Dormant Commerce Clause debated in Florida discriminatory sales tax case

by Skip Oliva July 22, 2015

commerce clause

commerce clause

FloridaThe war between cable and satellite television providers recently had a battle on the sales tax front. On June 11, a Florida appeals court held the state’s sales tax regime – which imposes a higher rate on satellite providers – violated the United States Constitution’s Commerce Clause. While the court’s decision is unlikely to be the final word on the subject, it nonetheless represents an important victory for satellite providers and their customers.

DirecTV, Inc. v. State of Florida

Prior to 2001, Florida imposed a uniform sales tax rate of 6% on all cable and satellite television commerce clausepurchases. The Florida legislature subsequently adopted a new scheme which resulted in a significantly higher increase for satellite than cable. As of 2015, the tax on cable service in Florida is 6.65%, while it is a whopping 10.8% on satellite television.

Understandably, the satellite companies and their customers object to this state of affairs. Two lawsuits were filed challenging the constitutionality of the discriminatory tax rules. A trial judge sided with the State of Florida and its Department of Revenue, holding the higher satellite rates were constitutional. The plaintiffs then appealed to the Florida’s First District Court of Appeal in Tallahassee.

A divided three-judge panel reversed the trial court and ordered judgment for the satellite companies and their customers. Chief Judge L. Clayton Roberts, writing for the majority, said Florida’s tax regime violates what is known as the “dormant Commerce Clause.” The Commerce Clause gives Congress the exclusive authority to regulate interstate and foreign commerce. The dormant Commerce Clause refers to the judiciary’s longstanding practice of interpreting this to mean individual states may not discriminate against out-of-state businesses in an effort to aid local “economic interests.” The discrimination need not be intentional; a court may hold a policy unconstitutional if it produces a discriminatory effect.

“Here,” Roberts said, “the sales tax [] is discriminatory in effect because it affects similarly-situated entities, cable and satellite companies, by imposing a disproportionate burden on satellite service and conferring an advantage upon cable services, which use in-state infrastructure.”

The state argued its policies were not discriminatory because cable providers were still subject to local sales taxes, which in some counties meant the rates paid by each were roughly equal. (Federal law exempts satellite providers from local taxes.) Roberts said “this method of attaining a semblance of equality is untenable,” because there was nothing to prevent counties from eliminating their local tax in the future.

Judge Simone Marstiller dissented from the majority’s opinion. She argued the dormant Commerce Clause did not apply here, because the satellite providers were not really out-of-state businesses. She noted the satellite companies have employees and contractors in Florida, and while the cable providers – none of whom are actually based in Florida – may rely more on such “in-state infrastructure,” that does not mean the state’s tax rules unfairly discriminate in favor of “in-state economic interests.”

Marstiller’s dissent is no doubt encouraging to state tax officials, who have already appealed Roberts’ decision to the Florida Supreme Court.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info

Skip Oliva
Skip Oliva


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