SPEAKERS       CONTENTS       INSERTS    
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81–895 PDF

2002
SATELLITE RADIO FREEDOM ACT AND
THE SATELLITE SERVICES ACT


HEARING

BEFORE THE

SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW

OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ON
H.R. 4869 and H.R. 5429

SEPTEMBER 25, 2002
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Serial No. 107

Printed for the use of the Committee on the Judiciary

Available via the World Wide Web: http://www.house.gov/judiciary

COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, JR., WISCONSIN, Chairman
HENRY J. HYDE, Illinois
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
CHRIS CANNON, Utah
LINDSEY O. GRAHAM, South Carolina
SPENCER BACHUS, Alabama
JOHN N. HOSTETTLER, Indiana
MARK GREEN, Wisconsin
RIC KELLER, Florida
DARRELL E. ISSA, California
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MELISSA A. HART, Pennsylvania
JEFF FLAKE, Arizona
MIKE PENCE, Indiana
J. RANDY FORBES, Virginia

JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California

PHILIP G. KIKO, Chief of Staff-General Counsel
PERRY H. APELBAUM, Minority Chief Counsel

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Subcommittee on Commercial and Administrative Law
BOB BARR, Georgia, Chairman
JEFF FLAKE, Arizona, Vice Chair
GEORGE W. GEKAS, Pennsylvania
MARK GREEN, Wisconsin
DARRELL E. ISSA, California
STEVE CHABOT, Ohio
MIKE PENCE, Indiana

MELVIN L. WATT, North Carolina
JERROLD NADLER, New York
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
MAXINE WATERS, California

RAYMOND V. SMIETANKA, Chief Counsel
SUSAN JENSEN-CONKLIN, Counsel
DIANE TAYLOR, Counsel
PATRICIA DEMARCO, Full Committee Counsel
STEPHANIE MOORE, Minority Counsel

C O N T E N T S

SEPTEMBER 25, 2002

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OPENING STATEMENT
    The Honorable Bob Barr, a Representative in Congress From the State of Georgia, and Chairman, Subcommittee on Commercial and Administrative Law

WITNESSES

Honorable Tom Davis, Representative of the 11th District of Virginia
Oral Testimony
Prepared Statement

Mr. Andrew Wright, President, Satellite Broadcasting and Communications Association
Oral Testimony
Prepared Statement

Nicholas Miller, Esq., Miller & Van Eaton, P.L.L.C.
Oral Testimony
Prepared Statement

Arthur Rosen, Esq., McDermott, Will & Emery
Oral Testimony
Prepared Statement

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Witness Introductions
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APPENDIX

Material Submitted for the Hearing Record

    Additional Questions Presented to Andrew Wright by the Honorable Bob Barr

    Responses to Additional Questions by Andrew Wright

    Additional Questions Presented to Nicholas Miller, Esq. by the Honorable Bob Barr

    Responses to Additional Questions by Nicholas Miller, Esq.

    Additional Questions Presented to Arthur Rosen, Esq. by the Honorable Bob Barr

    Responses to Additional Questions by Arthur Rosen, Esq.

    Additional Views Submitted by Nicholas Miller, Esq., on behalf of the National League of Cities, U.S. Conference of Mayors, and TeleCommUnity Alliance

Additional Material Submitted by Nicholas Miller, Esq., on behalf of the National League of Cities, U.S. Conference of Mayors, and TeleCommUnity Alliance:

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  Streamlined Sales Tax Project

  Status of State Efforts on Streamlined Sales Tax Project

  Uniform Sales and Use Tax Administration Act

  Pub. L. 106–252, the ''Mobile Telecommunications Sourcing Act''

SATELLITE RADIO FREEDOM ACT AND
THE SATELLITE SERVICES ACT

WEDNESDAY, SEPTEMBER 25, 2002

House of Representatives,
Subcommittee on Commercial
and Administrative Law,
Committee on the Judiciary,
Washington, DC.

    The Subcommittee met, pursuant to call, at 12:47 p.m., in Room 2141, Rayburn House Office Building, Hon. Bob Barr [Chairman of the Subcommittee] presiding.

    Mr. BARR. The Subcommittee will come to order.

    We meet today to consider two bills, H.R. 4869 and H.R. 5429, which seek to achieve parity with respect to State and local taxation for a developing communications technology. In doing so, we must consider the best approach to balance several divergent interests. This is a challenge not unlike that which has confronted this Subcommittee many times before. State taxation of the Internet, of interstate business, and of individuals working and residing in different States all have been considered by this Subommittee.
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    On June 5 of this year, my distinguished colleague from Virginia, Representative Tom Davis, introduced H.R. 4869, the ''Satellite Radio Freedom Act.'' This bill prohibits local taxing authorities from imposing income and business taxes and fees on satellite radio programming. The satellite radio business is a growing industry, which broadcasts via satellite to their subscribers' satellite-ready radios located in cars, trucks, homes, and other locations across the Nation.

I21The operation of companies utilizing this technology resembles direct-to-home satellite television services, in that they both use satellites to transmit their programming signals directly to customers rather than employing public rights-of-way which have served as the rationale for the imposition of local taxation.

    In 1996, direct-to-home satellite television service providers received a local tax exemption in the ''Telecommunications Act of 1996.'' The rationale behind the exemption contained in that Act was to relieve a developing industry from the crushing administrative burden of collecting and remitting taxes in literally thousands of local jurisdictions. The focus instead could be on improving a new technology and enlarging an industry.

    In light of the fact the 1996 Act provides an exemption only for ''direct-to-home services,'' the mobile nature of satellite radio excludes it from the exemption provided under the Telecommunications Act. H.R. 4869 was introduced to achieve parity of treatment between satellite television and satellite radio.

    H.R. 4869 raises some issues concerning scope, limitations on its exemption, and on a State's authority to impose taxes.
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    H.R. 5429, the Satellite Services Act, introduced on September 23rd of this year also by Representative Davis, on the other hand, broadens the application of the tax exemption to direct-to-subscriber satellite service providers rather than merely to satellite radio providers only. The language of H.R. 5429 exempts service providers from the collection or remittance of local taxes and fees. rather than imposing a restriction upon local taxing jurisdictions to impose such taxes.

    Further, unlike H.R. 4869, the Satellite Services Act carves out no exceptions to the tax exemption. It should be noted neither bill restricts a State from taxing satellite service providers.

    Thus, the two approaches of H.R. 4869 and H.R. 5429 are the basis of our discussion today, and hopefully the testimony from our witnesses will guide us in adopting a course that will encourage technological growth without detracting from reasonable concepts of State and local taxing prerogatives.

    I would now yield to the distinguished Ranking Member from North Carolina, Mr. Watt, for any preliminary remarks he might make.

    Mr. WATT. Thank you, Mr. Chairman. I just want to welcome my colleague Mr. Davis here and the other witnesses, and thank them for being here.

    In the interest of time, I am hoping to be able to stay to hear all of the witnesses' testimony, even thought I'm in a time bind. I'm not going to make an opening statement so that we can go directly to the witnesses, if possible, unless somebody else has some, of course. So I yield back.
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    Mr. BARR. I thank the distinguished Ranking Member.

    Does the gentleman from Ohio, Mr. Chabot, have any opening statement?

    Mr. CHABOT. Mr. Chairman, I'd just like to welcome the panel, and I and look forward to hearing their testimony, and thank you for holding this important hearing this afternoon.

    Thank you.

    Mr. BARR. Thank you, Mr. Chabot.

    I'd like now to move to the introduction of our very distinguished panel of witnesses today, and then we will look forward to hearing from each one of the witnesses in order, moving from our left to right, beginning with Mr. Davis. And we would ask, if at all possible, for each of the witnesses to limit the oral portion of their testimony to 5 minutes.

    The full record of their statements and any additional material, supplemental materials, they wish to submit for the record will, of course, be included, without objection, in the record.

    Our first witness today will be our colleague from the Commonwealth of Virginia, Mr. Tom Davis, who introduced the two bills which are the subject of today's hearing. Mr. Davis is the Chairman of the Subcommittee on Technology and Procurement Policy of the Committee on Government Reform and is also a Member of the Subcommittee on Telecommunications and the Internet of the Energy and Commerce Committee.
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    An active dedication to issues critical to the high-tech community has marked Mr. Davis' service in the United States Congress. He is the co-chair of the Information Technology Working Group, a group he founded to promote better understanding of issues important to the computer and technology industries.

    Prior to his service in the Congress, Mr. Davis served as chairman of the Fairfax County Board of Supervisors. He was also the vice president and general counsel at PRC, Inc., a high-technology and professional services firm located in McLean, Virginia. Mr. Davis is an honors graduate of Amherst College and earned his law degree from the University of Virginia.

    Tom, we're very grateful for your dedication to this important issue before us today and for your valuable testimony.

STATEMENT OF THE HONORABLE TOM DAVIS, REPRESENTATIVE OF THE 11TH DISTRICT OF VIRGINIA

    Mr. DAVIS. Thank you, Mr. Chairman. Thank you, Mr. Watt and Mr. Chabot, for being here. And I want to thank you for calling this hearing on local taxation of satellite services.

    Using satellites to distribute programming and services, I think, holds great promise, largely because satellite signals can reach remote areas where there are few options offered by the traditional terrestrial services. Satellite television services have been with us for a number of years, and we're now seeing the emergence of satellite radio service providers.
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    With satellite radio, new benefits arise. Signals can be received by listeners in their vehicles, not only at home. In addition, since this service is available nationwide, it has the ability to aggregate small, dispersed listener populations, making niche educational, ethnic, religious, or specialized music programming economically feasible. Such benefits make it a matter of public interest to foster this emerging technology so it can be fully utilized to the benefit of all Americans.

    There are significant barriers to entry in the satellite broadcasting field. Not everyone can put out their shingle or, in this case, throw up their satellite, and begin broadcasting. It is unlikely we will hear of any provider of satellite radio or other programming having constructed their first satellite in their garage. However, I believe there are steps we can take to facilitate the growth and expansion of this industry.

    Satellite radio service, or other satellite programming services that may be dreamed up in the future, will share some general characteristics. Chiefly, they will involve programming being sent to a satellite from either a sole location or a small number of locations, but sent down to subscribers all over the country.

    As I mentioned earlier, there are many advantages to such an approach. However, I believe there are also concerns that should be addressed. One such concern is the extraordinary administrative obstacle that would arise if such providers were forced to collect and remit local taxes in approximately 15,000 different jurisdictions. This reality has already been recognized in reference to satellite television, and appropriate legislative steps have been taken.
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    Section 602 of the Telecom Act provides a—exempts a provider of direct-to-home satellite service from the collection or remittance, or both, of any tax or fee imposed by a local taxing jurisdiction on direct-to-home satellite service. Direct-to-home satellite service is defined as programming transmitted or broadcast by satellite directly to the subscribers' premises without the use of ground receiving or distribution equipment, except at the subscribers' premises or in the uplink process to the satellite.

    While the language in this section covers satellite television, I believe additional legislation is required to include satellite radio and certain other satellite programming services that can evolve in the future. Thus, the legislation I have introduced seeks to establish parity between such services to the greatest extent possible by requiring collection and remittance of taxes at the State level, but offering an exemption from doing so at the local level.

    I recognize that differences between satellite services exist. For example, while satellite radio service may be used primarily at an individual's home, many subscribers will use this service in some form of vehicle, be it their privately owned conveyance or a truck they drive over-the-road in a professional capacity. Direct-to-home does not describe these scenarios.

    My bill, therefore, establishes a definition of direct-to-subscriber satellite services that would cover programming received by both mobile and stationary equipment. It also clarifies that State taxes on such satellite programming subscriptions will be sourced from the subscriber's place of primary use, defined as either their home or their business address.
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    I admit that what began as a simple effort to bring parity to two seemingly similar forms of satellite media is, in fact, much more complicated. There are parallels not only with satellite television, but also mobile telecommunications services, Internet sales, and catalog sales.

    I have worked hard to try to craft and even made some changes in the initial legislation to try to help the continued expansion of satellite programming services, while not granting a competitive advantage over their terrestrial counterparts. But I recognize that more work may be necessary. I am eager to hear the input of today's witnesses to this end and look forward to working with this Committee to try to bring about this new technology.

    Thank you.

    [The prepared statement of Mr. Davis follows:]

PREPARED STATEMENT OF THE HONORABLE TOM DAVIS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA

    Mr. Chairman, I would like to thank you for calling this hearing on local taxation of satellite services.

    Using satellites to distribute programming and services holds great promise, largely because satellite signals can reach remote areas where there are few options offered by traditional terrestrial services. Satellite television services have been with us for a number of years, and we are now seeing the emergence of satellite radio service providers. With satellite radio, new benefits arise. Signals can be received by listeners in their vehicles, not only at home. In addition, since this service is available nationwide, it has the ability to aggregate small, dispersed listener populations, making niche educational, ethnic, religious, or specialized music programming economically feasible. Such benefits make it a matter of public interest to foster this emerging technology, so it can be fully utilized to the benefit of all Americans.
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    There are significant barriers to entry in the satellite broadcasting field. Not everyone can put out their shingle, or in this case, throw up their satellite, and begin broadcasting. It is unlikely we will hear of any provider of satellite radio or other programming having constructed their first satellite in their garage. However, I believe there are steps we can take to facilitate the growth and expansion of this industry.

    Satellite radio service, or other satellite programming services that may be dreamed up in the future, will share some general characteristics. Chiefly, they will involve programming being sent to a satellite from either a sole location or a small number of locations, but sent down to subscribers all over the country. As I mentioned earlier, there are many advantages to such an approach; however, I believe there are also concerns that must be addressed. One such concern is the extraordinary administrative obstacle that would arise if such providers were forced to collect and remit local taxes in approximately 15,000 different jurisdictions. This reality has already been recognized in reference to satellite television, and appropriate legislative steps have been taken.

    Section 602 of the Telecom Act exempts a provider of direct-to-home satellite service from the collection or remittance, or both, of any tax or fee imposed by a local taxing jurisdiction on direct to home satellite service. Direct-to-home satellite service is defined as programming transmitted or broadcast by satellite directly to the subscribers' premises without the use of ground receiving or distribution equipment, except at the subscribers' premises or in the uplink process to the satellite.

    While the language in this section covers satellite television, I believe additional legislation is required to include satellite radio and certain other satellite programming services that may evolve in the future. Thus, the legislation I have introduced seeks to establish parity between such services to the greatest extent possible by requiring collection and remittance of taxes at the state level, but offering an exemption from doing so at the local level.
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    I do recognize that differences between satellite services exist. For example, while satellite radio service may be used primarily at an individual's home, many subscribers will use this service in some form of vehicle, be it their privately owned conveyance or a truck they drive over-the-road in a professional capacity. ''Direct-to-home'' does not describe these scenarios. My bill therefore establishes a definition of direct-to-subscriber satellite services that would cover programming received by both mobile and stationary equipment. It also clarifies that state taxes on such satellite programming subscriptions will be sourced from the subscriber's place of primary use, defined as either their home or business address.

    I will admit that what began as a simple effort to bring parity to two seemingly similar forms of satellite media is, in fact, more complicated. There are parallels not only with satellite television, but also mobile telecommunication services, Internet sales, and catalogue sales. I have worked hard to craft legislation to help the continued expansion of satellite programming services, while not granting a competitive advantage over their terrestrial counterparts. However, I recognize that more work may yet be necessary, and I am eager to hear the input of today's witnesses to this end.

    Mr. BARR. Thank you very much for your testimony, Mr. Davis. The Members don't have any specific questions for you. We recognize the time constraints on your other congressional duties. But if you would be available to provide any additional material that Subcommittee Members might have and pose to you in writing and submit that for the record, we would appreciate it.

    Mr. DAVIS. I would be happy to, and I thank you for the opportunity.
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    Mr. BARR. Thank you.

    I would like to very briefly introduce our next three witnesses, and if you will forgive me for rushing through these so as not to take you all's time insofar as we were a little bit late getting started because there's some votes on the floor—but the full introductions will be included in the record.

    [The material referred to follows:]

Intro1.eps

Intro2.eps

Intro3.eps

    Our next witness will be Andrew Wright, president of Satellite Broadcasting and Communications Association, which is a national trade association that represents all segments of the satellite consumer services industry. Mr. Wright, as with our first witness, Mr. Davis, has a very distinguished background, including also being a graduate of Mr. Davis' school, and that is the University of Virginia.

    We very much appreciate and look forward to hearing from you, Mr. Wright, and appreciate your sharing your expertise with us today.

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STATEMENT OF ANDREW WRIGHT, PRESIDENT, SATELLITE BROADCASTING AND COMMUNICATIONS ASSOCIATION

    Mr. WRIGHT. Thank you, Mr. Chairman. Mr. Chairman, Congressman Watt, Mr. Chabot, I'm Andy Wright, president of SBCA. We first thank Congressman Davis for introducing H.R. 5429 and thank you, Mr. Chairman, for calling a hearing on this important legislation——

    Mr. BARR. Can you pull that microphone a little bit closer to you?

    Mr. WRIGHT. Sorry, sir.

    Mr. BARR. We're not——

    Mr. WRIGHT. Is it on?

    Mr. BARR. Yes.

    Mr. WRIGHT. And for giving me the opportunity to testify today.

    SBCA represents all segments of the consumer satellite services industry. Our membership includes direct broadcast satellite, C-band satellite, satellite broadband, satellite radio, and other consumer satellite service providers.

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    In addition, SBCA represents content providers; that is, programmers, equipment manufacturers, national and regional distributors, and hundreds of retailers from every State and several foreign countries.

    Today, I am especially proud to have the opportunity to represent our newest member group, satellite radio. XM satellite radio launched its service across the country last fall, and Sirius satellite radio began offering service nationwide in July.

    Both Sirius and XM offer 100 channels of digital quality music, news, sports, and entertainment for consumers to enjoy from anywhere in the United States without losing the radio signal as their vehicle moves across the country.

    In less than a year, more than 200,000 consumers located throughout the continental United States have subscribed to satellite radio, mainly for their autos and trucks, but also for homes and businesses, making it the fastest growing audio product in the last two decades.

    Mr. Chairman, I brought with me one of XM's new—what they call a plug-and-play unit. This is all that's required, along with this antenna, which goes on the top of the car, to operate this in your automobile. It plugs into a little cradle in the car. It can be pulled out, taken into the house, and then plugged in to use with your stereo system.

    So we think that this is a tremendously exciting product, and I just thought you might be interested in seeing that.

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    Mr. BARR. Can we take a look at that while you're testifying?

    Mr. WRIGHT. Yes, sir.

    Mr. BARR. Thank you.

    Mr. WRIGHT. This national service, clearly in its infancy, faces significant uncertainty because of potential tax collection and remittance responsibilities that could be imposed by more than 15,000 local jurisdictions across the country. If any significant number of these local taxing authorities impose new taxes on satellite radio consumers, and if satellite radio providers are forced to collect and remit those taxes, the immense administrative burden would severely damage satellite radio's ability to operate effectively, adding enormous complexity and cost to this new industry.

    XM and Sirius subscribers activate their radios either online or through a toll-free telephone call, and the service is provided from a satellite directly to the subscriber. As a result, there is little or no contact with the infrastructure, such as streets, sidewalks, and rights of ways, of county, municipal, or other local governments.

    The direct broadcast satellite industry's national satellite-provided point-to-multipoint television service provides a very similar service to consumers. DBS faced a similar problem when it was rolled out in 1994, and Congress successfully addressed the issue in the 1996 Telecommunications Act by providing DBS with an exemption from the collection and remittance of local taxes.

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    DBS's local tax exemption is now recognized as an important factor in allowing the service to grow from zero subscribers in 1994 to over 18.2 million households, over 48 million viewers today. A similar exemption is clearly warranted for satellite radio.

    The local tax exemption we seek—and I want to be clear on this point—like the exemption enjoyed by DBS, would not exempt satellite radio from State taxes. It is in no way a free pass from paying taxes.

    DBS providers today collect and remit at the State level in many States, and these taxes are often specifically allocated to or redistributed to localities. The exemption DBS enjoys and that that we seek for satellite radio is strictly a form of administrative relief for a national service that has little or no contact with local municipalities.

    What we are saying is that the policy established by Congress for States to be the sole government entity entitled to collect taxes for subscribing to nationwide satellite services is a sound policy that should be extended to the providers of satellite radio.

    This arrangement has been vital for the DBS industry, helping it to become more efficient and better able to provide new and advanced services to consumers, particularly rural consumers. Now, another new and promising satellite service is faced with the same dilemma. We ask that Congress provide a similar Federal preemption that would exempt satellite radio providers from the collection and remittance of local transaction taxes and fees that are imposed on consumers and elevate such tax responsibilities to the State level.

    Mr. Chairman, satellite radio is quickly emerging as a bright spot among high technology consumer services, no small feat in today's difficult consumer market. XM and Sirius satellite radio have already invested more than $3 billion to bring this exciting new service to consumers, and they can be expected to invest much more, create more jobs, and provide more consumers with an exciting service as their businesses continue to grow.
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    I urge you to adopt Congressman Davis' legislation to provide the consumers of satellite radio with the same local tax exemption that has proved to be essential for the rapid growth of DBS.

    Thank you, sir.

    [The prepared statement of Mr. Wright follows:]

PREPARED STATEMENT OF ANDREW S. WRIGHT

    MR. CHAIRMAN, CONGRESSMAN WATT, MEMBERS OF THE SUBCOMMITTEE, MY NAME IS ANDY WRIGHT, AND I AM PRESIDENT OF THE SATELLITE BROADCASTING AND COMMUNICATIONS ASSOCIATION (SBCA). THANK YOU FOR CALLING A HEARING ON THIS IMPORTANT LEGISLATION AND FORGIVING ME THE OPPORTUNITY TO TESTIFY TODAY.

    SBCA REPRESENTS ALL SEGMENTS OF THE CONSUMER SATELLITE SERVICES INDUSTRY. OUR MEMBERSHIP INCLUDES DIRECT BROADCAST SATELLITE (DBS), C-BAND, SATELLITE BROADBAND, SATELLITE RADIO AND OTHER CONSUMER SATELLITE SERVICE PROVIDERS. IN ADDITION, SBCA REPRESENTS CONTENT PROVIDERS, EQUIPMENT MANUFACTURERS, RETAILERS, NATIONAL AND REGIONAL DISTRIBUTORS AND OTHER COMPANIES IN THE SATELLITE SERVICES INDUSTRY.

    TODAY I AM PROUD TO HAVE THE OPPORTUNITY TO REPRESENT OUR NEWEST MEMBER GROUP, SATELLITE RADIO. XM SATELLITE RADIO LAUNCHED ITS SERVICE ACROSS THE COUNTRY LAST FALL, AND SIRIUS SATELLITE RADIO BEGAN OFFERING SERVICE NATIONWIDE IN JULY. BOTH SIRIUS AND XM OFFER 100 CHANNELS OF DIGITAL-QUALITY MUSIC, NEWS, SPORTS AND ENTERTAINMENT FOR CONSUMERS TO ENJOY FROM ANYWHERE IN THE UNITED STATES, WITHOUT LOSING THE RADIO SIGNAL AS THEIR VEHICLES MOVE ACROSS THE COUNTRY. IN LESS THAN A YEAR, MORE THAN 200,000 CONSUMERS LOCATED THROUGHOUT THE CONTINENTAL UNITED STATES HAVE SUBSCRIBED TO SATELLITE RADIO, MAINLY FOR THEIR AUTOS AND TRUCKS BUT ALSO FOR HOMES AND BUSINESSES, MAKING IT THE FASTEST GROWING AUDIO PRODUCT OF THE PAST TWO DECADES.
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    HOWEVER, THIS NATIONAL SERVICE—CLEARLY IN ITS INFANCY—FACES SIGNIFICANT UNCERTAINTY BECAUSE OF POTENTIAL TAX COLLECTION AND REMITTANCE RESPONSIBILITIES THAT COULD BE IMPOSED BY MORE THAN 13,000 LOCAL JURISDICTIONS ACROSS THE COUNTRY. IF SATELLITE RADIO PROVIDERS WERE FORCED TO COLLECT AND REMIT TAXES TO ANY SIGNIFICANT NUMBER OF THESE LOCALITIES, THE IMMENSE ADMINISTRATIVE BURDEN WOULD SEVERELY DAMAGE SATELLITE RADIO'S ABILITY TO OPERATE EFFECTIVELY, ADDING ENORMOUS COMPLEXITY AND COSTS FOR THIS NEW INDUSTRY.

    XM AND SIRIUS SUBSCRIBERS ACTIVATE THEIR RADIOS EITHER ONLINE OR THROUGH A TOLL-FREE TELEPHONE CALL, AND, GENERALLY, THE SERVICE IS PROVIDED FROM THE SATELLITE DIRECTLY TO THE SUBSCRIBER. AS A RESULT, THERE IS LITTLE OR NO CONTACT WITH THE INFRASTRUCTURE (STREETS, SIDEWALKS OR OTHER RIGHT-OF-WAYS) OF COUNTY, MUNICIPAL OR OTHER LOCAL GOVERNMENTS.

    THE DIRECT BROADCAST SATELLITE INDUSTRY'S NATIONAL SATELLITE PROVIDED POINT-TO-MULTIPOINT TELEVISION SERVICE PROVIDES A VERY SIMILAR SERVICE TO CONSUMERS. DBS FACED A SIMILAR PROBLEM WHEN IT WAS ROLLED OUT IN 1994, AND CONGRESS SUCCESSFULLY ADDRESSED THE ISSUE IN THE 1996 TELECOMMUNICATIONS ACT BY PROVIDING DBS WITH AN EXEMPTION FROM THE COLLECTION AND REMITTANCE OF LOCAL TAXES. DBS'S LOCAL TAX EXEMPTION IS NOW RECOGNIZED AS AN IMPORTANT FACTOR IN ALLOWING THE SERVICE TO GROW FROM 0 SUBSCRIBERS IN 1994 TO OVER 18.2 MILLION HOUSEHOLDS—OVER 48 MILLION VIEWERS—TODAY. A SIMILAR EXCEPTION IS CLEARLY WARRANTED FOR SATELLITE RADIO.

    THE LOCAL TAX EXEMPTION WE SEEK—AND I WANT TO BE VERY CLEAR ON THIS POINT—LIKE THE EXEMPTION ENJOYED BY DBS—WOULD NOT EXEMPT SATELLITE RADIO FROM STATE TAXES. IT IS IN NO WAY A ''FREE PASS'' FROM PAYING TAXES. DBS PROVIDERS TODAY COLLECT AND REMIT TAXES AT THE STATE LEVEL IN MANY STATES, AND THESE TAXES ARE OFTEN SPECIFICALLY ALLOCATED TO OR REDISTRIBUTED TO LOCALITIES. THE EXEMPTION DBS ENJOYS AND THAT WE SEEK FOR SATELLITE RADIO IS STRICTLY A FORM OF ADMINISTRATIVE RELIEF FOR A NATIONAL SERVICE THAT HAS LITTLE OR NO CONTACT WITH LOCAL MUNICIPALITIES.
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    WHAT WE ARE SAYING IS THAT THE POLICY ESTABLISHED BY CONGRESS FOR STATES TO BE THE SOLE GOVERNMENT ENTITY ENTITLED TO COLLECT TAXES FOR SUBSCRIBING TO NATIONWIDE SATELLITE SERVICES ISA SOUND POLICY THAT SHOULD BE EXTENDED TO PROVIDERS OF SATELLITE RADIO SERVICE.

    THIS ARRANGEMENT HAS BEEN VITAL FOR THE DBS INDUSTRY, HELPING IT BECOME MORE EFFICIENT AND BETTER ABLE TO PROVIDE NEW AND ADVANCED SERVICES TO CONSUMERS. NOW, ANOTHER NEW AND PROMISING SATELLITE SERVICE IS FACED WITH THE SAME DILEMMA. WE ASK THAT CONGRESS PROVIDE A SIMILAR FEDERAL PREEMPTION THAT WOULD EXEMPT SATELLITE RADIO PROVIDERS FROM THE COLLECTION AND REMITTANCE OF LOCAL TRANSACTION TAXES AND FEES AND ELEVATE SUCH TAX RESPONSIBILITIES TO THE STATE LEVEL.

    MR. CHAIRMAN, SATELLITE RADIO IS QUICKLY EMERGING AS A BRIGHT SPOT AMONG HIGH-TECHNOLOGY CONSUMER SERVICES, NO SMALL FEAT IN TODAY'S DIFFICULT CONSUMER MARKET. XM AND SIRIUS HAVE INVESTED MORE THAN $3 BILLION THUS FAR TO BRING THIS EXCITING NEW SERVICE TO CONSUMERS, AND THEY CAN BE EXPECTED TO INVEST MUCH MORE, CREATE MORE JOBS, AND PROVIDE MORE CONSUMERS WITH AN EXCITING NEW SERVICE AS THEIR BUSINESSES CONTINUE TO GROW.

    I URGE YOU TO PROVIDE SATELLITE RADIO WITH THE SAME LOCAL TAX EXEMPTION THAT HAS PROVED TO BE ESSENTIAL FOR THE RAPID GROWTH OF THE DBS INDUSTRY.

    THANK YOU.

    Mr. BARR. Thank you very much, Mr. Wright.

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    Our next witness will be Mr. Nicholas Miller, who is currently a partner with the Washington office of the law firm of Miller & Van Eaton. Mr. Miller is also a well-known expert on the law and policy governing cable television and telephone regulation, well known to Capitol Hill and well known in that portion, particularly of the legal profession here in Washington and across the country, that deals with such issues. His more extensive bio, very, very impressive, will be included in the record.

    And, Mr. Miller, we're very happy and honored to have your testimony here today.

STATEMENT OF NICHOLAS MILLER, ESQ.,
MILLER & VAN EATON, P.L.L.C.

    Mr. MILLER. Mr. Chairman, thank you very much. It is, indeed, an honor to appear before you and the Subcommittee.

    I am actually appearing here today on behalf of the National League of Cities, the U.S. Conference of Mayors, and TeleCommUnity, which is an alliance of local governments that focuses specifically on technology and communications issues as they impact local governments.

    I also want to issue—ask that the Committee recognize the terrific work of its counsel. Ms. Taylor was extraordinarily generous in allowing us, on very short notice, to get our testimony in and to participate, and we're very grateful to the Committee and to the Subcommittee.
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    Mr. BARR. Thank you very much.

    Mr. MILLER. Mr. Chairman, I think I will summarize my comments as follows. Local government believes the burden is on the party that advocates a change when they propose Federal preemption, that this is a system of—you and so many of your colleagues have been champions of federalism and the need to keep the Federal Government out of intrusive directions and unfunded mandates for local and State governments.

    That means that the burden is on the advocates of this legislation to show substantial benefits. And, in fact, when we look at the bills, we think not only are there no substantial benefits, but there are many problems. Let me review them quickly.

    We don't think this is good tax policy. We don't think this is good federalism policy. We don't think this is good broadband policy. And then there are several specific issues in the bills themselves that are quite disturbing and hard to predict what the ultimate resolution would be when the courts begin to look at the legislation.

    But let me review these in general terms. We think good Federal policy suggests that the decision to tax and the decision to spend should be located at the lowest level of government that's closest to the people wherever possible; that local communities are, in fact, in the best position to decide what services they need and what is the best way to pay for those services; that when you move the taxing decision to the governor's office, away from the mayor and city council's office, without moving the responsibility for delivering the services to the governor's office, you actually disconnect the political process that allows voters to hold their elected officials responsible for the tax burden that's being imposed on them.
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    Second, local governments right now are facing an enormous homeland security problem, and I'll give you two examples to illustrate that. In one 10-day period in March of this year, a bureaucrat at the Federal Communications Commission unilaterally made a decision that deprived local governments of $500 million a year in income, when the head of the Media Bureau of the FCC volunteered that he thought an FCC decision meant the cable operators didn't have to pay franchise fees on cable modem services.

    That was the same week that the Federal Government pulled the National Guard out of airports. That cost local governments another $500 million, because now we have to put the cops into the airports.

    No one is complaining about the need. No one is saying they aren't willing to deal with the need at the local government level. But you can't, on one hand, continually increase the burdens on local governments and, on the other hand, deprive them of the revenue base they have to have to deliver the services that are so essential, particularly at this point in our Nation's history.

    Let me turn to tax policy. Every time we narrow the tax base by excluding a favored industry, we force the remaining tax burden up on those unfortunates that remain subject to taxes. Second, there is no good reason for the tax laws to distinguish between comparable services.

    And I want to recognize Mr. Davis' efforts here, because I think there is—on our part, we recognize there is a problem with the Direct Broadcast Satellite Act. Our preference would be to repeal it, I admit. But, nevertheless, the concept that tax policy should apply equally to comparable technologies is one we adhere to wholeheartedly. This, we think, doesn't get there.
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    Finally, the idea of tax efficiency—the 5,000 taxing jurisdictions arguments that you hear—you cannot confuse tax efficiency, which we support, with tax eradication, which we do not. The local governments have worked progressively over the last year with State and Federal authorities to develop a method for sales tax collections that would greatly minimize and simplify the collection process, while leaving to the local taxpayer and the local elected official the discretion as to what the tax rate should be.

    Let me turn to broadband policy. It is—we strongly recommend that the Subcommittee reject any proposal that different technologies be treated differently for tax purposes. It is unfair and bad economics to subsidize one form of technology over another. And if there is a decision to subsidize a technology, then tax subsidies are the least efficient method of rolling that subsidy into the industry.

    And then, finally, I want to turn briefly to specific concerns with the act itself. The Satellite Services Act, we believe, as written, doesn't just apply to broadcast satellite services. We think, as written, it would pick up home satellite dishes, satellite master antenna services on multiunit apartment houses, multipoint distribution systems, ITFS systems, very small aperture satellite systems. We think it would also apply to 3G cellular mobile services as currently drafted, and we think it also applies to satellite Internet services as currently drafted.

    Now, Mr. Davis' statement is reassuring, because it seems as if that's not what he's trying to do. But, in fact, that's the way we believe the language currently works. And when you look at the concept of primary use—that is, that the tax nexus, to the extent there is a tax nexus, would fall on the location of primary use—we think that that definition itself will badly discriminate against small States and against States that have large intrastate commuter traffic, because it will cause very, very difficult tax allocation and tax resources.
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    With that, Mr. Chairman, I want to conclude and say we ask—this Committee has been one of the strongest protectors of the Federal principle and the concept that local governments should control their own destinies free of Federal intrusion, and we ask that you continue to respect that principle.

    Thank you, sir.

    [The prepared statement of Mr. Miller follows:]

PREPARED STATEMENT OF NICHOLAS P. MILLER

EXECUTIVE SUMMARY

    H.R. 5429, the Satellite Services Act of 2002 unnecessarily attempts to expand the current preemption of local taxation of direct-to-home satellite service, Section 602 of the Telecommunications Act of 1996, 47 U.S.C. §152 nt, to preempt local taxation of direct-to-subscriber satellite service. H.R. 4869, the Satellite Radio Freedom Act. attempts to preempt local authority to tax satellite digital radio service.

    TeleCommUnity, the National League of Cities, and the United States Conference of Mayors urge the Subcommittee to reject these bills. There is no rationale basis to create a special tax subsidy to benefit direct-to-subscriber satellite service providers. Competition in the satellite service market is robust, and there is no evidence at this time to support creation of federal tax subsidy that would provide satellite service providers with a competitive advantage over fiber optic, wireless terrestrial, ultrawideband, and other forms of broadband technology providers.
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    The SSA and the SRFA contain too many vague and undefined key terms to withstand judicial review, and would likely spawn lengthy and needless litigation. Both bills have the unintended consequence of creating disparate taxation schemes for similarly situated providers, and both bills create unfunded mandates for local governments by depriving jurisdictions of lawful streams of revenue without providing replacement revenue.

    We urge Congress to forgo the temptation to provide special tax breaks to small pockets of industry at the expense of local governments and competing industry technologies.

    Thank you Mr. Chairman:

I. INTRODUCTION

    It's an honor to be here today. My name is Nicholas P. Miller and I am testifying before the Subcommittee in my capacity as Legal Counsel to the TeleCommUnity Alliance, on behalf of TeleCommUnity, the National League of Cities, and the United States Conference of Mayors. TeleCommUnity is an alliance of local governments and their national associations which advocates for, and educates on behalf of, local governments interests on matters of federal telecommunications, broadband, and right-of-way legislation.

II. LOCAL GOVERNMENTS STRONGLY SUPPORT AND ENCOURAGE PROVISION OF SATELLITE SERVICES.

A. Local Governments Favor National Policies That Promote Expanded Deployment of Satellite Services.
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    Local government welcomes and encourages true competition in the provision of video, voice, data, information, and high-speed Internet access services to all Americans. Direct Broadcast Satellite service in particular has provided many consumers with a viable alternative to incumbent cable service, and in turn, competition from DBS providers has provided cable operators with a competitive incentive to offer a wider range of competitively priced services to cable subscribers. Promoting and encouraging greater deployment of all forms of broadband service continues to be a critical issue in our communities and we welcome the technical innovation and expanded broadband opportunities offered by wireless cable (''MMDS'' or ''MDS''), private cable (''SMATV''), and BlackBerry satellite service providers.

III. THERE IS NO RATIONAL BASIS TO SUPPORT ENACTMENT OF EITHER THE SATELLITE SERVICES ACT OR THE SATELLITE RADIO FREEDOM ACTS.

    Local governments are pleased to be working with the distinguished members of this Subcommittee to develop effective national broadband policies. Unfortunately, we cannot support either of the bills that has emerged here today.

 Neither bill explains why local governments should abandon our general philosophy to promote technology-neutral regulation in order to give support to two bills which would provide an exclusive tax subsidy and thus a competitive advantage to a single technology. Local governments support all means of delivering broadband service. We are not aware of any evidence presented to this Subcommittee that would justify our support of a federal policy to use costly local tax subsidies to discriminatorily promote development of satellite service to the possible detriment of wireless terrestrial, fiber optic, and ultrawideband technologies.
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 Neither bill explains what if any critical problem has emerged in the waning days of this session that could or should be solved by further preempting the power of your constituents to influence tax and revenue decisions at the local level. Local taxation of DBS service is already preempted by Section 602 of the 1996 Telecommunications Act, 47 U.S.C. §152 nt. Only three states, Florida, Tennessee, and North Carolina, tax direct-to-home satellite service, while two states, Pennsylvania and Virginia, prohibit such taxes.

 Neither bill contains any persuasive findings to explain why local taxpayers should continue to have to subsidize DBS service under Section 602, much less explains why this type of industry-exclusive subsidy should be expanded to subsidize other satellite services. Local governments would be interested in hearing your arguments as to why we should not seek legislation to sunset the preemption provision of Section 602. Furthermore, why is this Subcommittee rashly trying to expand the direct-to-home satellite service subsidy to cover direct-to-subscriber satellite service with hastily drafted, last minute bills if the current direct-to-home satellite service subsidy has no sunset date?

 We do not understand the basis for continuing to subsidize direct-to-home satellite service with local tax dollars. DBS revenue for last year was projected to be $12.1 BILLION dollars, up 37 1/2% from 2000. Between 1997 and 2001, cable systems added 4.8 million subscribers while DBS added 11 million subscribers in the same period.(see footnote 1) What can local government do to lessen the inequity of requiring a ''mom and pop'' TV shop to pay local business taxes as a condition of the privilege to sell TVs and operate a business in the community, while at the same time, the community must permit a billion dollar company to sell a $45–$90 a month service to those TV sets, but not require the billion dollar company to contribute a single tax dollar back to the community?
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    Quite frankly, we don't understand why these bills are even being considered today. To put it bluntly, in this economy, in a time of record state budget shortfalls, when local government first responders must to do even more with even less, when billions are spent on homeland security while local governments at the front lines continue to wait to receive Dollar 1, we are at truly at a loss to understand why this Subcommittee is proposing to take even more money from local governments to subsidize a very successful satellite service industry.

IV. UNINTENDED CONSEQUENCES AND UNFUNDED MANDATES: WHY LOCAL GOVERNMENTS OPPOSE THE SSA AND SRFA.

    As a general rule, bills that are hastily introduced in the waning days of the session while members are just trying to survive the appropriations process and get home for elections, usually lead to unintended consequences because members and their staff just did not have the time to hold hearings, vet the issues, and think the language through. I'm sorry to say the SSA and SRFA will not be the exceptions to the rule.

A. Both Bills Are Impermissibly Vague

    If enacted, both statutes will certainly be challenged. Both bills are based on Section 602 of the 1996 Act, but neither bill has been submitted as an amendment to the Communications Act, so the Act's definitions will not be considered by a reviewing court. Thus, a court would have to interpret the statutes based on the plain language of each bill, common usage, and possibly these hearings to guide the courts. For this reason alone, this Subcommittee should reject these bills.

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B. Local Governments Cannot Ascertain Which Satellite Services Congress Intended to Include in the Direct-to-Subscriber Satellite Service Definition.

    The SSA preempts local taxation of ''Direct-to-Subscriber Satellite Service,'' which is defined in relevant part as ''the distribution or broadcasting of programming transmitted or broadcast by satellite directly to the satellite service subscriber's receiving equipment . . .'' and may use ''terrestrial repeater transmitters to retransmit signals received from the provider's operating satellites.''(see footnote 2)

only programming transmitted or broadcast by satellite directly to the subscribers' premises without the use of ground receiving or distribution equipment, except at the subscribers' premises or in the uplink process to the satellite.

Section 2(a) of the SSA prohibits local taxation of direct-to-subscriber satellite service. As a comparison, below, words omitted from the current definition of direct-to-home satellite service in Section 602(b)(1) are struck through, and new text in the SSA's Section 4(1) definition of direct-to-subscriber satellite service are underscored. Section 4(1) defines ''direct-to-subscriber satellite service'' to mean:

only the distribution or broadcasting of programming transmitted or broadcast by satellite directly to the subscribers' premises satellite service subscriber's receiving equipment without the use of the provider's ground receiving or distribution equipment, except equipment at the subscribers' premises or in the uplink process to the satellite. A service that otherwise qualifies as a direct-to-subscriber satellite service as defined in this paragraph, but that uses terrestrial repeater transmitters to retransmit signals received from the provider's operating satellites, shall none the less be treated as a direct-to-subscriber satellite service.
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    A key omission in the SSA bill is its failure to state what Congress intended ''programming'' to mean. A voice telephone call might not fit the definition, but video, data, music, pay-per-view movies and arguably Internet access could be included. In addition, neither ''receiving equipment'' nor ''terrestrial repeater transmitter'' is defined or limited in any way. Thus the SSA could be interpreted to exempt all of the following satellite-based services from all local taxation:

 Direct Broadcast Satellite Service (''DBS'')

 Home Satellite Dishes (''HSDs'')

 Satellite Master Antenna Television (''SMATV'')

 Wireless Cable (Multichannel Multipoint Distribution Service ''MMDS'' and Multipoint Distribution Service ''MDS'')

 Instruction Television Fixed Service (''ITFS'')

 Very Small Aperture Terminal Networks (''VSAT'')

 Satellite Digital Audio Radio (''Satellite DAR'')

 BlackBerry Service

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 Satellite Transmission of Broadcast Network Feeds (from broadcasting centers, antenna farms and remote locations)

 Satellite Internet Service(see footnote 3)

    The ''direct-to-subscriber satellite service'' definition is so broad that it theoretically could include any non-terrestrial service.(see footnote 4) However, courts could also interpret the term very narrowly because the bill provides almost no guidance as to which services Congress intended to exempt and why. Thus, there is the unpleasant possibility that after litigation, state and local governments may have different levels of authority under the SSA based on nothing more than the Appellate Circuit in which they happen to be based.

C. There Is No Rational Policy Basis to Justify the Disparate Tax Treatment Created By The Tax Definitions of the SSA and SRFA.

    The tax definitions in both bills could be interpreted to broadly preempt local authority to require any tax or fee of general applicability, including local sales tax, income tax, business privilege taxes, franchise fees, and possibly property taxes and administrative regulatory fees.

    Arguably, there may have been valid policy reasons to preempt local taxation of national DBS service under Section 602 of the Telecommunications Act. DBS service did not use the public rights-of-way, initially offered service only on a national basis, may have had very little to no local presence, and may have served a limited number of homes in any particular jurisdiction. The same cannot be said about the type of satellite services that be covered by the SSA.
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 For example, a SMATV system usually operates in one community, and often extends over no more than a few buildings. There is no rational basis to justify why a coffee vender in a SMATV building pays a business privilege fee or a gross receipts tax, the coffee drinker pays a sales tax, the building owner pays property taxes, the telephone company pays utility and income taxes, and yet the single building SMATV would be exempt from paying any and all local taxes and fees solely because she receives the programming signal via satellite.

 Furthermore, unlike the DBS example, many of the direct-to-subscriber satellite service providers may have transmitters, antenna farms, or other facilities located in the public right-of-way or on public property. The SRFA contains an exemption that seemingly recognizes the inequity of exempting satellite service providers from having to pay rent or taxes on terrestrial equipment, but the SSA contains no such exemption. There simply is no rationale basis to provide a discriminatory tax subsidy to a class of broadband providers that may be local in nature and make use of the right-of-way, simply because their transmissions originate from satellites instead of via terrestrial microwave.

D. The Personal Use Definition Cannot Be Applied to Mobile Devices.

    Both bills prohibit states from imposing taxes if the ''place of primary use'' of the service is not physically located within the State. Both bills define primary use as the business or residential address where use of direct-to-subscriber satellite service primarily occurs. The text of both bills seems to overlook the fact that both bills are attempting to encompass wireless and mobile services.

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 For example, if I listen to satellite DAR as I drive between my home in Maryland and my office in Washington DC, and use my BlackBerry primarily when I meet clients in Northern Virginia, where is my ''primary place of use,'' and which state has jurisdiction to tax me? I might not have to pay any tax, but the delivery driver who uses his BlackBerry and satellite DAR when driving 300 miles 4 times a week between Los Angeles and San Francisco could be require to pay a tax.

One of the unintended consequence of these bills is a disproportionate impact on smaller states and intrastate commuters.

E. Requiring States to Impose and Collect Taxes Imposes An Unfunded Mandate.

    Stripping states of authority to require providers to remit certain taxes directly to local governments imposes an unfunded mandate on the state. Many large municipalities are well equipped to administer tax collection programs. By invalidating taxes if they are not both imposed by the state and collected by the state, both bills force states to shoulder a larger administrative burden if a state opts to exercise its right to impose a tax, and it deprives the state of the ability to make efficient use of local government resources. Localities and states have chosen different tax systems that reflect local traditions and needs. The federal government should not arbitrarily attempt to impose a single method of tax collection.

    This concludes the written portion of comments submitted by Nicholas Miller. The following section is an excerpt from ''The Impact of Electronic Commerce on State and Local Tax Systems: Building A Constructive Solution After The [Advisory Commission on Electronic Commerce] Commission's Failure'', U.S. Conference of Mayors, May 2000, available at http://usmayors.org/USCM/wash—update/documents/commission.htm
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V. THE FEDERAL GOVERNMENT IS UNDERESTIMATING THE IMPORTANCE OF LOCAL TAXES.

A. Sales Taxes Are An Essential Part Of The Tax Base For Many Cities.

    As the report submitted to Congress in April 2000 by the Advisory Commission on Electronic Commerce stated:

State and local governments that levy sales taxes rely on them as a major source of revenue for their general funds. According to the U.S. Census Bureau, state and local governments collected approximately a total of $237 billion in sales and use taxes in 1999, comprising 24.8% of all revenues generated that year.

  For many local governments, sales taxes are an essential source of revenue. Of the 25 largest cities that collect general sales taxes, four cities (Albuquerque, Denver, Oklahoma City, and Tucson) rely on them for over half of all tax revenues. Another seven cities (Austin, El Paso, Nashville-Davidson Metro area, New Orleans, Phoenix, San Antonio, and San Diego) rely on them for between thirty and fifty percent of tax revenues. (U.S. Census, Statistical Abstract of the United States: 1999, p. 334, ''City Governments—Revenue for Largest Cities: 1996'').

    These are huge numbers. For most of these cities (Albuquerque, Austin, Denver, Nashville-Davidson Metro area, New Orleans, New York, Oklahoma City, San Diego, and Tucson), the amount collected in general sales taxes exceeds the amount that they spend on police protection. (U.S. Census, Statistical Abstract of the United States: 1999, compare p. 334, ''City Governments—Revenue for Largest Cities: 1996'' to p. 335, ''City Governments—Expenditure and Debt for Largest Cities: 1996).
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    Sales taxes also are an important source of a city's local bonding capacity. Local governments use sales taxes to back bonds for many different purposes: local school district capital needs in Iowa and Louisiana, infrastructure in Texas and California, transportation in New York City, a jail in New Mexico, and municipal parking in Phoenix, for example. (Standard & Poor's CreditWeek Municipal, August 16, 1999, p. 10).

B. Localities And States Have Chosen Different Tax Systems That Reflect Local Traditions And Needs.

    The American federal system reflects democracy at its best. Localities and states choose the mix of taxes, and the level of taxes that best suits their preferences, traditions, and needs. Thousands of localities levy sales taxes while many others do not.

C. Local Governments Support Tax Fairness for Telecommunications Providers.

    Local governments call for tax ''fairness'' which asks each business to pay for its share of local government services in a manner that does not bias the competitive marketplace. Local governments support a tax system at all levels of government that treats competitors the same when they engage in the same activity. It is true that current utility taxes often apply to the Bell Operating Companies and other traditional telephone and cable television companies in ways that do not apply to new telecommunications providers. This needs to be fixed. We should make sure that taxes apply to all the competitors.

    Further, it is wrongheaded to assert that the tax rate for telecommunications providers must necessarily be same as the tax rate for other industries. This is a unique, community by community question. It is common, and appropriate, to ask that individual industries pay taxes that are related to the burden they place on the community's infrastructure and services. A software development company does not place the same demands on the sewers, roads, or police as a major heavy manufacturing facility. It is fallacious public policy to suggest that all businesses, necessarily, should have exactly the same tax burden.
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D. Local Governments Support Efficient Tax Administration—NOT Tax Eradication.

    Local governments are firmly committed to finding more efficient and fair ways to administer their taxes. This is NOT the same as adopting a single tax-rate statewide, or adopting uniformity, which ignores necessary local differences.

    It is self-evident that the business opportunity presented by access to mid-town Manhattan is different than by access to Sarasota Springs, NY. The tax rates in those two locations will—and must—be different. The cost of necessary municipal services in Manhattan is greater, just as the business opportunity is greater, than in Sarasota Springs. The tax system must produce the revenues needed to sustain the required LOCAL public services. Similarly, the difficulties of enforcement and auditing compliance are different in the two communities. One tax form will not fit all businesses and all circumstances.

VI. LOCAL GOVERNMENTS CONTINUE TO SUPPORT REASONABLE MANAGEMENT AND COMPENSATION FOR USE OF PUBLIC RIGHTS-OF-WAY.

    Public rights-of-way are the most precious property interests held by local governments. Of course the telecommunications providers want free use of our streets and highways. Similarly, the oil companies want free oil leases on federal lands. But free use means over-use. And the daily commuter, the abutting shop-owner, and water system user will pay dearly if the rights-of-way they all depend on are not managed to achieve the highest and best use for all. Every business should pay the fair costs of its impact on others: inspection and oversight fees; adverse impacts on other rights-of-way users; shortened road life due to cuts to road surfaces; and fair-market value for the public resource permanently occupied.
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    Mr. BARR. Thank you very much, Mr. Miller.

    The final witness we will hear from today is himself, as the other witnesses, a very distinguished expert in this area. It's Mr. Arthur Rosen, who is currently a partner in the New York City law firm in the New York City law office of the firm of McDermott, Will & Emery, where he chairs the firm's nationwide State and local tax practice. He has written and appeared widely in matters and cases involving telecommunications and tax policies, generally, both matters subject to the jurisdiction of this Subcommittee.

    Mr. Rosen, we're very happy to have you today and look forward to your testimony.

STATEMENT OF ARTHUR ROSEN, ESQ.,
McDERMOTT, WILL & EMERY

    Mr. ROSEN. Thank you, Mr. Chairman, Members of the Subcommittee. Thank you for this opportunity to give my comments on the bills before you today.

    I'm here today representing no interests in any industry or either side in the direct satellite business debate. I'm here based on my firm's over 50 years of work in the area of State and local taxes and my almost 30 years of practice solely in the area of State and local taxes.

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    It seems to me essential for Congress to enact one of the two bills or a similar bill to those under consideration today.

    Current law concerning where and when transaction or business activity taxes can be imposed with respect to direct-to-subscriber satellite service and on those who provide such services is totally unclear. In connection with transaction taxes, usually imposed as sales and use taxes, direct-to-subscriber satellite services may not be taxable or may be taxable, depending not only on the specific statutes that are in effect in every locality in every State, but also dependent on the radically different interpretations given by the courts or tribunals in each of those jurisdictions.

    As an added layer of complexity, the Supreme Court has told us that a State cannot impose a requirement on a seller to collect a sales tax unless that company has some unspecified amount of physical presence in the jurisdiction.

    In the context of business activity taxes—those are taxes that are directly imposed on businesses, such as income and franchise taxes—the nexus requirement is totally unknown. The tribunals around the country, the courts around the country, have made no definitive ruling, and their decisions so far are taking dramatically different approaches.

    Enactment of remedial legislation, such as those under consideration by Congress in H.R. 2526 that this Subcommittee reported out favorably in July, would greatly resolve this situation. Prior to that, it's important, I believe, that Congress look into situations in specific industries, especially those that are considered emerging businesses, such as under consideration today, and address those problems so those businesses are not overburdened.
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    From a business perspective, perfectly complying with the conflicting laws in thousands of jurisdictions is literally impossible, even for the largest of American businesses. Making matters worse are situations where a service business's customers travel; they're not stationary. When a business customer—when a business's customer is traveling through numerous jurisdictions who are receiving the service, there is absolutely no way the business can comply with each jurisdiction's tax laws.

    I developed the idea that was ultimately adopted in the Mobile Telecom Sourcing Act because the cellular industry came to me to find a solution to a very complex situation. For example, if a New Yorker who subscribed to a New York cellular telephone service was driving through New Jersey, Delaware, and Maryland while on a telephone call with someone who was driving through Michigan, Illinois, and Indiana, and the caller was using roaming providers in each of those transient States, how much tax was owed to each jurisdiction, and who owed the tax? There is absolutely no right and no clear answer.

    Trying to develop an algorithm to address this was beyond my intelligence. So seizing upon a concept adopted by the Supreme Court in Jefferson Lines v. Oklahoma, I took the simple, straightforward route of treating an entire month's cellular service as a single transaction, rather than analyzing each call or each minute of each call. Thus, consumers, service providers, and State and local governments are now able to administer an otherwise inadministerable tax in an efficient and smooth manner. The same complexities and solutions apply to direct-to-subscriber satellite service.

    An overarching concern in this area is the never-ending quest of State and local tax and revenue agencies to impose sales and use tax collection responsibilities and exposure, and direct taxes, on those who are outside its borders—good old-fashioned ''taxation without representation.'' It may be nice to dream of the States and localities being reasonable and cooperative in addressing such complex areas as direct-to-subscriber satellite service, but their insatiable desire for increased revenues seems always to prevail.
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    I urge this Subcommittee to favorably consider the two bills before it today.

    I would like to add three comments in response to a couple of comments that Mr. Miller made, if I could. One, from our perspective, the idea of federalism does not mean that States have all the rights. My understanding, from 1789, going back to the Constitution—the reason we have a Constitution, the reason we have a Commerce Clause, is so we could have interstate commerce not burdened by State action.

    And I think there are certain items that the Congress has decided, and the Supreme Court has agreed, that activities such as direct broadcast and activities that involve people traveling across States are perhaps the responsibility of Congress and the Federal Government. So this is an issue that should be resolved at the Federal level.

    Second, this bill would not deprive local governments of any money at all. The States will be given total freedom, total flexibility, to impose taxes they have now, to raise rates, and share that revenue in any way they deem appropriate with their localities.

    There would be no base erosion, either. Again, the State level could impose tax on anybody they want at any rate they want and share the revenue any way that the local governments and the States agree to do, utilizing the democratic representative process we have in this country.

    Thank you.
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    [The prepared statement of Mr. Rosen follows:]

PREPARED STATEMENT OF ARTHUR R. ROSEN

    Mr. Chairman, members of the Subcommittee, I thank you for this opportunity to offer my thoughts on H.R. 4869 and H.R. 5429. I am Arthur Rosen, a member of the law firm of McDermott, Will & Emery. Our firm has been deeply involved in state and local tax matters for over half a century and I have practiced solely in this area for almost 30 years.

    It seems to me that it is essential for Congress to enact H.R. 4869 or H.R. 5429, or other legislation incorporating similar principles, for several reasons.

    Current law concerning where and when transaction or business activity taxes can be imposed with respect to direct-to-subscriber satellite service and on those who provide such service is totally unclear. In connection with transaction taxes, usually imposed as sales and use taxes, direct-to-subscriber satellite services may or may not be taxable, depending not only on the specific statutes that are in effect in the thousands of taxing jurisdictions in the country, but also on the radically different interpretations given to those statutes by administrative tribunals and courts in those jurisdictions. As an added layer of complexity, the Supreme Court has told us that a state cannot require a seller to collect and remit any sales and use taxes that may, indeed, be due unless the seller has some unspecified amount of physical presence in the state.

    In the context of business activity taxes, or those taxes that are levied directly on the seller of services such as corporate income and franchise taxes, the nexus requirement for states and localities to have the jurisdiction to impose such taxes is an unknown. The Supreme Court has made no definitive ruling, the state tribunals and courts are taking dramatically different approaches, and Congress has yet to enact clarifying legislation, such as that represented by H.R. 2526. Enactment of remedial legislation such as that under consideration today is a step in the right direction, but the entire subject of when a state or local jurisdiction should be able to place a burden on interstate commerce—especially in the context of new and emerging businesses and technologies—warrants, I believe, your most comprehensive attention.
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    From a business perspective, perfectly complying with the conflicting laws in thousands of jurisdictions is literally impossible—even for the largest of American businesses. Making matters even worse are situations when a service business' customer may not be stationary; when a business' customer is travelling through numerous jurisdictions while receiving the service, there is absolutely no way the business can comply with each jurisdiction's tax laws.

    I developed the idea that was ultimately adopted in the Mobile Telecommunications Sourcing Act because the cellular telephone industry came to me to find a solution to a very complex situation. For example, if a New Yorker who subscribed to a New York cellular telephone service was driving through New Jersey, Delaware and Maryland while on a telephone call with someone who was driving through Michigan, Illinois, and Indiana, and the caller was actually using roaming carriers in each of the transient states, how much tax was owed to each jurisdiction, and by whom? There was absolutely no clear—or right—answer. Trying to develop an algorithm to address this was just beyond the scope of my intelligence. So, seizing upon a concept adopted by the Supreme Court in Jefferson Lines v. Oklahoma, I took the simple, straightforward route of treating an entire month's cellular service as a single transaction, rather than analyzing each call, or each minute of a call, separately. Thus, consumers, service providers, and state and local governments are now able to administer an otherwise unworkable tax in an efficient and smooth manner. The same complexities and solution apply to direct-to-subscriber satellite service.

    An overarching concern in this area is the never-ending quest of state and local tax and revenue agencies to impose sales and use tax collection responsibilities and exposure, and direct taxes, on those who are outside its borders—good, old-fashioned ''taxation without representation.'' It may be nice to dream of the states and localities being reasonable and cooperative in addressing such complex areas as direct-to-subscriber satellite service, but their insatiable desire for increased revenues seems always to prevail.
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    In conclusion, I urge this Subcommittee to exercise Congress' Commerce Clause authority—and responsibility—and favorably consider H.R. 4869 or H.R. 5429.

    Thank you.

    Mr. BARR. Thank you very much, Mr. Rosen.

    We'll now turn to questions from the Subcommittee, and I'd like to first recognize the distinguished Ranking Member, Mr. Watt, for any questions of the panel that he might have.

    Mr. WATT. Yes, Mr. Chairman. Unfortunately, I am in a real time bind, and I'm going to have to leave. So I'm not going to ask questions. I yield back, and if any occur to me later, maybe I'll submit them in writing.

    And I appreciate all of you gentlemen being here and participating today, and I'm happy I was at least able to stay and hear your oral testimony.

    Thank you.

    Mr. BARR. I thank you, Mr. Watt.

    If each of you gentlemen—if the two options before you, no other options, are simply H.R. 4869 or H.R. 5429, which is preferable and why?
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    And, Mr. Wright, if you could address that first, and then Mr. Miller and Mr. Rosen.

    Mr. WRIGHT. Well, Mr. Chairman, I think we would prefer slightly 5429, just simply because it enacts the policy—it extends the policy that Congress has already considered about how it's appropriate to tax a national satellite service, which has been so successful in DBS. It extends it to satellite radio, but it avoids some potential constitutional problems that the original legislation might have raised.

    So we think it's—we think 5429 is the cleanest, easiest, most straightforward way to do this. We would certainly be happy to continue to work with Mr. Davis, you know, to adapt the legislation. But we think that 5429 does the job and is the quickest, easiest route to the correct policy.

    Mr. BARR. Thank you.

    Mr. Miller, would you have a preference? Again, I know you don't like either of them, but simply in terms of helping us, as sort of a starting point for—or to address these issues and make any changes, is one of the two bills preferable to the other, as that starting point?

    Mr. MILLER. Mr. Chairman, it's a difficult question for me to respond to; 4869, in our view, is a much narrower exemption than the other bill, and so if we had to choose between disease and death, we choose disease. At the same time—and I think everybody on our side would concede that there is some merit to the radio.
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    The distinction between television broadcasting and radio broadcasting that seems to have been drawn by the FCC is something that should be—should and could be addressed, probably without legislation.

    But we are very concerned that the way the bills are drafted, they truly create a large loophole. And if I could point to the—I apologize—the bill number is not coming immediately to mind—the 5429 bill, in particular—it has a phrase in it that says that there'll be no taxation of programming transmitted by satellite directly to a satellite subscriber's receiving equipment, and then has a provision that exempts or treats as qualifying for the tax exemption any service that uses terrestrial repeater transmitters.

    That sounds to us like a SMATV operation, and let me describe what a SMATV operation is. It's an important and significant business that competes head-to-head with cable operators and brings significant competition to the marketplace and local government support. But it is an operator who comes to a large apartment-house owner and installs on the top of that apartment-house a satellite—a small cable head-in with a satellite dish.

    This language sounds like that service would be exempt from local sales taxes. That's the problem we have with this bill.

    The other bill, to the extent it is more carefully drafted to apply only to satellite radio services that are comparable to television services that are currently exempt, is more acceptable.

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    Mr. BARR. Thank you, Mr. Miller.

    Mr. Rosen?

    Mr. ROSEN. I have not spent time analyzing the substantive impact—differences between the two bills. From a technical or a technician's viewpoint, H.R. 5429, however, is much cleaner and much easier to follow and implement, I believe.

    And I would also like to make the same offer as Mr. Wright did, that as a citizen, I'll be more than happy to devote more time working with your sterling staff in working on cleaning up these bills.

    Mr. BARR. Thank you. We'll look forward to that.

    Mr. Miller, could you go into just a little more detail, not great detail, but a little more detail about what sort of taxes we're talking about here that would—that you believe would be problematic for local governments and the magnitude of those dollar figures?

    Mr. MILLER. Mr. Chairman, let me begin with a prefatory comment, because I agree with much of what Mr. Rosen said in terms of tax efficiency. I'd ask the Committee to keep clearly in mind the difference between tax—the efficiency of the collection process from the political decision of the tax burden.

    And one of the problems we have with these bills is they truly garble those two decisions by saying it's now up to the governor to decide what the tax will be that local governments will collect. It's one thing to tell the governor, once the local government chooses what the tax should be, the governor should collect it. But it's another thing to say it's the governor's decision what the tax should be, which is what both of these bills do that is, I think, fundamentally flawed, and that's the confusion between the two.
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    And I'd point to the tax efficiency side—as the Chairman has followed, I think, fairly closely the Internet tax debate, as it's developed, and the Internet tax exemption debate, there is now a major initiative that's been adopted—Mr. Rosen would know. I don't know the exact number—by 32 or 33 States?

    Mr. ROSEN. No one has adopted it yet, but there are 40 States working together to develop a streamlined system.

    Mr. MILLER. A streamlined system of sales tax collection for these new technologies that is really intended to address the kind of problem that Mr. Rosen's testimony goes to, which is when you have this—there's this issue of where's the nexus of the activity that the tax should apply to, and how do you distribute the taxes. The local governments, the League of Cities, the Conference of Mayors, the Association of Counties are deeply involved in those discussions and have been cooperative, I think, and supportive of a lot of that work.

    So that's a difficult, complicated problem. But it shouldn't be confused with providing tax exemptions for specific technologies that are trying to get a competitive edge on other technologies.

    Mr. BARR. Is it in the—in the scenario that we're discussing here, is it the governor who would decide that or the legislature?

    Mr. MILLER. Well, this puts to the State government the decision of what the tax would be. Both of the bills do.
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    Mr. BARR. And wouldn't it be fair to contemplate that—or anticipate that local governments would play a role in that process?

    Mr. MILLER. Yes.

    Mr. ROSEN. Under the current statutes, you're absolutely right, of course, that State statutes would have to be changed. So the senators and assemblymen from the State, representing all the localities, people in the localities, would have to make that change and could make that change in response. So it's not—an individual governor could not do that in any State.

    Mr. MILLER. Mr. Chairman, let me expand on my answer, though, for a second. I want to come back to the point of the importance of putting the decision—for the tax burden being tied to the decision for the services that the government's going to be delivering.

    My testimony lays out in some detail the amount of local government services that are currently dependent upon sales tax revenues. It is relatively easy—and the governor will remain unnamed, but use your imagination. It's relatively easy for a governor to favor reducing taxes for services the governor doesn't have to deliver. That's a different problem for the mayor, who has to deliver the services but no longer has control of the revenue base.

    And it's one thing when you ask an elected official to stand for election based on ''if you want me to do this, then I'm going to increase your taxes here.'' It's another thing to have a different elected official deal with the tax burden and that that's segregated and separated from the local official who has to decide——
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    Mr. BARR. Are we talking here about a reduction in an anticipated tax base or a reduction in an actual tax base?

    Mr. MILLER. I think both. Again, my testimony lays out the growth that has occurred in DBS and SMATV services, and it's grown significantly. Those are currently subject to local taxes in many places, and this bill would preempt those local taxes. We anticipate those services are going to continue to grow, so it's also a future revenue issue.

    Mr. ROSEN. May I make a few philosophical comments on federalism? It seems to me that to fortify and reinforce federalism, as Mr. Miller is describing it, this body of Congress should not be involved in or be concerned about the sharing of power between a local and State government.

    The local governments are—they exist through the State government, whether by—there are a few States that have constitutional provisions setting up cities, but, generally, it's done through laws in the States. And the fact that a State has decided to delegate certain service delivery responsibilities to local government, and they—that same State may decide to have the revenue raising at a different level. It should not be a concern, I believe, to Congress.

    Mr. BARR. Could a State currently do what these bills contemplate?

    Mr. ROSEN. Yes, a State could exempt the administration paying tax at the local level and say they must be paid at a State level, absolutely. That could be done on a State-by-State basis.
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    Mr. BARR. Unless there were some prohibition in a State constitution?

    Mr. ROSEN. Right. But in reality, we know that no two States would do it the same way.

    Mr. WRIGHT. Mr. Chairman, if I could say, you know, I think that the delivery of satellite consumer services is unique, in that what you're doing is you're sending down a signal all over the Country, and our companies don't have local representatives. There's very few services that are involved, because, as I say, it's a national service. People aren't dealing with local representatives. They're dialing the 800 number or, you know, they may be buying from a local retailer, but those taxes would be paid.

    We're not asking to be—we're not asking to get out of taxes. We're asking to get out of what Mr. Rosen described as a literally impossible compliance burden of trying to keep up with—and we don't have local representatives on the ground, so when local taxes are proposed, we don't have an opportunity to respond.

    So it's fairly easy to tax a national service if you're a local government who isn't delivering any services to that company.

    We don't have people on the ground to help us with the collection burdens, the filing burdens, the—you know, keeping up with all the paperwork that's involved. So Congress looked at this issue in 1996 and said, you know, the delivery of satellite services is unique, because it's a national service. It's not—doesn't have ties to the local community like, say, a local radio station or a local television station. So, therefore, in this case, we're going to move this—we're going to move the responsibility up one level to the State government, so that the companies only have to comply with 50 jurisdictions.
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    As Mr. Rosen also pointed out, the issue of nexus, the issue of whether or not a locality would have the right to tax the provision of this service—and let's be clear. It's the consumer who's paying this tax. This isn't a tax on XM and Sirius. It's a tax on the consumer. XM and Sirius are just simply going to be the tax collection agency. We're saying—so the question of nexus is a very complicated question that lawyers like these gentlemen could sit around and argue, I'm sure, for days.

    What we're saying here is, let's put that aside. We will admit, or we will concede, that the States have the right to tax us. Move this taxing authority to the States in a way that we can keep up with it, we can comply with it, in a way that we couldn't if we were facing 15,000 local taxing jurisdictions.

    Mr. BARR. Again, I go back to an earlier question. If we're talking about satellite radio, what taxes are we talking about that the consumer would have to pay?

    Mr. WRIGHT. Well, basically, it's a tax on the provision of the service, Mr. Chairman, like a sales tax, a tax on the service——

    Mr. BARR. On that box?

    Mr. WRIGHT. No, sir. The tax on—you would pay a tax on the box. If you bought the box, there'd be a sales tax. You'd pay that. This is a tax on the provision of the service. So, every month, they get a bill for $10. The locality would add, you know, 50 cents or a dollar to that, which XM and Sirius would then be required to collect.
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    Mr. BARR. Is the burden—would the burden be that impossible, since it's done by—presumably it could be done by computer as part of the billing process?

    Mr. WRIGHT. No, Mr. Chairman. Unfortunately, it's not quite that simple. I mean, obviously, the computer systems that these companies use could not handle—currently, they could not handle anything like that burden. There's also local filing requirements. Just keeping up with all of the various taxes that might be imposed, being able to have some input in the local community to what the tax would be; they have no local jurisdiction.

    You know, everything is always more complicated than just pushing a computer button. I mean, there's going to have to be—you're going to have to have accountants. You're going to have to have tax people who look at each of these, decide whether or not it's a legitimate tax, decide whether or not there's nexus, perhaps challenge that, keep up with all the various forms that have to be filed, keep up with the changes that would be imposed over the months as, you know, the rate changed.

    In a—for a national—for a local service, it's not that difficult. You're just dealing with one or two jurisdictions. For a national service, where you're trying to keep up with 15,000 jurisdictions, or some large number of those, it becomes just an administrative impossibility for our companies. They'd end up having nothing—no employees. They wouldn't be able to have the great disc jockeys that they have that do the great programming, because all their money would be tied up in accountants. And we'd end up with satellite radio being the same service, the same unacceptable service, that radio has become.
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    I mean, the advantage of satellite radio is that we have been able to focus in; we've been able to provide people with excitement in radio that people haven't had for years. And, you know, we don't want to turn our companies into just nests of accountants and tax lawyers.

    Mr. MILLER. Mr. Chairman, may I add a comment? From the local government standpoint, we would distinguish a de minimis presence in the market from a substantial presence in the market in terms of the relative burden of administering and paying your taxes. There are many national corporations that have a presence in thousands of local jurisdictions that find it a burden but, nevertheless, comply with the local sales taxes. Home Depot is a good example, or Wal-Mart is another good example. It's a terrific burden on those companies to pay local sales taxes. There's no question about that. But as a relative percentage of their overall business, that administrative burden is not significant.

    It's another thing—and one of the reasons why local governments in '96 were not inflamed by the DBS satellite exemption was a recognition that DBS was a relatively small, infant industry. And it was a significant problem to say you've got to, right out of the box, have a nationally compliant sales tax organization when you may only have two or three subscribers in a particular jurisdiction. But that's not where DBS is today.

    In 1997, direct broadcast satellite had 5 million customers. Now they have 16 million customers nationwide, and that's to be compared to the cable television industry itself, which has only 69 million. In other words, this is no longer an infant industry that needs to be sheltered from the tax system.
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    You can have a separate argument about whether it's good tax policy to exclude them and to continue to give them the benefit. But the idea that this administrative burden is overwhelming for them just doesn't hold up in light of the—both the computer technology that's currently available, the services that are out there that are willing to bring you into compliance with the local sales tax, and the evidence from other industries.

    Mr. WRIGHT. Mr. Chairman?

    Mr. ROSEN. Mr. Chairman, one comment on the last two comments, if I may. Mr. Wright was talking about the complexities, and I think there was one thing he failed to mention that exacerbates exponentially maybe those complexities—is the fact that the service is not delivered to one point. If it's in a vehicle that is mobile, you don't know which jurisdiction should get the tax. Where is that service actually being received at any 1 minute? So that can't be administered. An example of a brick-and-mortar——

    Mr. BARR. Doesn't the bill have to be sent to a location?

    Mr. ROSEN. Under current law, that's irrelevant for direct-to-subscriber satellite service. The State law would prevail, because there's no Federal law that has any effect on it. So under local law, it's where a service is provided, and that's why it is so complex. It's not where you get a bill.

    This bill—these two bills before you would do that, would say it's where the bill is delivered. But without this law, it's wherever you happen to receive it. In the example of the brick-and-mortar retailers, Wal-Mart, they don't have that much complexity——
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    Mr. BARR. But couldn't we provide in legislation, if it's not the exact language in one of these two bills, some mechanism for identifying with some certainty where that location would be?

    Mr. ROSEN. Well, that's what mobile telecom sourcing did, and that was a good model. But now, in a year—it's been developed, and now it's adopted by all the States except for one. People have seen there's new complexities with primary place of usage within a State, because is it really that somebody primarily use it at their home? Do they really use it at their office? Is it in between? So even—that's not that clear within a State, whereas within a State, it's clear where somebody is, and you have revenue-sharing possibilities a State can enact so there wouldn't be any harm to localities at all.

    Mr. BARR. It makes it sound pretty simple, Mr. Miller.

    Mr. MILLER. Someone once said, Mr. Chairman, you can have a fair tax code, or you can have a simple tax code. It's difficult to do them both.

    The mobile sourcing—local government supports the concept of developing efficient ways of allocating nexus and simplifying the decision about nexus as to where the tax burden falls and who's responsible for paying it. And we're perfectly willing to work with the industry on that and bring proposals to the Committee if the Committee is interested in looking at that issue further.

    As I say, our concern is not confusing that issue with the issue of the tax burden itself and who is the appropriate level of—which is the appropriate level of government to decide what the tax burden should be.
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    Mr. BARR. For the record, I disagree that you can't have a fair tax system that's simple. The national sales tax or a flat tax, I think, would be very fair and much simpler. [Laughter.]

    Mr. MILLER. I understand.

    Mr. BARR. Mr. Wright, you have the last word.

    Mr. WRIGHT. Thank you, Mr. Chairman. I think Mr. Miller has admitted my case here, which is this is an infant industry. We have 200,000 subscribers. Neither of these companies is going to be profitable until they reach something like 3 to 5 million subscribers. And so you're talking about an infant industry that's just getting started.

    Clearly—and I think Mr. Miller has admitted this. Clearly, the administrative burden of an industry of that size trying to keep up with and deal with the administrative burden that 15,000 taxing jurisdictions could place on it could significantly slow the development of this industry. And so what we're asking for—what this bill asks for, what Mr. Davis is asking for, what we're asking for, is simply giving us the opportunity to do our business, grow our business, and having the advantage of not having to deal with this burden would be a tremendous help to us.

    Mr. BARR. Thank you very much, Mr. Wright, Mr. Miller, and Mr. Rosen for very, very enlightening testimony today. We appreciate your patience, not only in our lateness in getting started because of the floor votes, but also your patience in, you know, responding to the questions and getting on the record here something that's very helpful to me and I know other Members of the Subcommittee and the full Committee, some very worthwhile testimony, much of it in very simple, understandable terms, which we appreciate, given the fact, especially, that these are very complex issues. And this will help us in our deliberations and I know the deliberations of other Members as we move through resolution of this through this or perhaps other legislation.
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    Thank you all very much for taking the time to prepare for the hearing today and to be responsive. And, again, if you all have any additional material that you think would be helpful to the Subcommittee as part of the record in this case, the record will remain open for 5 days—7 days, 7 days. So please submit it within that time. And if there are any additional questions that Members of the Subcommittee might have, we'd appreciate your responsiveness to those questions should they write them to you.

    Thank you, gentlemen, very much.

    [Whereupon, at 1:44 p.m., the Subcommittee was adjourned.]

A P P E N D I X

Material Submitted for the Hearing Record

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RESPONSES TO ADDITIONAL QUESTIONS FROM ANDREW WRIGHT

1. Following the passage of the Telecommunications Act of 1996, the Subcommittee held a hearing on whether to extend the local tax exemption for DTH satellite services to wireless cable services. If we enact legislation for direct-to-subscriber satellite services, would that definition, in your opinion, encompass wireless cable? If not, should we consider doing so? Would H.R. 5429, in your opinion encompass other technologies, such as SMATV and Blackberry? Should a local tax exemption be extended to these technologies?
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    The definition for direct-to-subscriber satellite services does not encompass wireless cable, which is a terrestrial service regulated under a different section of the communications regulations.

    H.R. 5429 will not encompass technologies that are not satellite services, such as SMATV and Blackberry.

    SBCA has no opinion on whether local tax exemption should apply to terrestrial technologies.

2. Regardless of the current state of affairs with respect to traditional broadcasters, do you view them ultimately as partners in the growing of the satellite radio industry? Do you foresee, for example, licensing arrangements whereby broadcast stations would be carried over satellite services on a large scale?

    Actually, SBCA's satellite radio members have a good relationship with broadcasters. It is the National Association of Broadcasters (NAB) that is concerned about a narrow issue of whether satellite radio providers will use their terrestrial repeaters to transmit something other than what is transmitted over the satellites. This issue was resolved in 1997, when the FCC proposed rules limiting DARS repeaters to only transmit the signal from the satellite. Some of the satellite radio companies' owners and providers of third party programming are also broadcasters.

    The satellite radio providers do not envision carrying broadcast stations on a large scale. Terrestrial broadcasting's focus is local, and satellite radio's is national. Additionally, most of programming is genre specific, whereas terrestrial broadcasting station appeals to a wider local audience.
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3. Have any localities sought to tax the services provided by your members? Does it appear they will?

    Yes, they have.

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(Footnote 1 return)
In re Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Eighth Annual Report, 17 FCC Rcd. 1244 57 (2002)(''8th Rept.'').


(Footnote 2 return)
Section 602(a) prohibits local taxation of direct-to-home satellite service. Section 602(b)(1) defines ''direct-to-home satellite service'' to mean:


(Footnote 3 return)
Most DBS providers offer Internet access using a terrestrial DSL up-link to the Internet and a satellite download. This type of Internet access service would not likely fall within the definition of direct-to-subscriber satellite service.


(Footnote 4 return)
Wireless terrestrial service typically uses fiber to transport a signal to a microwave where it is sent to the user, sent back via microwave and then transported via fiber. Examples include analog cellular, digital PCS, Palm Pilots, fixed wireless providers such as Teligent and WinStar.