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Reform, Don’t Raise, Taxes on Overburdened Consumers!
An Open Letter To the Alabama State Legislature

October 12, 2011

Dear Legislator:

On behalf of the National Taxpayers Union’s 4,000 members in Alabama, I urge you to oppose any new or heavier tax burdens that might result from the recommendations of the Alabama Video Tax and Fee Study Committee. While most would agree that Alabama’s video tax regime should be modernized, such an effort should not serve as a pretext for raising revenue or discriminating against a particular industry. Government has for too long stretched its tax and regulatory powers to pick winners, ultimately leaving consumers as the ultimate losers.

SJR 97, the Study Committee’s authorizing resolution, gives the distinct impression it may not focus solely on reducing burdens facing cable customers, but might instead seek to place new taxes on satellite television. Statements such as “at least 10 states have enacted legislation that would close the loophole created by the federal government and create tax and fee parity among subscription video service providers and users,” do not reflect a prudent approach to changing existing law or respecting the diversity of business models in the video services industry.

A tax on satellite television would punish over 700,000 Alabama households simply for choosing satellite over other types of service. Furthermore, satellite television can be the only option for Alabama families who live in the rural parts of the state where cable and broadcast services are not readily available.

Misguided arguments about “closing loopholes” aside, each provider’s unique mode of business entails certain specific costs as a precondition of delivering their service. Cable television service is subject to “franchise fees” paid in exchange for public rights-of-way to lay cable. This cost is mirrored by satellite providers’ need to competitively bid for the use of federally owned spectrum and launch spacecraft to transmit their signals. 

Unfortunately, local cable franchise fees are often excessive, with some experts estimating that as little as 10 percent of proceeds go toward maintaining public property while the other 90 percent props up bloated municipal budgets. There is little justification, other than pumping up tax revenues, for charging such franchise fees as a percentage of sales rather than, for example, as flat per-line maintenance fees. NTU is committed to providing fee relief and will readily work with the State of Alabama and local governments to review these policies, but they cannot be used as a justification for imposing discriminatory statewide taxes on customers of other services in the name of a distorted attempt at “fairness”.

Such situations are precisely why Alabama’s leaders should look to systemic reforms that provide relief, not added expenses, to consumers. Telecommunications are a key element in restoring a vigorous economy, and should not be held hostage to revenue-raising ambitions.


Brent Mead
State Government Affairs Manager