Florida District Court of Appeal Determines Violation of Commerce Clause for In-State and Out-of-State Communication Services
On June 11, 2015, the District Court of Appeal of Florida determined that section 202.12(1) of the Florida Statute is unconstitutional and violates the Commerce Clause as it imposes a higher tax rate on satellite services than on cable services. This discriminates against interstate commerce in both effect and purpose.
The trial court had previously determined that satellite and cable companies are different entities. This takes out the applicability of the Commerce Clause because the Commerce Clause has to deal with the equal treatment between similarly-situated entities. However, the District Court of Appeals determined that cable and satellite companies provided multichannel television programming to Florida subscribers. Therefore, they operate in the same market and are direct competitors within the market. The mere differences in development of technology, local infrastructure, and additional services are not enough to overcome the fact that the companies compete in the same market with virtually the same products.
Originally the trial court had held in 2005 that the code section does not violate the Commerce Clause because it does not benefit in-state economic interests or similarly-situated entities. However, the District Court of Appeal of Florida determined that the statute was discriminatory against out-of-state interests by discriminating in its practical effect. This means that the section was imposing inconsistent burdens on out-of-state interests and conferring advantages upon in-state interests. The sales tax portion is discriminatory in effect because it affects similarly-situated entities by imposing a disproportionate burden on the satellite service and gave an advantage to the cable services which used an in-state infrastructure.
The District Court of Appeals ultimately determined based on the facts that the satellite services tax rate of 10.8% and the cable service tax rate of 6.8% are unconstitutional due to the violation of the Commerce Clause by discriminating between similarity-situated business entities.
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