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Cable tax draws threat of lawsuit
"Welcome to Court TV.Northland Cable Television is threatening to sue the city, hoping to overturn a 6 percent utility excise tax that went into effect last month.It's not right, it's not fair, and we'll fight it, said Marit Saltrones, manager of Northland's Bainbridge Island office.Our customers should not have to make up revenue lost to the car tab initiative (I-695). It's ludicrous.Northland sent out a mailing to customers late last week, informing them of the company's intent to fight the tax that has tacked an average of $2.40 onto local cable bills. Since then, Saltrones said, her phone has been ringing off the hook with supportive subscribers.The 6 percent excise tax was one of a number of new revenue sources tapped by the city council in response to I-695 budget shortfalls. Excise taxes on local phone and power utilities were raised from 4 percent to 6 percent, the last step in a graduated increase that began in 1997.At issue now is a clause in Northland's franchise agreement with the city, as is the validity of the agreement itself.The franchise agreement - which allows Northland to operate on the island and run its lines along public rights of way - dates back to 1970, before most people had even heard of cable television. George Gregg founded the island's first system, which was sold to the Seattle-based Northland company in 1983.The original agreement allowed the holder to renew the agreement at the end of 25 years, which Saltrones maintains Northland did in 1996.Under the agreement, Northland has been obligated to pay the city a franchise fee equal to 5 percent of gross revenues, excluding money coming from hookup fees.The agreement states that the fee will be in lieu of any business-and-occupation tax, or other tax on the company's revenues.But local officials contend that the franchise agreement is no longer valid, and that even if it were, Northland has been ignoring the parts it doesn't like.I think it would be interesting (if Northland filed suit), said city Administrator Lynn Nordby, because the first thing we'd introduce is, we don't think we have an agreement.Agreement or no, Northland last year paid the city about $102,000 in franchise fees, a figure projected to hit about $100,000 this year.But several city officials and council members believe the company is shortchanging the city, paying the 5 percent franchise tax only on revenues earned through cable subscriptions - and not on revenues from such new services as cable Internet access. The amount collected could be doubled by inclusion of all Northland revenues, city officials estimate.The agreement clearly says they have to pay us on their gross revenue, Nordby said. (But) they want to pick and choose what they follow.Saltrones said that the fee is calculated based on historical and industry-wide standards.The failure to hammer out a new agreement, or amendments to the last one, breaks down into a he said/she said dispute. Saltrones says Northland has made several attempts to amend the franchise agreement, only to be ignored by the city. Nordby says the city's attempts at dialog have been ignored by Northland.Now the council is pursuing an agreement with an independent consultant to draft a new franchise agreement to present to Northland. Nordby said such an agreement could include performance standards and monetary penalties, to ensure that the company maintains acceptable service and fair pricing.Without such an agreement, customers effectively have no redress, as cable companies are not regulated by the Washington Utilities and Transportation Commission.I get complaints fairly regularly, Nordby said, and all can say is, 'call (Northland) - I can't do anything for you.'The threat of a lawsuit, he said, is deliberately commingled with mention of I-695 to ignite protest against the excise tax.They're throwing in another political twist here, and trying to get consumers lobbying in their behalf, Nordby said.Northland provides cable service to about 4,200 customers.The company also runs local systems in Texas, California and Idaho, with about 350,000 customers nationwide.Cable service varies by tier, or number of channels provided. The average subscriber pays $40 per month, to which the tax would add $2.40. This week, Saltrones was frank in saying that the tax is being passed on directly to subscribers.No business does business without passing their expenses on to the customer, she said Monday.If the company is successful in getting the tax overturned, all monies collected will be returned to subscribers, she said.I don't want my taxes going for litigation, and I don't want my resources here going for litigation, Saltrones said.We don't want to (file suit), but we feel strongly about it, and we will."