State Efforts to Achieve Parity: Giving consumers a tax & fee neutral choice among video service providers Mark A. Schichtel SVP & Chief Tax Officer Time Warner Cable

3 Video Services Fairness/Level Playing Field Functionally similar video services (cable and direct broadcast satellite (DBS)) should be subject to similar taxes & fees Consumers should have a tax & fee neutral choice of video service Cable customers should not be penalized Governments should not pick winners and losers in the marketplace Due to federal preemption of local (not state) taxes & fees, DBS has an unfair pricing advantage, which typically amounts to 8-9% of a subscriber’s bill –No local sales taxes, typically 3-4% (in CA as high as 11%) –No local franchise fees, typically up to 5% 12 states have enacted some form of video parity legislation –CT, DE, FL, KY, MA, NC, OH, RI, TN, UT, VA & WA –AL and IN have passed study bills –CA has a bill pending

4 Judicial Affirmances of Video Parity Legislation DBS providers DirecTV & Dish have challenged parity statutes in 7 states, asserting that they violate Equal Protection and constitute discrimination under the dormant Commerce Clause: –FL, OH, KY, MA, NC, TN & UT All final decisions have rejected these challenges, including the 6th Circuit (KY statute; cert. denied), 4 th Circuit (NC statute), Ohio S.Ct. and NC Ct. App. –Courts have noted that cable and DBS providers both are interstate companies with substantial in-state presence: DBS providers own and rent satellite dishes and converter boxes to customers and lease capacity on fiber and cables lines to retransmit local affiliate stations DBS has local independent contractors and trucks that serve their customers –DBS’ attempt to expand the dormant Commerce Clause to embrace a relative weighing of in-state presence has been soundly rejected In all cases, state level imposed and administered parity has been upheld under §602 of the 1996 Telecom Act. §602 was intended to provide a then fledging industry with administrative relief from complying with thousands of local tax statutes, while preserving the rights of States to impose taxes and fees on DBS and to share such funds (if they desire) with local taxing authorities.

5 Section 602 Preemption & State Authority Preemption of local taxation with respect to direct-to-home services. Act Feb. 8, 1996, P.L , Title VI, § 602, 110 Stat. 144, provides:P.L Stat. 144 (a) Preemption. A provider of direct-to-home satellite service shall be exempt from the collection or remittance, or both, of any tax or fee imposed by any local taxing jurisdiction on direct-to-home satellite service. (c) Preservation of State authority. This section shall not be construed to prevent taxation of a provider of direct-to-home satellite service by a State or to prevent a local taxing jurisdiction from receiving revenue derived from a tax or fee imposed and collected by a State.