In Directv Inc., et al v. Florida Department of Revenue, et al (1D13-5444 & 1D14-0292), a divided three judge panel of the First District Court of Appeal held that Florida's imposition of a higher tax on satellite customers than on cable customers violates the dormant Commerce Clause. The court began its opinion as follows:

This appeal arises from a final summary judgment finding that section 202.12(1), Florida Statutes, which imposes a higher tax rate on satellite services than on cable services, is constitutional. The Appellants, Directv, Inc. and Echostar, L.L.C. (“the satellite companies”), contend that the statute unconstitutionally discriminates against interstate commerce in both effect and purpose, which is in violation of the Commerce Clause. We agree and reverse.

Generally, the complaint arises from a legislative change, "the Communications Services Tax Simplification Law (“the CST”), which imposed a differential tax rate for cable and satellite services." When that law was enacted, codified at § 202.12(1), Fla. Stat. (2001), cable service began being taxed at 6.8 percent and satellite service at 10.8 percent. " (taxing cable service at 6.8 percent and satellite service at 10.8 percent). Currently, cable service is taxed at a rate of 6.65 percent, and satellite service is taxed at a rate of 10.8 percent."

"It is this difference in taxation rates that the satellite companies allege[d] violates the dormant Commerce Clause," and the court agreed.

The court first addressed the state's argument that "the satellite companies cannot seek a tax refund because they failed to exhaust the available administrative remedies." The court agreed that the satellite companies had failed to exhaust their administrative remedies but noted that "[i]f a taxpayer is seeking a refund pursuant to section 215.26, Florida Statutes, and the sole basis for the refund is that the statute imposing the tax is facially unconstitutional, the circuit court will have jurisdiction despite the taxpayer’s failure to exhaust administrative remedies. Sarnoff v. Fla. Dep’t of Highway Safety & Motor Vehicles, 825 So. 2d 351, 357 (Fla. 2002). This exception is known as the direct-file exception. Id."

The state argued that the direct-file exception, discussed above, did not apply because "this is not a facial challenge to the statute." The court disagreed, concluding that "[a] party can pose a facial challenge to a statute by arguing that there is no set of circumstances where it could apply constitutionally because of its discriminatory purpose or its discriminatory effect on interstate commerce."

To the merits of the dispute, the court stated that the "The Commerce Clause states, 'The Congress shall have power to . . . regulate Commerce with foreign Nations, and among the several states.' Article I, § 8, cl. 3, U.S. Const. Attendant with this grant of authority to Congress, the United States Supreme Court has recognized a dormant Commerce Clause, which limits the states’ power to regulate interstate commerce.Simmons v. State, 944 So. 2d 317, 329 (Fla. 2006). A state or local regulation violates the dormant Commerce Clause if the regulation treats out-of-state commerce differently from in-state commerce.Reinish v. Clark, 765 So. 2d 197, 211 (Fla. 1st DCA 2000)."

"There are three ways in which a statute can discriminate against out-of-state interests: (1) it may be facially discriminatory; (2) it may discriminate in its practical effect; or (3) it may have a discriminatory intent." Citing Amerada Hess Corp. v. Dir., Div. of Taxation, N.J. Dep’t of Treasury, 490 U.S. 66, 75 (1989).

Applying this test, the court disagreed with the trial court and concluded that the cable and satellite providers, stating:

Here, cable and satellite companies provide multichannel television programming to Florida subscribers. As such, they operate in the same market and are direct competitors within that market. They differ in the deployment of technology, the need for local infrastructure, and the additional services offered. However, mere differences in how a service is provided is not enough to overcome the fact that the companies compete in the same market and sell virtually identical products at retail. 

Next, the court turned to whether there were "in-state interests," stating that "[i]n addition to a finding the companies at issue are similarly-situated entities, courts must also find in-state interests to be present in order for the Commerce Clause to be implicated." The court stated that the "Commerce Clause analysis focuses not on the domiciles of particular corporations, but on whether a law results in differential treatment of in-state and out-of-state economic interests." In this case, "[b]ecause the sales tax portion of the CST burdens interstate commerce by imposing a higher tax rate on those communication companies that do not invest in local economies, it violates the Commerce Clause."

The court then turned to "effect case law," arguments concerning the "aggregate tax rate," and the state's arguments regarding operational differences. All three arguments made by the state were rejected, and the court concluded that "[b]ecause the CST has a discriminatory effect on satellite companies, it violates the Commerce Clause, and the trial court erred in finding otherwise."

After concluding that the legislation had a discriminatory effect, the court next analyzed whether the statute had a discriminatory purpose. "To determine whether there is discriminatory purpose, courts look to the language and the legislative history of the statute in question." Concluding that the trial court correctly limited its review to information in the actual legislative history, the court affirmed the conclusion that the record did not support a finding of discriminatory intent.

Based upon the finding of discriminatory effect, the court reversed the judgment of the trial court. The court's opinion was written by Judge Roberts, and Judge Swanson concurred. A dissenting opinion was filed by Judge Marstiller.

Judge Marstiller's dissenting opinion stated, in part, as follows:

I do not agree the satellite and cable providers are similarly situated entities for purposes of dormant Commerce Clause analysis; in my view, the majority opinion fails to fully consider all the differences between the two.3 Mainly, however, I disagree with the majority’s characterizing the cable providers’ use of local infrastructure, reliance on local rights-of-way and employment of Florida workers as in-state economic interests giving rise to the proscriptions of the dormant Commerce Clause. As the trial court found based on the undisputed facts brought out below, “[t]he cable companies may have more of a presence in the state because of the nature of the technology they utilize in providing their services, but the satellite companies have a significant presence in the state as well.” Indeed, DirecTV and Echostar filed verified statements below averring that each has employees based in Florida—DirecTV has independent contractors here, as well—who are responsible for “sale of its services and installation, servicing, and/or maintenance of its property.” I do not believe we can properly ignore or discount these facts. Inasmuch as the cable providers and the satellite providers both have human and physical assets in Florida which they use to provide services to their customers, they both have significant in-state economic interests. I fail to see how, under these facts, the cable providers have local economic interests, but the satellite providers do not. And I find nothing in dormant Commerce Clause jurisprudence that would justify invalidating Florida’s CST based on one group’s comparatively greater economic investment in the state where both groups have economic investment here.

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I also believe the majority opinion, in focusing solely on the extent of instate economic investment by cable providers and disregarding in-state investment by satellite providers, misapprehends the purpose of the dormant Commerce Clause. Relying primarily on the fact that the cable providers use local rights-of way, the majority opinion discounts the decisions of the Sixth Circuit Court of Appeals, the Ohio Supreme Court and the North Carolina Court of Appeals holding that the pertinent distinction between satellite providers and cable providers is operational and not geographical. 

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The bottom line is that the dormant Commerce Clause does not protect satellite TV providers from differential tax treatment simply because their technology is not land based. It does not protect “the particular structure or methods of operation in a retail market.” Exxon Corp., 437 U.S. at 127. The majority’s decision to invalidate Florida’s CST is inconsistent with this principle and contrary to dormant Commerce Clause jurisprudence. I understand the concern over a taxing scheme that appears to favor one group of industry competitors over another. But “‘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—[ ] ‘dramatically increase[s] the clause’s scope.’” Levin, 941 N.E.2d at 1194 (quoting Treesh, 487 F.3d at 481). The majority’s decision takes that dramatic step, and I  am not prepared to follow.