by subscribers and only collected by cable operators. Arkansas cable operators are concerned because (he combined S per cent tax adds, for example. $1 a month to the cost of a $20 cable TV subscription, and could dampen consumer value per ceptions of cable. The National Cable Television Associ ation downplayed the ruling’s impact, not ing its range is limited to (he state of Aritansas. *It's a disappointment but ev eryone should understand this is a tax on Arkansas cable subscribers.” said a spokesperson. Even so, more than half of U.S. states impose a sales tax on cable services, according to NCTA estimates, and a ruling in favor of Arkansas cable operators could have opened (he way for more industry challenges to state cable taxes and* local taxes. As it stands, the decision could strengthen efforts to tax cable. In Los An geles. for instance, mayor Tom Bradley is backing a proposed 10 percent lax on ca- Me. Last week ’s ruling "dismayed* Conti nental CaMevision. one of Southern Cali fornia's largest operators, said senior vice president Robert Sachs. *It will provide impetus for other states and dties to im pose taxes on not just cable, but other media.” he said. Broadcasters and other media should be more concerned with the ruling than cable operators outside the state of Arkansas, said Steve Effros. p^dent of the Community Antenna Television As.v>- ciation. Effros underlined that the ruling did not question cable ’s First Amendment rights •— an important point, given that operators have often us^ First Amend ment rights as a basis for attacking regu- Preferred Case Could Return to High Court LA. continued from page I ifA ket to one company. Both points were victories for Preferred Commiinic.ations Inc. and its attorney. Harold Farrow. Tliey had argued that the city standards muzzled free speech. But Marshal also ruled (hat Ins An geles has the right to demand certain fi nancial and performance qualificatinns from franchising applicants and to col lect franchise fees from cable operators. Tiny Preferred, formcil by Los Angeles physician Clinton Galloway in 1982 to seek the city ’s sprawling south central- area franchise, has been dogged by questions about how able it might be to rai.se money and actually build a cable system. Continental Cablevision ac quired the south-central franchise through its 1988 purchase of American Cablesystems Corp. The very important issue for cable operators and cities in the overbuild context is upholding financial and tech nical qualifications aspects.* said Tim Lay. an attorney for Ins Angeles repre sentative Miller & Holbrooke. "In other I words, you can tell that a company is not I basically a hollow shell that is basically a { litigation tool. An applicant for an over- I build franchise has to prove that they re- I ally have sufficient finances and capabil ’i- I ties to build a cable system. It is consti- ; tutional to reject them if they do not" Farrow said he plans to appeal the case to the U.S Court of Appeals for (he Ninth Circuit, which has already ruled once on the case, to seek a ruling that gives his client the right to begin con struction of a cable system. *So far this is a victory for the indus try. but not for my client" Farrow said. “We still have not been told what it takes to get access." Farrow expects the case to reach a final conclusion before the Supreme Court, which in 1986 agreed that Pre ferred had First Amendment rights, but remanded (he case to Marshall for con sideration on factual grounds. Last week ’s ruling was based on summary motions, however, not a trial on the facts of the case. 'The absence of a factu al record could lead (he Supreme Court to reject an appeal. Marshall last week dismissed Pre ferred ’s bid for punitive damages against the city and 12 individuals asso ciated with the firanchising effort lations they deem unlawful. But Larrine Holbrooke, an .itlorney with the Washington firm of Miller •.% Ilnl- brnoke which represents cities, dis agreed; "Lower courts will be more skep tical of First Amendment claims made by cable television operators." she said. The Arkansas Cable Television Associ ation still has the opportunity to win $10 million in refunds, said Gene Sayre, the association attorney. The cable operators had argued (hat sales tax paid between 1987 and 1989 when home satellite ser vices where not taxed was discrimin.atory under the 14lh Amendment that guaran tees equal protection under the law. Since 1989, home satellite services have also been taxed. The Supreme Court sent that part of the claim back to the lower court. Roila decision Last week. Omega Communications continued to operate after the li.S. Dis trict Court decision upholding the city ’s denial. Omega ’s options include appeal ing (lie case or entering a bid. along with other potential franchisees, for the new franchise. The company hasn’t an nounced if it will do either, said Bill Bird- CABLE WORLD / April 22, 199! song, who manages (he system in Kolia. If Omega Communications doesn't ap peal or rebid. the question of how it will be reimbursed for its existing cable plant arises. That would be brought up with the city officials,' Birdsong said. Tliey ’d have to sit down and talk (hat out or give...a value amount for the existing system.' 'The Rolla case sends a message to ca ble operators that 'denid of renewal is a realistic possibility. ” said Hm Lay. a part ner with Miller A Holbrooke. ’The decision marks the first time a District Court has upheld a city ’s right to deny renewal after the refranchising pro cess has been completed under the I9R4 Cable Act. according to two attorneys who deal with cable TV law. 'In that sense, it’s quite noteworthy.* Lay said. Under (he Cable Act. a city is re quired to pay for the cable plant at fair market value "as a going business." said Robert Trager of the Boulder. Colo., firm of Trager & Rowland. That vague word ing likely would result in a court case, partly b^ause if (he franchisee is being forced out. (he system is not "a going business."